Tightening Up

How do you expect contractors in the UAE to perform in 2018?

The market is fairly positive; there is a great deal of work available, and many projects are coming to the market. However, many contractors are bidding fairly low and competition is fierce. In fact, some contractors are still suffering legacy problems from the crisis in the mid-2000s. Generally, to succeed in this market one needs to be specific; one needs to determine which niche in the market suits the company best and not overextend. There are bottlenecks in the market, however, especially in mechanical, electrical, and plumbing (MEP). A number of MEP companies have suffered dramatic financial loss, and this has undeniably affected our performances. We deal with it by finding niche contractors in the MEP space.

Where will demand come from for contractors?

The large players are interested in Expo 2020, but residential development continues to drive the demand for construction. For example, Emaar is a big player in the market, and it still has requirements for residential projects. Some contractors specialize in high-rise residential; that is what they do best. It is repetitive and fairly labor intensive; however, they have the expertise and are able to compete in that space. Finally, there are niche markets, with projects such as the Museum of the Future.

What economic drivers will affect the local construction sector?

The major economic driver is that many people want to live in Dubai; that drives this whole sector at the end of the day. The second one is the price of oil and gas, since these underpin the entire economy, one way or another. The outlook for commodities looks positive in 2018, and we expect a further strengthening of the prices of oil and gas. Furthermore, the region is becoming more stable. Therefore, more people are attracted to Dubai. Moving forward in construction, especially in residential segment, we begin to see a great deal of modularization, where toilet or kitchen parts come completely finished from the factory. These are becoming more common, and it speeds up the ability of contractors to deliver.

To what extent do you agree with the argument that contractors are still feeling the pinch, not only of 2008, but of lower oil prices?

This is absolutely true in the market. However, the stress that contractors are suffering in the Gulf is not confined to this area; this is also the case in Europe. The buildings that are being delivered are much more complicated than they were even 10 years ago; the requirements for building management systems are becoming more complex, and greater commissioning times are required to get a building fully functioning. Many clients still do not recognize this, and it places more pressure on the contractor to deliver in a shorter time span. We would like to see clients coming into the equation and greater collaboration, and it is not in their interest to squeeze contractors to the extent that the quality or delivery of the building suffers. The prequalification process is definitely tightening up. We would like to see a larger advance payment when we start a project. Moreover, for truly sophisticated plans, we would like to get paid for offsite materials.

What is your opinion of Dubai’s tendering process?

The barriers of entry into the market have to be raised. We see companies that are not technically capable or even financially strong to carry out some of the work. The tendering process has changed dramatically in the last several years; before, it was just a long sum fixed price where the lowest price would win. Today, there are more mid-tender reviews, where the consultant and client will see how the tender is progressing. This has definitely helped us because we have to move away from the concept of awarding a contract to the lowest price.