Nakheel has to convince firms to work for them

26 October 2010

Companies are making it clear they want payment guarantees if they are to work for the developer again

In 2008, Nakheel awarded $8.3bn of contracts, making it the region’s largest construction client by far. With billions of dollars of work planned, it could pick and choose the contractors it worked with and was busy negotiating lucrative deals to build hotels, offshore islands, villas and tower blocks.

Contractors have wasted little time looking for new opportunities with Nakheel since 2008

Today, the market has turned full circle, and the Dubai government-owned developer is no longer a major client for construction companies. It has $25bn of debts, has been forced to shelve $117bn of its projects, and in 2010 has awarded just $140m of contracts.

Not surprisingly, contractors have wasted little time looking for new opportunities with Nakheel since 2008. Instead, Dubai’s contractors were forced to look for work in other regional markets, such as Abu Dhabi, Qatar, Kuwait, Oman and Saudi Arabia.

For many contracting companies, those efforts are now producing results. In early October, Dubai-based Arabtec Construction, through its local affiliate, won an estimated SR5bn ($1.3bn) contract to build 5,000 villas in the Eastern Province of Saudi Arabia. Other Dubai-based contractors have enjoyed similar successes, including Khansaheb Civil Engineering and Al-Futtaim Carillion in Abu Dhabi, Dubai Contracting Company (DCC) in Saudi Arabia and Al-Naboodah Contracting in Qatar.

These awards mean Dubai’s leading contractors are no longer as dependent on their home market for new work and can afford to be selective. For work with Nakheel, contractors have made it clear they want payment guarantees.

Nakheel may decide that with little other opportunities for work in Dubai, it does not need to offer contractors payment assurances. If this happens, the risk is they will not get Dubai’s best-performing contractors to participate in their tenders. In contracting, you get what you pay for, and Nakheel may learn that companies desperate for cash flow will be unable to guarantee their performance.

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