Value of regional contract awards to disappoint in 2012

23 August 2012

Awards this year have fallen short of 2011 levels

Clients across the region will have to double the value of contracts they have awarded so far this year if they are to avoid a disappointing year and award the same value of contracts that they awarded in 2011.

To date in 2012 there has been $121bn of contract awards according to regional projects tracker MEED Projects. This is less than half of the $257bn that was awarded in 2011. Contractors across the region say that although contracts are still being tendered, clients are not awarding them.

If this trend is reversed during the fourth quarter, then last year’s total could be matched. According to MEED Projects there are currently $148bn of contracts that are currently being tendered and are due to be awarded by the end of this year. If this happens then the year-end total will be $268bn - $11bn or 4 per cent higher than last year. For this to happen, clients will need to award 93 per cent of the contracts that they are currently tendering and plan to award this year.

If indecision continues then the value of work awarded this year will fall short of what was awarded in 2011. The shortfall could be substantial. Compared to last year, the total value of contract awards is $62bn short of the $183bn that was awarded in the first three quarters of 2011.

Contractors fear that the more likely scenario is that the slowdown in contract awards will continue. “We have submitted a lot of bids this year, and for many of them we have heard nothing, no feedback, no negotiation, nothing. To us it seems like they don’t want to award the work. I hope we are wrong, but right now that seems unlikely, the desire to award contracts just doesn’t appear to be there,” says a Dubai-based contractor working across the region.

The biggest sector for contract awards in 2011 was construction, with $102bn of awards, or 40 per cent of the regional total. So far this year the sector has produced $39bn of awards, which is $63bn short of the 2011 total. With just over a month to go to the end of the third quarter at the end of September, the total to date this year is $33bn less than the $72bn of contracts that were awarded during the first three quarters of last year.

The second largest sector in 2011 was power. So far this year it has awarded $19bn of contracts – nearly $15bn short of last year’s total and about $6bn lower than the total for the first three quarters last year. Transport was the third best performing sector last year with $32bn of contract awards, to date this year it has awarded $14bn, which means it needs to award close to $18bn of contracts by the end of the year if it is to match last year’s performance.

Oil and gas projects also need to be awarded. For oil there has been $15bn of contract awards this year, about $7bn short of the $22bn total achieved last year. Encouragingly, the $15bn so far this year is about $5bn more than the $10bn that was awarded in the first three quarters of 2011.

This means that if the fourth quarter this year is as good as the fourth quarter of 2011, then it could be a bumper year for contractors working on the oil sector when compared to last year.

There are a number of large downstream oil projects that could be awarded by the end of the year. The largest is Saudi Aramco’s $7bn Jizan refinery in Saudi Arabia, but others could include the $1.5bn rehabilitation of the Sohar refinery in Oman.

For gas the situation is less encouraging. There have been $4bn of contracts let so far this year, meaning that the sector has to award close to $23bn of work if it is to reach last year’s total of $27bn. The industrial sector has also been slow, with $5bn of awards this year, almost $10bn short of the $15bn total reached last year.

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