Voices in the Wilderness
Big Project ME talks to three prominent UAE established contractors to find out what’s being done to protect the interests of the smaller players in the industry. Gavin Davids reports
Local contractors have said that more government help is needed to protect them.
As projects across Dubai and Abu Dhabi have mushroomed, so too have the number of contractors in operation. We’ve seen some of the biggest international contractors enter the market, competing with the established local giants for the biggest and most prestigious contracts.
As the competition grows, a vital component of the local contractor industry is being pushed to the margins, given that they operate in a very different environment to the major players.
While attention remains riveted to the multi-billion dollars projects and the companies fighting tooth and nail for them, the foundation of the industry remains the local contractors who operate in the ‘smaller’ contract market.
These are the firms that deal with the projects the big boys don’t consider worth their time or effort.
Of course, when the crisis was in full swing, there was a desperate scramble to secure any contract that would put money in the bank. But now that things are returning to an even keel, the focus has returned to the glamour deals, while the rest of the market is left to fight it out for the scraps from the table.
As a result, the competition for these projects is fierce, as the smaller, locally based contractors struggle to survive in market that has come to define cut-throat.
Big Project ME spoke to three successful contractors who have made it their mission to succeed in this most demanding of environments.
Jaswanth Singh is the managing director of Al Avon Contracting, a Dubai-based firm that specialises in the construction of warehouses and other commercial properties.
The firm has been in operation since the early 2000s and has completed a number of major logistical projects for international clients.
Having had to establish himself in a market that he describes as ‘very competitive’, Singh has embraced a business philosophy that he says has stood him in good stead over the years, especially during the downturn era.
“The ethics have to be right in construction and business, this is what I believe. The way we operate is that we service our clients. Once we get a job, we do the job and after we complete the job, any requirement by the client, or if there’s a problem because of us not performing, we then take care of it,” he explains to Big Project ME.
Focusing mainly on the $8 million to $10 million market, Singh says that this narrow focus is a conscious decision on his part. He believes that it allows his company to focus on what remains important to his business.
“I try to limit myself to manageable limits. The construction industry isn’t a trading business. You have to take on a contract, perform and finish, and then you get the money. Once you get the money, you see if the profit is there,” he says.
“If you have too many jobs, your personal attention isn’t there. Then you have to delegate responsibility. In my company, I know my staff and I know they’ll do a job with full responsibility, but the moment you go big, you start losing control, and then your name suffers. So I want to be in a position where I can be in control and do a good job. Then the profit margins will come.”
“There’s always the thought you should go to the next level, but you need the right staff and you need to be able to keep your clients happy. You should be able to maintain and build the relationship,” Singh adds.
Having adopted such a conservative approach, it is with no small sense of alarm that he regards the way certain competitors operate so recklessly in the local market. Having seen many projects underbid for, he wants no part of it.
Therefore, he avoids tendering for projects, preferring instead to let his company’s reputation and quality of work bring clients to him.
“I don’t like to compete with all the contractors who go for tenders,” he explains. “What happens is that some people under-quote, they’re not bothered about the job; they’re not bothered about the client or whether the job is completed on time.
“Nor are they bothered about what quality of job they’re doing. They just want to get the job, get the advance and get the money. They then roll the money and take another job.”
This is a view that Milind Deshmukh, director at SAM Contracting, shares. As one of the heads of a contracting firm that has an annual turnover of more than $27 million, he’s better placed than most to comment on the growing competition in the Dubai market.
“The competition is growing because of the regional situation,” he says. “There are more expats coming and setting up business here, from places like Egypt, Syria and so on. What is happening is that this is driving the prices down and the bottom line is being eroded. So this is making the market unstable. These companies are new, but they may not perform and are thus spoiling the market,” he asserts.
“What companies coming into the market here should have is a track record,” he insists. “If you’ve done a $2 million job, then go for a $8 million job. But don’t give a guy who has the ability to do a $500,000 job a $25 million project. You’re bringing a sickness into the economy if you do that.”
“You need to qualify contractors, find out what projects they did during the year, whether it was a big size project or a small-sized project, was it completed on time and so on. Then you can give them gradation,” Deshmukh says.
“Let them prove themselves, otherwise you’re bringing in bad players who spoil the market and who will, in turn, make the SME sector sick. Because they will not pay suppliers, they will not pay employees and they will not give a good quality job to the client either,” he points out.
Engineer Mohammed Hisham, the managing partner of Fastech Pre-stressing, a post-tensioning and concrete works contractor based in Sharjah, adds that local companies like his, Al Avon and SAM Contracting, companies that have been established in the UAE, are often adversely affected by foreign companies entering the market.
“When they come from outside, they are fully financed from Europe and they are damaging the industry here and damaging our competition.”
“ They’re damaging Arab companies in the UAE market. Why? Because all the time, they offer low prices, and all the time, I have to go like them, because I need the projects. But they have the ability to be financed by the main offices in Europe and Australia, but I have nobody to finance my losses,” he complains.
Keeping this in mind, he calls for greater assistance from government authorities and contractor associations, pointing out that this would allow for greater representation and fairer opportunities for local contractors.
“The authorities such as the contractors association, the engineering society or the Ministry of Economy, there should be ‘justice’ available from them. Why? Because there will be a help line for companies coming to them,” he says.
“We’re not a small company, but I use the money we make to expand. We have the ability to do big projects, but at good rates. We can’t compete if the prices are being driven down,” he asserts.
“These companies are damaging the markets,” Hisham warns, adding that this ‘strategy’ of driving down prices was taking place not just in the UAE, but also in markets like Saudi Arabia and Qatar.
Both Milind Deshmukh and Jaswant Singh concur with the call for increased representation, with Singh adding that if there was greater policing being done on these interlopers, then the market would benefit in the long run.
Not only would rogue contractors be kept at bay, but also clients who were unable to meet the funding requirements of a project would also be held accountable for their missteps.
“There has to be some sort of body where there’s a voice for the industry. If the consultant has issued a certificate (for the project), then the client has to pay after the job is done. In the West, government bodies will ensure that payment is made.”
“Here, it is not so simple. Although the contractor has finished his job, the client can just fool around and not pay the full amount. Sometimes the consultant can be blamed for that, though if the consultant is very strong, he can make the client make the payment,” he explains.
“But sometimes, the consultants aren’t bothered; they say that ‘we’ve given you the certificate, that’s your issue.’ I know in many cases, government bodies here don’t support you.”
“There is zero representation at government level,” adds Deshmukh, “One client can cheat one contractor, and then next year, he can come up with another job and cheat another contractor. There’s no information available to show that he’s a bad payer and there’s no credit rating for clients,” he claims.
Clearly then, there are major issues that need to be resolved in this sub-strata of the construction industry. While there has been a clear focus from the international players towards introducing best practices into the construction industry, especially on their projects, the fact remains that at a local level, companies do not have the resources to implement such drastic changes on their own.
It is clear then, that the government must lead the way to ensure that this vital base for the construction industry is well protected and ring-fenced from the cowboy operators that plagued the industry prior to the crash in 2009.
The will is there, all that is now needed is for the government to meet the industry halfway and show that the painful lessons have been learnt.
