ALEC’s Sean McQue looks at the urgent issues facing the local industry and outlines what needs to be done to avoid a looming crisis
There is no question, the construction industry is in bad shape and it’s getting worse. Whether you talk to developers, design consultants, project managers, principal contractors, subcontractors or suppliers, they all say the same thing: it cannot carry on this way.
Construction, and particularly contracting, is a notoriously high-risk, low-return industry and there are enough high-profile casualties littering our recent past to show just how easily and quickly well-established organisations that have been successful over decades can fall victim to their environment. It’s not too late for us to repair what we have broken, but we need to act fast, we need to act decisively and most importantly, we need to all act together.
Unfortunately, there is no silver bullet. We need to understand the many contributing factors and work together to address them in a committed and meaningful way. Not to sound over-dramatic, but our futures do depend on it.
Create the right environment
Over the years, the construction and contracting environment has regressed into a complex, confrontational and risk-averse place fraught with claims and disputes. Everyone that was building 20 years ago will recall a time when the whole team worked together to deliver amazing projects without even opening the contract. Fewer people were involved, but they were competent and their agendas were aligned with one another’s and that of the project. Good information was available on time, hardly any letters were written, everyone was successful.
Since then we have seen the creation of new parties such as project managers, there has been an exponential improvement in technologies such as design software, communication platforms, methods and materials, yet we are no better off. Why is this?
Our managing director does a great talk that compares the project environment to a fish tank. At the outset, the owner decides what he needs and wants: the size of the tank, the type of fish, the plants, the equipment to filtrate and aerate the water and so on. Once he has created his tank, it is nearly impossible to change it, and the fish must live with it. If they are unhappy or unable to live in the tank, there’s precious little they can do to change it. They will simply become sick and eventually die, and ultimately the whole tank suffers and fails.
It is paramount that the employer create the right project environment for all stakeholders to operate in, so the project can succeed. The right structure, the best organisations, conditions of engagement that promotes the right behaviours, great people and, most importantly, a culture of trust that promotes transparency and true collaboration and allows the team to operate outside the rules in the interest of the project without fear of victimisation.
Have realistic expectations
During tenders and negotiations, contractors often face unrealistic delivery expectations from clients. When it comes down to the wire, they face agreeing to these requirements or losing the job. More often than not, the result is the contractor taking on the risk of the unrealistic schedule in order to secure the project, then looking for opportunities for extensions of time from day one – hardly an environment with aligned agendas, and not one designed to create the right behaviours. Developers and their agents should pay special attention to this and try to avoid creating combative situations from the outset.
Allow decision-makers to make decisions
As main contractors, one of the key differences we see between successful projects and those that run into difficulties is having easy access to an empowered decision-maker. Once a large, complex project is underway, things move fast. Inevitably, unforeseen issues arise that require clear and fast decision-making. Without it, there is uncertainty and confusion that often leads to delays, abortive work and eventually claims. The contractors have an important part to play by being proactive in identifying issues and communicating them effectively, giving the employer and its representatives enough time to make the best decisions for the project.
Do your job
On a construction project, there are potentially hundreds, if not thousands, of people from numerous organisations involved that all have a responsibility and a role to play. Only when everyone makes their contribution do things come together for a successful project. In today’s environment, parties are being allowed to delegate their responsibilities downstream through specifications and contract conditions.
A classic example is shop drawings. In the past, the developer would employ capable designers who would produce and issue information that the contractor could use to build. In today’s environment, Contractors are obliged to complete the design. IFC (Issued for Construction) information is not allowed to be used for construction, so contractors have to produce shop drawings at significant cost to be able to proceed with work.
These shop drawings are subject to approval and go through rounds of submission, which uses up critical project time and is often used as an opportunity to complete design on the project’s time or make changes under the radar. If developers want their projects to run smoothly and be completed on time, they need to employ the right designers and ensure that the design is adequately complete before construction starts, and that the documents they produce can truly be used for construction.
Pay fairly and pay on time
For too long, clients have failed to meet their obligations concerning payments, and have done so without consequence. This has brought tremendous pressure to the whole supply chain, which as a result is not able to perform the way it used to. As an industry, we need to find a way to ensure that cash is available for construction projects and that payment is made fairly and on time. In many developed countries, developers are required to demonstrate that funds are available for projects being undertaken before they start, a practice that would be most welcome here in the Middle East.
Furthermore, it is not unreasonable as a contractor to expect a payment guarantee and to be assured that you have some sort of recourse should any default occur. Despite being required to provide performance guarantees and having retention money deducted, contractors in this region would be laughed out the door at the mere mention of a payment guarantee. This is an issue that probably needs government intervention and regulation if we are to introduce any level of payment certainty to the market.
Most payment disputes exist around claims and variations – more specifically, the time taken to deal with them commercially. Contracts allow employers or their agents to instruct changes or additional works, and the contractor is obligated to proceed and must pursue any potential time or cost entitlement retrospectively. This is generally understood and accepted by contractors; however, what are needed are defined timescales for dealing with the programme and commercial implications.
There is a very bad habit of delaying the agreement of extensions of time and variations until much later in the life of the project, not only leaving the contractor and its supply chain out of pocket, but also creating the ability for the administrators of the contract to act with hindsight, using unreasonable arguments that should not be available to them.
It’s okay to make a profit
In order for owners to continue building and owning quality real estate investments, they need companies to construct them. Contractors are businesses that need to make a profit in order to be sustainable going concerns. In our region, some clients behave as though contractors are taking a liberty when they expect to make a profit on a project. We need to see a mind shift on this subject, and projects must be approached so that all parties involved make a fair and reasonable return.
In conclusion, the construction industry has some fundamental issues. The impact these are having is substantial, and a change of some sort is now inevitable. We can choose to pull together and deal with these challenges for the good of all, or we can continue to watch its demise. I am personally excited about the huge potential for exponential improvement we can realise by not only fixing the basics but also exploring new innovations such as BIM, augmented reality and robotics. We need to take responsibility for our industry, so that we can hand it over to the next generation in a better state than we received it.