Middle East builders hedge bets after project delays

With hundreds of billions of dirhams in UAE construction projects on hold, today a major industry conference kicked off in muted fashion as contractors and suppliers look to ways to spread their risk.

DUBAI // Construction contractors and building suppliers are spreading their exposure to different types of projects as hundreds of billions of dirhams worth of developments hang in the balance after the financial crisis, executives said this morning at the annual Big 5 conference.

Husein Odeh, general manager of the US contractor Turner International Middle East, said that after two years of challenging economic conditions prices for materials had dropped below 2007 levels and companies had become highly competitive over what work is left. Turner's Dubai office has reduced in size by 90 per cent to just 50 people from 500 at the peak.

"We got hit very hard in Dubai," he said. "During the boom, developers did not properly study market demand and contractors didn't ask for feasibility studies."

There are some US$457 billion worth of construction projects in the pipeline in the Emirates, representing 45 per cent of the market in the Gulf, according to a report released from Deloitte yesterday about the industry. A large per cent of these projects have been indefinitely put on hold as developers try to raise funds to complete construction.

The make-up of active construction work has shifted starkly toward the public sector, with the Government spending increasing amounts on infrastructure. In 2010, Government awards increased to $58bn in 2010 from $26bn in 2009, while private sector contracts have dropped to a historic low, Deloitte said.

Cynthia Corby, a partner at the firm, said construction companies were diligently trying to find more work in Qatar and Saudi Arabia, but that the larger change in the sector came to how they were trying to reduce the risks they were exposed to when signing contracts.

"In the past [contractors] were taking change orders at the end of the project," which caused additional expenses for them, Ms Corby said. "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."