Regulatory trends drive regional construction sector

12 February 2019
Regulations keep an industry in check and ensure standards are followed. Do industry participants agree?

Regulatory changes introduced across the construction industry will have both a long and short-term impact. The view of leading figures across the construction sector in the UAE is that these trends could ultimately contribute to improving both sustainability and relationships between designers, contractors and stakeholders.

The introduction of new laws simplifying visa and contractual documentation, coupled with digital innovation in areas such as blockchain, will stimulate greater cooperation and transparency across the construction industry.

But at the same time, increased regulation can easily lead to greater costs that have to be absorbed by the industry. It is often difficult for smaller firms to accommodate these costs.

MEED conducted a construction industry survey to gauge opinion on some of the risks and challenges facing the regional construction industry. Participants offered their views on subjects such as financial risks, performance bonds, VAT, environment, health and safety, and labour welfare.

When asked about the biggest financial risk facing the UAE’s construction companies, more than 60 per cent of respondents highlighted the issue of late payments leading to cash flow problems. Less than two per cent felt lack of finance was an issue, but eroding margins due to tough competition was cited by nearly 14 per cent as a pertinent financial risk.

Design and regulation

The Museum of the Future, an important project at national and international level, is under way in Dubai. The torus-shaped building, designed to be a physical metaphor for Dubai’s forward-looking vision, is intended to become a focus of the future of science, technology and innovation, as well as a hub for the launch of new technologies and creative ideas. Dubai Future Foundation announced the completion of the basic structure in November 2018, and the building is set to be completed by 2020.

Killa Design, established by architect Shaun Killa, is the principal company behind the design of the museum. With the responsibility of executing the architectural challenge, Killa explains his thoughts on new regulations within the design and build industry: “Within the design field, the new DCD [Dubai Civil Defence] fire regulations have made it more difficult to obtain approvals and building certificates. This is added risk and cost for the contractor.”

He touches upon the issues he felt needed to be addressed to improve the work culture in the construction industry.

“There is wide abuse of contractor bonds, late or no payments to contractors or unresolved VOs [variation orders]. All this creates contractor uncertainty,” says Killa. “Also, some A-grade contractors are possibly leaving the Middle East. There are also delays in projects and inflation in costs due to the uncertainty of receiving final payments or counter-claims.

“Based on this, it would be good if some practices can be learnt from international markets.”

But he also sees some benefits for the coming years in the form of more emphasis on environmental protection.

“Future regulatory laws may include stronger sustainability initiatives, improvements in the transport sector with electric cars and driverless vehicles, perhaps ownership of [these] vehicles,” says Killa. “This may help reduce traffic congestion and negate the need for car parking structures.”

Innovation and looking beyond 2020

A positive indicator of growth in today’s industry is the increased willingness of construction companies to adopt new techniques and innovate traditional practices. However, lack of definite regulations can significantly affect a contractor’s knowledge and use of technology. Nearly half of the industry survey respondents felt that the lack of up-to-date regulations was hindering innovation in the regional construction industry. One respondent suggested that universities could aid through research and collaboration.

Swiss architect André Meyerhans worked independently under Acmeyerhans architecture and design on several Middle East projects, including the Al-Nadi Tower in Abu Dhabi, before starting to operate under FischerMeyerhans, which is involved in the initial stages of design for the Dubai Expo 2020 pavilions.

Meyerhans feels there is a risk that ongoing construction is firmly geared towards achieving goals for a set date for the expo, rather than what is necessary for sustainable growth of residential, commerce, education or any other sectors. But with regards to factors such as employment laws and VAT, he feels new regulations could be positive.

“Most of the construction-related activities seem to be more in relation to the obligation to develop empty plots and finish construction by 2020, rather than being demand driven,” says Meyerhans. “As long as laws are simplifying transactions and making transactions more transparent, they definitively add positively to business.

“On the other hand, there are certain innovations that add an administrative burden and costs which cannot easily be [absorbed]—in particular by smaller companies.”

Improving stability and confidence within the industry is something that should be prioritised in any new rulings, Meyerhans adds.

“What would be interesting is a governmental mechanism that would ultimately lead to a higher payment morality—this is most likely to be an initiative which would be worthwhile not only for the construction business, but also the real estate sector.”

Meyerhans notes that the regional construction industry is looking into binding contractual bond agreements and contractors’ agreements into a blockchain, “thus enabling reduction of the cost of bonds and freeing liquidity. This seems to still be an idea for the future - even though it works in the US and Europe.”

Blockchain is a decentralised data system where every party involved in a transaction holds a copy of what has occurred through the design and construction process, operations and entire lifecycle of the building. The information cannot be deleted by any of the parties.

Improved workflow is another potential blockchain benefit, as the platform allows numerous parties to work in collaboration simultaneously.

Another aspect where blockchain could improve effectiveness is building information modelling (BIM). At present, BIM utilises peer-to-peer networks for information sharing—blockchain could allow for instantaneous updates to every single person working on a BIM project.

But the industry needs to be flexible when it comes to accommodating new laws and trends and any benefits that might accrue, says Meyerhans.

“New laws always mean a change and the economy needs to adapt to it,” he said. “Whether this will be better at the end or not depends on the laws. But the fact that it keeps the participants across the market agile is a benefit.

“On the other hand, it is important for investment to have consistency, so as to evaluate any risk. Too much change sometimes evokes a feeling of unpredictability and, thus, reduces investments.”

U+A Architects is involved in major projects along Dubai Creek as well as globally. Managing director Pedram Rad says cutting back on some of the regulations around visas could help the industry become more agile and responsive to evolving requirements. He also says the introduction of VAT has been a major step.

“VAT was a hiccup in the market, but it is the most important of the new laws to be introduced. Any new law [carries] a risk. As an example, VAT is useful and is great for the country’s economy, but in the short term [it] will have a negative impact.

“Also BIM requirements are, on one hand, complicating the deliverables, but will be of benefit in the long term. Another important factor is the shortage of skilled technical personnel as a result of the economic downturn, while political issues in the Middle East are always an issue.”

Rad adds: “Long-term visa availability could help, as would waiving some of the banking regulations for visas and other municipal fees. When it comes to learning from other markets in other countries then we could look at the UK market, perhaps in both the sector of law and also that of other methods of construction.”

This article is extracted from a report produced by MEED and Mashreq titled Regulating Construction: Adapting to New Standards. Click here to download the report

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