There should be little cause for gloom and doom in the construction sector. Bids have been invited for the $500 million Abu Dhabi grand mosque and the $500 million Dubai airport expansion is expected this year. Although the most recent boom period peaked about 18 months ago, there is still enough work around to keep most contractors’ order books busy even if consultants are starting to feel the pinch.
The problem lies in the intensity of competition for the work available. This affects both consultants and contractors and is encouraged by clients who are keen on greater accountability and cost cutting wherever possible. But knowledge of this does not actually seem to deter newcomers: regular visitors continue to find government offices strewn with brochures from foreign companies trying to get into the market.
‘Construction activity is not down dramatically, but more and more companies are coming in, especially European companies who have been working in Oman or Saudi Arabia where things have slowed down quite a lot,’ says one well-established European contractor. As bid prices come down there is the inevitable squeeze on profit margins.
Cited as an example is the Zakum Development Company (Zadco) and the Abu Dhabi Gas Industries Company (Gasco) new Dh 300 million head office in Abu Dhabi, for which technical bids are due in late May and commercial bids in late June. ‘There are 14 companies on the short list and all are expected to bid. In the past there would have been about 10 on the list and two or three would decline,’ laments one bidder.
‘The days of wine and roses are long gone,’ says an Abu Dhabi-based UK consultant. ‘Nowadays we have general belt-tightening all round and far more accountability. In the past they were tendering a different contract every two weeks; now they are drip fed to improve cash flow and to give contractors a chance to catch their breath. But it makes things more difficult for consultants.’
While Dubai municipality is reported to be a prompt payer once all the paperwork is in order, a more worrying development is affecting consultants and contractors alike in Abu Dhabi. A slowdown in payments from the municipality and Public Works Department, as well as Al-Ain municipality, is causing much anguish. As a result of the delays, the payment of salaries and labourers’ wages is being delayed, for significant periods in some cases, as companies try to make ends meet.
The reason for the delay, contractors say, is that every payment is being checked meticulously as if it were the final payment on a contract. ‘The authorities are concerned that they are being robbed by one or two unscrupulous consultants and contractors who are arranging payments amongst themselves for their own benefit. They are looking at things like payments for claims agreed on site and for any changes in specifications,’ says one Abu Dhabi- based engineer.
‘There is a bit of a witch-hunt going on at the moment,’ says another contractor. ‘All departments are being very slow in paying which is causing companies a great deal of concern. ‘
While contractors hope this is only a temporary difficulty, they expect the problem of too many bidders chasing too few contracts to persist. Also likely to persist are the loss-making low bids from companies that are desperate to win work. The collapse of the Dubai-based Bartawi group in March may serve as a timely reminder that there is a limit to the number of contracts that can be won on unrealistic offers.
More than ever, UAE-based foreign contractors take care to study the bid list. ‘We stop tendering for projects when there are too many local contractors on the list,’ says one European contractor. ‘They come up with prices that are 30 per cent lower than we can offer and afterwards just change the specifications.’
Despite the squeals of pain from contractors who remember the more profitable times in the past, the outlook is not too grim. There is more of a slowdown in Dubai where a lot of the work is derived from the quasi-private money invested by the shaikhs and shaikhas in high-quality office and residential buildings. Tourism is providing a mini-boom with five new developments planned along Jumairah beach where the biggest project is the estimated Dh 500 million Chicago Beach development (see page 37). And, there is hope for the future with the expansion of Dubai international airport, designed by the US’ Bechtel and with bid invitations expected in 1996.
Road projects in Dubai and Abu Dhabi are largely complete or in the final construction stage. However, there are some problems in Abu Dhabi, where a number of big projects, particularly in the Western region, were tendered some 18 months ago and then scrapped. ‘They are all contracts that are not essential because usually there is something there already which will do,’ says one road contractor. ‘Other projects like the Liwa villages contract two which was tendered a year ago are currently being retendered with the scope of work reduced by half.’
The new housing developments on the outer edge of Abu Dhabi are interfering with some highway designs. The Shahama interchange, designed by the UK’s Halcrow International Partnership, has had to be expanded, resulting in considerable delays. And phase three of the contract to upgrade the Abu Dhabi to Dubai highway from Shahama to Samha, for which bids were due in March, was suspended pending modification to the design of the interchange in that section.
‘Basically most of the roads are already there. The main arteries are finished, the town roads are largely complete. They just pick out the jobs they want to do, usually ones that the higher authorities have an interest in, and then there’s a mad panic to get them finished,’ says another road contractor.
Along with the Zadco/Gasco project, the various energy companies are keeping contractors busy with their requirements for new headquarters on Abu Dhabi corniche. Belgium’s Six Construct is building a new Dh 262 million shared headquarters for Abu Dhabi Marine Operating Company (Adma- Opco) and Abu Dhabi Gas Liquefaction Company (Adgas); the Abu Dhabi Company for Onshore Oil Operations (Adco) is close to making an award for its new Dh 150 million head office. And, Abu Dhabi National Oil Company is retendering the contract for the refurbishment and extension to its corniche- based head office.
Also in Abu Dhabi, there are still plenty of old buildings to raze and replace, ensuring continuity of work at the lower end of the market. Says one contractor, commenting on the slowdown in the emirate: ‘Two years ago they were knocking down five or six old buildings at any given time, nowadays it is only one or two.’ There is no lack of scope for new work but less hope that it will be released soon.