Timely alliances help UAE contractors get on top of project delays

More are taking a direct stake instead of immediate payments to ensure timely completions

The Deira Mall project (above) by Nakheel, which this year issued contracts worth Dh7 billion. Instead of insisting on payments linked to project milestones, more UAE contractors are showing flexibility by taking up a direct interest and these joint development deals are set to deliver benefits for all involved

Dubai: UAE contractors are doing more than their bit to get projects off the ground, with more of them actively taking up shareholding and pumping in funds.

This way, project owners and their contractors ensure work on site is not falling behind or actually getting shelved.

In this, the local construction sector and its players have learnt the lesson of past downturns — not to let anything get in the way of project stoppages. Consolidation of resources and projects is the name of the game.

“Instead of insisting on payments linked to project milestones, contractors are being flexible by taking up a direct interest,” said Nasser Malalla Ganem, senior partner at law firm NM Associates.

“The sentiment on show at the Big 5 event is to clear all project backlogs and wait for the next round of contracts to come through the pipeline.”

“This could be in the form of taking up an entire floor of a residential building and even multiple storeys. This way, there is a vested interest for all involved to complete the project on schedule.

“So, whatever funds are available from the developer and contractor(s) go into completion. The market will see more of ‘joint development agreements’, which if handled right can be a win-win for all.”

Bathroom products at The Big 5, the leading construction Expo, at the DWTC on Monday. Image Credit: Pankaj Sharma/Gulf News

The sentiment on show at the Big 5 event, a platform for the construction and allied industry, is to clear all project backlogs and wait for the next round of contracts to come through the pipeline.

And there is the belief that come what may, big-ticket Expo 2020 tenders and time-bound infrastructure works will make for a healthier year ahead.

But in the year to date, the industry’s focus has been to trim costs and operate within margins. Barring a few instances, industry sources suggest that the majority of projects are proceeding as planned. Most importantly, those from government-owned developers are on track.

Nakheel, one of the big names, has in the year-to-date issued contracts of Dh7 billion and this follows the Dh8 billion in projects awarded last year. Its biggest one this year was the Dh4.2 billion main contractual package for its flagship Deira Mall on Deira Islands.

But it’s not all smooth sailing for everyone.

“Current payment terms have extended due to the tight situation in the market and contractor margins have been squeezed further,” said K.A. Siddiqui, managing partner at Dubai Walls Construction. “We think this situation will ease with new projects being announced in the first-half of 2019 and we see developers joining hands to revive stalled projects where smaller contractors have run away. Some of those jobs are coming to us.”

Thankfully, any disruption on new project flows from value-added tax (VAT) has been quite limited. So far, worries that the new surcharges could lead to cost inflation on building materials have been misplaced. It has helped that nearly all key commodity prices have remained stable despite the many tariff wars — including on steel and aluminium — being fought by the US.

The process in place for VAT refunds is also running smoothly, with contractors and subcontractors being helped by all the preparatory work they had put in place ahead of its introduction at the start of the year.

“The process is extremely smooth as we file what is known as a ‘net return’, which is common practice in the rest of the world,” said Mohammad Mustafa, head of Emsquare, an engineering consultancy. “This allows us to offset the VAT that is payable by us against any receivables we may have from input sources as well as other group entities.

“For example, if we are using concrete, and we have paid VAT on the purchase of that, that is offset against the VAT payable by us on the contract value that we have charged to the developer.”

Striking an alliance can’t be fast-tracked

For contractors opting for a stake in a project, they have to put their signatures on ‘joint development agreements’ with the project’s promoter. But the process can be time consuming, Also, in cases of a dispute, both parties better be prepared for the long haul. Unlike with ‘joint venture agreements’, the nature of the compensations due for partners in a JDA needn’t be as clear cut in case there a break-up at a later date.