by Sachin Kerur
Despite the challenging world economic conditions, the Gulf looks set to remain one of the most significant global construction markets.
It is true that there has been a collapse in demand regionally for the large, private developments and indeed it seems the speculative real estate market may be a thing of the past. This has led to a severe cooling off in the Gulf construction market that was in any case overheating towards the middle of last year. At the same time this has led to a decline in input construction prices. This means that if a developer is sure there is a market for a development, the project becomes economically more viable. Not every developer will be able to take advantage of the decline in costs because bank lending remains tight. However governments will be encouraged to procure faster to take advantage of a cheaper cost market and spend more on major infrastructure projects. Certainly the Gulf power, water, health, education road and bridge sectors are expected to receive major boosts in development spending.
Whilst the menu of project delivery methods has evolved in many directions over the last few decades globally, the Middle East tended to remain wedded to traditional methods of procuring works and services. However during the last couple of years there has been a trend towards greater collaborative working between employers and contractors and the enhanced efficiency of the procurement process. A number of significant projects in the region were awarded on the basis of turnkey arrangements that accounted for fluctuations in price and incidental project costs. With so many projects on offer, contractors were spoiled for choice and were starting to demand more progressive contract terms.
Another noticeable regional trend was contracts procured on a “best value” principle. What this means in practice is that the project is geared towards delivering a high quality, cost effective scheme through an open book method of procurement. Depending upon who you speak to, open book procurement can mean the usual adversarial culture of the traditional method of procurement but the consequential cost implications can to some extent be avoided through a partnership approach.
Other trends that began to emerge over the last couple of years in the Gulf were sustainable procurement policies, e-procurement and management contracting for the procurement of infrastructure management services.
However with the amount of projects on offer declining abruptly, we have already seen a swift return to traditional methods of competitive procurement using fixed price lump sum turnkey contracts to ensure negligible cost overruns. The concern of many contractors is that we are back to what they see as the bad old days of onerous contract conditions where the lowest priced bidder always takes the spoils.
There is little doubt that the scale of construction projects in the region led to more innovative procurement and contracting policies than had ever been seen before. We will have to wait and see whether progressive and non-adversarial techniques will survive in this market.
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