Winning work in the Gulf is not easy is for contractors. Governments and real estate developers have put many developments on hold, and with few projects moving forward, there is simply not enough work to go around.
To make matters worse, for the projects that are going ahead, the pricing is extremely competitive. The margins have been squeezed so tight that companies now complain that winning bidders are winning work at cost, or in extreme cases, below cost.
Cutting costs while a project is under construction means poor quality construction
This leaves contractors with a choice of either stopping bidding for contracts and looking for work elsewhere, or taking on new work and run the risk of losing money.
While the contractor should be well aware of the risks involved, the client is often unaware of the problems that cut-throat pricing might create for a project in the long term.
If a contractor is losing money on a project, it can either raise the top line and get more money from the client, or lower the bottom line and reduce costs. Getting more money from the client means claims, and although claims are often the norm rather than the exception on projects, they are something that clients and contractors should try to avoid rather than encourage.
Cutting costs should be more of a concern to clients. Value engineering exercises before a job starts may be able to reduce costs without negatively impacting on the finished product, but more often than not cutting costs while a project is under construction means poor quality construction. In such a market, there is the risk of project failures where the firm building them lose money and end up handing over a substandard finished product.
After one year of competitive bidding, some contractors have decided they are not prepared to take these risks and have started to wind down operations in the Gulf in the hope of better opportunities and margins further afield.