‘More opportunities but fewer contractors’

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Murray & Roberts, builders of the global icon Burj Al Arab, have called on major real estate developers in the UAE and the wider Gulf to enter into long-term partnerships with preferred contractors to ensure projects are built according to the desired quality and, most importantly, on time.

Nigel Harvey, general manager and head of regional operations of the South African contracting company, feels the advantages of this suggested direction would far outweigh the generally long but transparent tendering process. In a wide-ranging interview with Emirates Business, he explained why.

What are the contracting industry’s biggest challenges and how can the industry deal with them?

The key issue at the moment is the need for resources in order to execute the works and certainly to be able to attract the right people to this part of the world for the fantastic opportunities that are available here. Its not too difficult but it’s the pace at which things are moving, I guess, that puts pressure on the resources.

 

We operate among the top-end of the market in real complex sophisticated buildings and to attract the right people, we have not had much difficulty. But certainly from an industry and overall point of view, the resources around stock, around labour, are the key issues to address. I suppose there are too many opportunities but not enough contractors and how the market engages in that situation is the real challenge.

But what we are finding is that clients are recognising they need to create alliances with contractors. Early contractor involvement allows the contractors to resolve the job and prepare themselves from a resources point of view so that when the job finally starts in four to six months time, they already have the resources in place in order to carry out the project.

How does this impact upon the traditional tendering process?

It is often a two-way tender process where the client will quickly run you through the pre-qualification format around some form of reliability from the resources point of view, one from the contractor and second the price. What we are really finding is the tradition of tendering is almost non-existent and we are moving more into these negotiated opportunities, which have their challenges because it not what everyone is used to in this market and so it’s something that people have got to get used to.

 

It does require a different way of engaging each other between the client and the contractor. At the end of the day you’re making sure both are satisfied that the base price is right in order to carry out the project.

Tendering is generally equated with transparency. When you have a deal cut beforehand, how does that work?

The way we do it from a transparency point of view is that we play absolutely with an open book. At the end of the day, the main contractors do 30 per cent of the work and the balance you procure from the market.

Has the ratio of the same changed over the past few years?

Not really. It depends. Some contractors today may be doing less of their own work and sub-contracting more. Others are going the other way and trying to control more of the work rather than sub-contracting. So when it comes to determining when we go to get sub-contract prices, we play absolutely open book with our clients so they can see the prices and we together work out to see who’s the best to be able to deliver the project for an appropriate price.

How do you price a project in a situation where materials get more expensive every day? Airlines hedge cost increases. Is there any hedging in the construction sector?

There is. But it’s a big risk area and it is really unfair for contractors to take the risk 100 per cent themselves. There is a need for mechanisms to be worked out so that clients also share the risk.

Are such mechanisms being worked out?

For sure there are ways and means of doing it. In other parts of the world, it is quite common to adjust prices.

I understand some master developers are almost locking in contractors at fixed prices and then refusing any escalation clauses.

Is that a worry?

Yes it is a worry. Prices of resources are to do with the world market and what influence China has. Contractors are not prepared to accept certain risks because they can put you out of business.

Has there been any rise in construction disputes in recent years?

I think this is a market where a lot can be done just in terms of trying to create a co-operative environment among the clients, consultants and contractors to avoid disputes. There is no doubt early contractor involvement allows the client and the contractor to get a better understanding of the final cost and the time to deliver the project. 

China is sucking up steel and other building materials. How much was the cost escalation in 2007 and what are the projections in 2008?

Honestly, I am not able to share the cost increases but I can tell you that rebar has done some crazy things in the past – shooting up literally 10 to 20 per cent in one month. But the future trend is very difficult to project.

Majors seem to have formed a club, as we do not seem to have major new contractors coming in to the country. Is that the case or have their numbers increased?

I suppose there’s not many coming from the Western World but certainly from the East a lot of new contractors have come in. Murray & Roberts have been here since 1992 and we were fortunate with the first project we did here with Al Habtoors. At the airport we achieved two milestones and the clients are extremely happy.

What is the status of order books in the industry?

There are more sub-contractors now than 10 to 20 years ago. The reality is this is a market where there are too many opportunities but not enough contractors.

How do sub-contractors react to job pressures?

The size of jobs they do today is what the main contractors were doing just four years ago in the UAE.

Everybody is asking these days when is the boom going to end. What are your expectations?

Dubai has a vision. But there needs to be some correction. Whatever the case, boom or a drop off, the region has an amazing way to adapt to demands.

Has the construction industry abandoned the falling dollar?

It poses another risk. One has to take into consideration that there are no easy solutions in this situation. It is up to the government to make the decision.

What is the outlook for 2008?

I think there are opportunities out there for everyone. The boom environment carries risk no doubt about that but there are many opportunities. As a contractor it’s the matter of delivery and one can do well here.

Good times to continue in 2008?

There are some challenging opportunities out there. When you are involved at the top end it becomes even more challenging.

 

Married with three children, Harvey is also president of the South African Business Council in Dubai.