UAE developers start sourcing project needs directly and bypassing contractors

Dubai: Project owners are starting to directly source supplies for their construction sites rather than leave it to the contractors as the UAE’s construction sector undergoes more rapid changes brought on by the pandemic and the fallout from Arabtec’s liquidation.

This way, project promoters say, they have better control on construction costs and schedules rather than have contractors dictate it to them. Dispute numbers have shot up this year between clients and contractors on how projects are shaping up and what needs to be done to resolve them.

In some instances, the main contractor was sacked mid-way or even at the tailend of the project after sharp differences arose on the work.

Hands on

The Dubai headquartered Azizi Developments has now taken control of all the building material sourcing at all of its ongoing projects. (The only exceptions are those where construction has gone past the 80/90 per cent level.)

“Material sourcing and planning is one of the biggest problems in construction – we found that by doing it ourselves, the process automatically got better,” said Farhad Azizi, CEO.. “Our buyers want their homes on time. A developer is only partly answerable if a project gets delayed.

“Taking certain things into our control is actually helping with pushing projects to stick to timelines. With every month, it’s getting better and better, and that’s showing up on project progress as well.”

Assign greater powers

What Azizi did was widen the mandate of its internal procurement division. Rather than focus on a handful of needs - such as elevators and chillers to be used in a building - the division took on the responsibility of sourcing the steel, concrete, paint, and kitchen joineries and just about everything that used to be done by contractors earlier. The team, obviously, has been expanded.

Arabtec question

Industry sources say other developers too are taking on similar roles. Hanging over every such move is the situation related to Arabtec, the UAE’s biggest construction company and which is now moving towards disbanding itself after slipping into massive losses. This despite the fact that it still retains a sizeable project portfolio.

There are a couple of other main contractors that are reportedly facing cashflow problems or caught up in disputes.

Change rules of the game

Al of which creates adds to the chain of uncertainties in the local construction industry. This requires new ways of doing business, whether it be clients, contractors… or even subcontractors. “For subcontractors, the best way to recover some portion of their monies in projects where the main contractor is being changed is to work with the developers and the new contractor,” said Sameer Lakhani, Managing Director at Global Capital Partners.

“This allows the under-construction projects to be made viable with the value preserved. There have been numerous instances where developers have already done this. And this has proven to be more expeditious to complete the projects - and extinguish the liabilities.”

Not the aim

Some developers in the UAE are building closer alliances with contractors, which involves having them take equity on a project-to-project basis. Chinese construction giants have actively been pursuing such tie-ups.

Will Azizi make the next move to actually take a stake in a construction company? There has been mounting speculation that Azizi could make such a move. The CEO, however, dismisses such talk.

“We are not looking at acquiring any such stake in construction companies or suppliers,” he added. “Any business that wants to be everywhere will fail. We want to be in our own territory, which is development. This procurement part is only being done to keep our property buyers happy – so, it’s only being done from a developer point of view.

“We don’t want to poke our noses in things like construction or manufacturing. The last thing we want to do is stretch ourselves too thin.”