Talking to contractors today, the general feeling within the construction industry appears to be that we have possibly entered a prolonged and quite severe downturn. With the recent round of OPEC talks in Doha showing no sign of agreement to production caps, the prospects remain that the Gulf States will continue to be circumspect with budgets and will only push forward with essential work. This view appears supported by many contractors reporting a failure to secure any significant contract awards since late last year.
However, despite the doom and gloom the gulf continues to be an attractive market for international contractors to come and do business. Whilst there may be a downturn in the region, as oil prices continue at the ‘new norm’ of US$ 42 a barrel, the potential for workload to be had remains well above what may be available within other countries and regions. If you are an international contractor aspiring to be involved with billion dollar projects, the Gulf still remains the place to be.
Entering the market place and securing work contains many risks, not least starting with finding an appropriate sponsor, securing places on tender lists and establishing a functioning supply chain. But what key issues get missed in the hustle and bustle to deliver a competitive tender? Should you be a new contractor in the region? It may be worth spending some time reviewing the following three key risks. (we could end the INSIGHT here and add … Read more etc)
If you are an international contractor aspiring to be involved with billion dollar projects, the Gulf still remains the place to be.
Read the proposed Contract Agreement.
It may sound like an obvious suggestion, but it is vital that any potential contractor reads the contract terms thoroughly to fully understand the allocation of risk anticipated under the proposed agreement. On first inspection, many contracts in the region appear to be derivatives of the FIDIC ‘Red Book’, which may suggest to the contractor that the scope is traditional ‘Construct Only’, with an accompanying equitable share of risk. But do look closely within the detail of the Specification, because most projects are being procured in a hurry and may actually contain ‘Design & Build’ responsibilities, or responsibilities verging on ‘EPC’ to cover for an incomplete design. Read the proposed contract agreement in detail to fully understand the risks involved, or at least have the proposed agreement independently reviewed.
Be ready to administer the Contract Agreement
It is all too easy for contractors from different cultures to assume the Contract Agreement will be administered in line with the norms of what would be expected in their home jurisdictions. Of particular risk is an assumption that a contractor’s efforts to resolve design discrepancies, accommodate substantial change and drive a project forward, would be compensated reasonably without substantive recourse to the Contract Agreement. As one contractor put it to me, he assumed the Contract Agreement would remain ‘placed in the bottom drawer’ for the duration of a project. Most Project Management Consultants are sophisticated entities specifically employed to correctly and diligently administer the terms of the Contract Agreement. Contractors must therefore be ready to administer the Contract Agreement on equal terms.
Capability of New Staff
Despite the size and geographical reach of many international contractors, they remain in essence just a people business. Construction is not like manufacturing, where significant investment is ploughed into R&D, equipment and fixed assets, but is based around the mustering of flexible resources to deliver one-off and bespoke schemes. Contractors rarely carry large inventories of staff, but more often procure staff on a flexible basis to suit the geography and nature of the projects at hand. As a consequence, a contractor’s performance is often greatly affected by the competence and capability of particular individuals they’ve based on site. As a priority, contractors need to focus on the training and retaining the key staff who they can trust and rely on to look after their interests around the world. Flowing from that, contractors should then take care with the selection and recruitment of the balance of temporary staff – be sure to focus on securing quality and experience in people, rather than procuring the cheapest resources available.
As a priority, contractors need to focus on the training and retaining the key staff that they can trust and rely on to look after their interests around the world.
Learn more about contractual matters and claims with QGS Associate Director, Andrew Woodward. Andrew will be joining Claims Class to co-present their 2-day Construction Claims and 2-Day Understanding Claims Under the FIDIC Contracts course early next year. Click here for details.
Andrew Woodward, Executive Director
Andrew Woodward joined Quantum in January 2013 and is responsible for management and delivery of multiple project portfolios and relationships with numerous clients and assignments throughout the region. He is a qualified Arbitrator and holds fellowship of the Institute of Arbitrators (FCIArb).