Building the Middle East on a deadline

Article published on March 16, 2016
Article published on March 16, 2016

This article has not been vetted by an editor at Paris HQ

From Qatar to Dubai to the UAE or Oman, giant buildings and structures are rising from the ground. Some constructions take a few years, others can take decades or even longer, when the construction runs into issues, of which there can be many in that part of the world. Building when on a deadline is doable, but it’s not an easy task in the Middle East.

Within the past ten years, Middle Eastern countries have started building cities like no other in the past. Every construction has a deadline, it is of utmost importance for construction firms to be able to predict when a project will be completed, as accurately as possible. However, in the Middle East, sometimes, these expectations turn into a true nightmare for buyers or sponsors. It is not rare in this part of the world to see buildings that have been built half way and abandoned due to lack of funds, expired building permits, mistakes during constructions, changes in politics, bankruptcy, corruption or many other reasons.

Dubai for instance has a long history of construction project delays. Long enough that some researchers took a closer look and did a study on the ‘root causes’ for it (1). Among them included housing projects, hospitals, schools, and many other utilities. The researchers are listing over ten reasons some of these major construction projects faced that caused huge delays or left too many uncompleted buildings.

International involvement is among these reasons: “Since the indigenous companies often do not have the qualifications to design, construction or management these projects. Foreign companies are involved in all the industry sectors. They bring the state of art construction technology and management techniques, however, many of them are involved in contractual claims and disputes with project delayed and cost overrun,”(1) explains the authors. In many cases, the construction firms over commit and take on more jobs than they can complete. These construction firms end up being overloaded and sometimes must resort to leaving the country, mid construction. The lack of skilled labor and high quality professionals is also a major risk. “There is a high demand for skilled labor and professional in the local market. Many companies suffer from the high turnover of skilled technicians, engineers and labors. The impact is quite severe during the high peak of construction period,” they added.

Many low costs companies have the bad habit of underestimating the time they need to complete a project, which usually helps them sign more contracts. Once a contract is awarded, it is really complicated to switch to a different company and may end up being much more costly than the original budget. And these delays aren’t only bad for the countries or sponsors, but they can end up being more than costly.

"We got hit very hard in Dubai,” said Husein Odeh, general manager of the U.S. contractor Turner International Middle East (2). "During the boom, developers did not properly study market demand and contractors didn't ask for feasibility studies.” In fact, they are some US$457 billion of construction projects just in the pipeline in the Emirates, representing 45 percent of the market in the Gulf. A large percent of these projects have been put indefinitely on hold, as developers try to raise funds to complete construction.

Some companies even saw their orders drop and their shares collapse because of execution problems in the Middle East. In 2013, Larsen & Toubro, a major global India-based company in engineering and construction, experienced several delays at many construction sites in the Middle East and in India. If the company wanted to survive, they had to cut their prices – “the lower margins, coupled with a fall in investment income and rising interest expenses, meant that Larsen & Toubro’s net profit fell 12.5%,” said Indian business expert Ravi Krishnan. (3)

"In the past [contractors] were taking change orders at the end of the project," which caused additional expenses for them, said Cynthia Corby, partner at Deloitte. "That is where there has to be a huge change in the industry. There has got to be more of a shift in contracts in terms of risk balance. In the past, they were so hungry for work the equilibrium wasn't there. People wouldn't question whether a project was feasible to build.”

But today, in order to build in the Middle East, you have to look closer at the firms you are working with and at their history when it comes to project delays.

Today, Qatar is preparing for the World Cup 2022 and therefore is building entire cities… but with a major deadline. The task isn’t easy and the obstacles are many for Qatar’s public Work Authority (Ashghal), which had to choose many partners for many varying construction projects. Qatar will face the world in 2022 and having everything constructed right and on time is a priority for Ashghal. Eng Nasser Gheith Al Kuwari, Manager at Ashghal, recently stated that Qatar had made a commitment to finish the work on time, properly and with high standards and safety measures. We shall soon see if Qatar will end up facing major delays in the World Cup construction projects. Qatar knows it can’t afford any delay and has to make the right choice to succeed in that task.

(1) Root causes of construction project delays in Dubai, Z. Ren, M. Atout, J. Jones, 2008

(2) Middle East builder’s hedge bets after project delays, Bradley Hope, The National, November 23rd 2010

(3) Larsen & Toubro’s execution problems overwhelm order inflow pickup, Ravi Krishnan, LiveMint, July 22nd 2013