Dubai: Payment periods for contractors and suppliers now average around 120 days as opposed to 60-90 days earlier, placing an additional layer of stress on the local construction sector. For major public sector contracts, credit terms could go up to as high as 180 days, industry sources say.
These stretch payments will leave a sizeable cash flow dent across the entire project chain, with the bigger players passing the buck on to the mid-tier, which immediately does the same to the smaller entities. “It’s impossible to get into a project now where credit terms have not been extended … it will require a major adjustment on the part of the contractors,” said an industry source. “It could have got worse if not for the fact that major project awards and tenders are still happening in Dubai.”
Where possible contractual terms are being reworked to reflect the changing circumstances. But, thankfully, contractors have not resorted to ad hoc moves to cut their project bid quotes to win them at any cost. If that were to happen, the consequences for the industry would have been much worse.
But contractors will need to handle the on-ground side of things with some finesse … any delays and there could be a steep price to pay. (Some of the bigger developers have linked payment instalments from buyers to progress attained on the construction side.) In fact, disputes in the Middle East’s construction industry has surged again, totalling $76.7 million last year, according to figures released by the consultancy Arcadis. This is the highest since the $112.5 million in 2011, when the construction industry was still feeling the legacy of the financial crisis that imploded two years before that.
Just as bad for everyone involved in the dispute — except for the lawyers — is that it takes an average of 15.1 month to arrive at a solution. This is up from the under 12 months that was the norm in 2013.
According to the Arcadis findings, the spike in disputes last year also related to claims being initiated for projects that were undertaken in 2008-09.
“The Middle East construction market is back in full swing and contractors and employers are seeing more liquidity in the market,” said Edward McCluskey, Head of Alternative Dispute Resolution — Middle East at Arcadis. “With this, though, parties now have the funds to pursue claims. We forecast that this trend shall continue.”
