Tightening liquidity and an immovable Expo 2020 deadline mean Dubais leading clients will fund projects differently and start changing the way they procure construction services, says the head of one of the emirates largest contracting companies.
The oil price has fallen through the floor, so the amount of money and funding available is different to what it was a year and a half ago, but the desire to complete schemes is still there, says Colin Timmons, CEO of Al-Naboodah Contracting Group. [Clients] have to build. So how will they build? They are in a different position now and have to decide how to fund and build these projects.
Colin Timmons, Al-Naboodah Contracting Group
As different funding models are considered, clients will start to move away from the traditional process of tendering for fixed-price lump sum contracts. People are looking at different models of funding, where a contractor buys into the process from day one, says Timmons. The next logical step is two-stage tendering, guaranteed maximum price, and design-and-build. There will be more creative ways of delivering schemes.
Timmons argues that alternative procurement strategies will help mitigate many of the problems construction projects currently encounter. The traditional way is to get it drawn and then built; this is slow and cumbersome and ends up in a fight anyway because the job has been given to the cheapest contractor that does not have the resource, cannot provide a bond and cannot get labour, he says. That is what is going on in the market today.
Unlike 2007 and 2008, when the adoption of alternative procurement models came with a sharp increase in construction costs, Timmons does not expect contractors prices to rise significantly. I do not think you will see a spike in pricing because pricing comes from commodity prices for items such as aggregate and steel, so our pricing will be based on how base costs fluctuate, he says.
Instead of aiming for bumper margins, Timmons says contractors should focus on having a long-term order book. People have to understand that the halcyon days are gone and it is better getting guaranteed income at a slightly lower margin that is less risky and where you know the client is going to pay, he says. You are not putting your company at risk, he says. [The number of] our 14,500 [labourers] can go up and down depending on work load, so Id much rather take on work for a slightly lesser margin I dont mean go and work for nothing but work for a steady margin and not have to lose labour and bring them back in six months. That is the steady cycle that a contractor wants.