6 Key Actions UAE Contractors Should Take in Today’s Tough Market
UAE contractors are facing tough market conditions, with cash flow constraints and greater competition for fewer contracts placing a squeeze on margins. Expo 2020 is just around the corner now but much of the anticipated bonanza from Expo and related projects has yet to kick off. The region however still offers decent long-term fundamentals for companies prepared to ride out the current slowdown in the market.
In addition to the current slow down, UAE contractors still face pressure on cash-flow from trying to close out legacy projects, and be paid for projects delivered back in 2008-10. Many contractors are finding that market conditions in 2016 are tougher than in the previous year and most have witnessed an increase in construction disputes.
There are delays in payments that affect the cash flow cycle, and cash collection days are going from typically 45-90 days up to 180 days or more in many cases. Some contractors are just not being paid at all, and yet they still are obligated to pay their subcontractors since they still need to finish the project. When this happens some contractors do not pay subcontractors and suppliers down the supply chain, giving rise to further disputes.
Contractors are nowadays bidding at low margins in single digits, whilst the client usually retains 10 percent cash as a retention, in addition to “on-demand” performance bonds. Problems are then compounded in many instances by late drawings and constant variations.
So what should be done in the light of the new “normal” and what are the key actions that UAE contractors (or subcontractor) should take:
Records, records, records! The whole team must understand the importance of a good set of site records. Site diaries, photos, letters, notes etc. When a project gets into a dispute its often a question of who can provide the most complete, comprehensive evidence and find all their electronic records.
Read your contract, know it and administer it correctly. Make sure you issue your notices on time. All too often there is pressure from the Employer (or Main Contractor for subcontractors) to not “get contractual”.
Don’t kick the can down the road. Try to get differences resolved as soon as possible. There is a tendency to try and leave matters to the end and deal with it all at the final account.
Maintain constant communication with your client, don’t avoid difficult conversations, return missed calls and talk, not shout or thump the table!
Know your disputes clause. Understand the mechanism and forum for resolving any dispute under the contract before it arises.
Finally don’t be afraid to reach out for specialist contract or claims support and be especially careful about any legal matters. It may be tempting when you are not paid to just want to walk out, but this can get you into even further trouble if the correct legal process is not followed.
This article was written by guest writer, Michael J. Lawrence MBA CEng MICE MCIOB FCIArb.
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