Michael Fahy: Over budget and behind schedule in construction

One of the region’s big construction conferences rolled around last week, where the great and the good of the industry get together to swap gossip and tips about forthcoming projects.

They are generally convivial affairs. “We meet, we chat, we talk about doing joint ventures, and then we all leave and go after each other’s work,” was the rather frank assessment of one company boss of how these things usually go down.

They can sometimes be quite frustrating events to cover, too – especially when the inevitable question comes around as to why so many projects in the region run hopelessly behind schedule, and hugely over-budget. A 2014 PwC survey of industry chiefs found that 95 per cent said their projects were delayed, with 45 per cent saying they were more than six months behind schedule. Some 71 per cent said projects were also over budget.

The Middle East is by no means the only region in the world where projects run late and over costs, but it tends to happen more often here. Clients usually blame contractors for delays and, as recently witnessed in Doha when Qatar Rail removed a consortium led by Samsung C&T from the project to build Doha Metro’s major stations, can simply kick them off a project and sometimes keep hold of performance bonds equating to up to 10 per cent of a project’s value.

Contractors, meanwhile, point out that they are often hampered by a client’s desire for a project to be delivered as quickly as possible. They can be appointed for a construction programme, say, of three years, and then have to wait months while architects and engineers frantically finish designs. Or they start work using unfinished designs, then later have to deal with changes and variations within a fixed-price contract knowing that once a project is handed over a further battle awaits over payments.

The answers offered to the industry’s problems are often as well-worn as the arguments themselves. More partnering is needed, they say. All parties agree they should work together more closely.

Contractors call for the adoption of globally-accepted contract forms, such as Fidic, which guarantee them basic rights (such as mediation if things go wrong). Government clients, whose power would weaken if these were adopted, have historically been less keen.

Sometimes, contractors are their own worst enemies. Margins in the industry have always been notoriously low, and in markets as tough as they are currently, there always appears to be at least one firm ready to undercut competitors and work for unfeasible rates – sometimes in the hope of being able to eke out extra profit at a later date if projects run behind schedule by demanding increased payments to catch up.

Formal public-private partnerships (PPPs) have also been touted as a method for overcoming the industry’s adversarial culture. If a government client decides to outsource the entire process of building and maintaining a major asset – be that an airport, a road or a large building – a contractor has no one to argue with over designs and delivery than its own, self-appointed consortium and funders. And if they are responsible for running said asset for 30 years, they are more likely to make sure it is built to last, PPP supporters argue.

Yet PPP has detractors, too, who point out that it can be a much more costly way of getting things built.

A UK government treasury report in 2011 found PPP to be a much more expensive method for commissioning assets than traditional procurement routes, and several UK contractors have come under criticism from the country’s public accounts committee for selling on long-term contracts to run hospitals and other assets just a few years after building them for a healthy profit.

If, as seems likely, PPP is rolled out and grows in popularity in an era of more constrained government budgets, do not expect disputes between clients and contractors (or debates on how to solve them) to end.

At the very least, it will be one more thing to trade stories about when the next set of conferences rolls around.

Michael Fahy covers construction for The National.

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