Louvre snub low point for construction industry

12 July 2012

Abu Dhabi is a buyers’ market and long-term relations with contractors are now of little value to clients

The Tourism Development & Investment Company’s (TDIC) decision to not prequalify two contracting groups for the contract to build the Louvre Museum in Abu Dhabi shows how the relationship between clients and contractors in Abu Dhabi has turned full circle since the market peaked in 2008.

The exact reasons for excluding the joint venture of the local/Australian Al-Habtoor Leighton Group and South Africa’s Murray & Roberts Contractors (Middle East) and Canada’s Brookfield Multiplex are hard to explain. The two groups were shortlisted for the contract last year and were deemed to be technically able and financially secure to take the job on. What the move does demonstrate is that Abu Dhabi is a buyers’ market and long-term relationships with contractors are of little value to clients who are becoming increasingly obsessed with costs.

The situation today is a far cry from 2008 when an overheated market meant suppliers could effectively dictate prices. For contractors, the high point of the relationship with clients came when the UK’s Laing O’Rourke formed a joint venture with the local Aldar Properties for the construction of the $14bn Raha Beach development. The landmark deal led to partnering agreements between clients and contractors, including TDIC, which formed an alliance with Al-Habtoor Leighton.

Those halcyon days came to abrupt end at the end of 2008, and by early 2009, clients in Abu Dhabi had returned to more traditional procurement methods, namely competitive tendering for fixed price lump-sum contracts.

Contractors will be hoping that the Louvre prequalification is the low point for the industry, and if and when the market picks up, relationships with clients improve. Until that happens, Abu Dhabi will remain a buyers’ market, and that means tough times for sellers.

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