Emaar is planning to introduce a special clause into existing contracts with contractors to share the risk of rise in the cost of construction materials.
Material prices have shot up by nearly 200 per cent over the past year and this has had a serious effect on contractors' margins. Major contractors have been able to manage the crisis but several smaller ones have suffered severe losses, with some even abandoning projects midway. Many contractors in the UAE have called for the scrapping or amendment of all existing contracts with developers and the creation of a "fluctuation clause" for supplies such as steel, cement and diesel.
A senior Emaar official said his company was taking the initiative by introducing clauses into existing contracts in an effort to ease the contractors' burden.
Fred Durie, Executive Director of Development and Projects, Emaar, told Emirates Business the construction cost of Burj Dubai had increased by almost 15 per cent since work began in 2004. "We are all aware of the level of inflation in the construction industry," he said. "Therefore, we are introducing clauses with contractors to share the risk."
Many developers said they were moving away from signing fixed contracts for future projects, but were hesitant about seeking formal adjustments to existing deals.
The UAE Contractors' Association said many developers had been forced to introduce fluctuation clauses. "It works out better for them to stick to the existing contractor by sharing the costs than find another contractor or risk the project being delayed," said vice-president Imad Al Jamal.
The UAE Government has been urged to change the law and move towards cost-plus agreements to manage the shortage and escalating cost of construction materials.