Mac Construction

09 October 2003

MAC: Taking a multi-disciplinary approach

Established in Beirut in the early 1960s, MAC Construction began operations as a contractor for small industrial steam plants in Lebanon. The company’s first major success was the turnkey completion of a steam power plant in association with the US’ Babcock & Wilcox in 1964. But the volume of work available in Lebanon soon proved insufficient for MAC’s ambitions. Five years later, the company decided to search for new business opportunities in Saudi Arabia.

‘We were like nomads, following the projects rather than saying we wanted to grow in a particular area,’ says managing director Fouad Malouf. ‘After we started doing work in Saudi Arabia and completed the Al-Khobar 1 [desalination] project, other jobs just followed and we decided to establish a base here. After 34 years of being present in the kingdom, we consider ourselves a Saudi company.’

The move from Beirut to Al-Khobar in Saudi Arabia’s Eastern Province in 1969 might have changed the company’s base, but it did not affect MAC’s strategy. Malouf says that over the years, the company has stuck to the philosophy of maintaining a broad skills base, enabling MAC to work on a wide range of projects as both lump-sum turnkey (LSTK) contractor and local partner to international engineering, procurement and construction (EPC) contractors.

Says Malouf: ‘We have become a company with multi-disciplinary skills and as such we can build gas, power and desalination plants, and sewage treatment plants. We carry out electrical, civil and mechanical work and have also done cement expansion projects, worked on the MTBE [methyl tertiary butyl ether] 1 and 2 projects for Ibn Zahr [Saudi European Petrochemical Company]. We have worked for Saudi Iron & Steel Company [Hadeed] and Saudi Industrial & Mining Company [Maaden]. With this background, we are able to do any type of job. The only thing we do not become involved in is pipe and road work.’

In line with the company’s strategy, the bulk of the work is being carried out by MAC’s in-house staff at its Al-Khobar headquarters and the Riyadh and Jeddah offices, where the company employs about 1,690 engineers, technicians and construction staff. Regional offices have been set up in Abu Dhabi and Beirut, with international offices in the UK and US providing support to regional operations from London and Bellville, New Jersey.

The successful completion in 1971 of the Al-Khobar 1 desalination plant in the Eastern Province was a breakthrough for MAC in the Saudi market. The company had defeated several competitors to become the main subcontractor on the project, although MAC had no desalination experience. MAC’s client was the US’ Aqua-Chem, which had been appointed as main contractor by the Saline Water Conversion Corporation (SWCC).

‘Winning this contract showed us that our philosophy of aiming to be able to handle multi-disciplinary work was paying off,’ says Malouf.

As with almost all contractors in the kingdom, Saudi Aramco and Saudi Basic Industries Corporation (Sabic) have been a main source of project work for MAC. In 1974, the company established a working relationship with Aramco when it won and successfully completed civil, mechanical and electrical installation works at the Abqaiq natural gas de-ethanisation and compression plant 462. On a second project, MAC completed a similar work scope in 1984 at Aramco’s Safaniya gas-gathering complex.

MAC’s list of references with Aramco has grown since, and includes the LSTK construction of an industrial wastewater plant at Ras Tanura refinery and the expansion of a wastewater treatment and effluent reuse facility for Aramco in Dhahran. At present, MAC is involved in installing a sulphur recovery unit at Aramco’s Riyadh refinery as subcontractor to Paris-based Technip-Coflexip.

In the late 1970s, the volume of projects being tendered by Aramco declined - but once again, says Malouf, MAC’s philosophy paid off. ‘As a multi-disciplinary company, we have always been able to adapt to demand,’ says Malouf. ‘When there was a lull at Aramco we just started looking at other sectors.’

The company intensified its efforts in the power and water sectors, and became involved in the expansion of the Yamama Cement works, as well as the turnkey design and construction of civil and building projects. In an attempt to diversify away from a pure contractor role, MAC in 1976 set up Building Chemical Industries Company (BCIC), a Dammam-based manufacturer of homogeneous polyvinyl chloride (PVC) floorings. The diversification strategy was pursued further in 1986 with the establishment of another Dammam-based company, United States Gypsum Middle East (USGME). A joint venture with the US’ USG, it produces gypsum boards, mineral fibre ceilings and metal grid suspension systems. Today, MAC, BCIC and USGME, together with an equipment and automation company, form the Modern Arab Contracting & Trading (MACT) group.

Although the Saudi market has provided a vast range of business opportunities for MAC in the past, the company has also taken on work beyond the kingdom’s borders. In Abu Dhabi, where MAC has had an office since 1976, the company was appointed subcontractor to Germany’s Deutsche Babcock in 1977 on the Ministry of Electricity & Water (MEW) project to build the 240-MW Umm al-Nar power and desalination plant. The success was followed up in 1979, when MAC became the main subcontractor for the turnkey construction of the 7.5 million-gallon-a-day seawater desalination plant in Abu Dhabi for MEW.

So far, working outside Saudi Arabia has made up only a small share of MAC’s total work. But Malouf says venturing into regional markets will play an increasingly important role for the company in the near future. ‘Until recently, we have largely focused on the domestic market for two reasons,’ says Malouf. ‘First, we had a lot of work here; second, because other Gulf countries were extremely competitive. Today, we look at it slightly differently. We are now more interested in going abroad, to Qatar for example. We are looking at Iraq too, and want to do work there if this is politically acceptable and possible. But we do not compete with many local contractors because we do have an edge in specialised and highly technical projects. Refinery, power and gas projects are interesting for us.’

Malouf says the rationale behind intensifying efforts to win work abroad can be found in the increasingly difficult local market conditions. Intense competition and highly competitive pricing have turned construction into a low-margin business. Moreover, the pace of new projects being tendered in 2002 and throughout the first half of 2003 has slowed down - in particular at Aramco and Sabic, increasing competition in an already competitive market. This trend is amplified by international EPC contractors’ attempts to win more medium-sized projects - in the $50 million range - to make up for the reduced overall workload, says Malouf.

There are other worries too. ‘The EPC contractors take contracts at very competitive prices and then shop around for the cheapest price among local subcontractors. On top of that, once they have the contractor on board, EPC contractors tend to be delayed in engineering and in the procurement of equipment and materials. But because they still have to finish the job on time to avoid coming on to Aramco’s blacklist, it is the subcontractors that have to go into acceleration mode to make up for these delays. This is a big problem.’

Malouf says a possible solution would be a change in bidding procedures at Aramco. ‘If Aramco would require EPC contractors to bid in teams with local contractors, which then can help to price and schedule the project properly, things would improve.’

The government’s Saudisation efforts have also added to the list of grievances. In line with government regulations, contractors now have to ensure their workforce is 15 per cent Saudi - a target that is difficult to meet, says Malouf. ‘The Saudisation efforts are a noble cause, but supply and demand do not match up. And if local contractors do not have continuous work, how can they provide training for young Saudis?

‘We would prefer to employ Saudi specialists such as welders, electricians, technicians and others. But in my opinion, contracting companies are not able to train Saudi employees in these skills because they have very tight budgets and time pressures, which means they need skilled workers to do a job. It should be the role of Aramco or the ministries to train on a grand scale, or otherwise provide incentives to contractors. They cannot rely on the private sector alone.’

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