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Late payments have hurt GCC contractors in 2017

by Neha Bhatia on Nov 25, 2017

Work in progress: Mitigating the impact of late payments is crucial to ensuring the continuity of work.
Work in progress: Mitigating the impact of late payments is crucial to ensuring the continuity of work.

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More recently, Praveen Sarapure, group director and chief executive officer of Brayan Group, told Construction Week’s sister title, MEP Middle East that “good quality manpower and payments are still the major challenges [in the MEP sector]”, adding: “There is no security for an MEP contractor.”

Sarapure said that while MEP works tended to be implemented only towards the end of a construction programme, financial precautions must be deployed from the start: “That’s how we are picking clients – if there is no bank finance, we will not even touch that project. So the challenge is getting payments at the right time.”

Sarapure said that in addition to the 1,500 staff his company directly employed, the firm also had “manpower contractors to put together on-site works, so close to 3,000 people may work with us at any given time”.

He continued: “Good quality is a big issue. Price is still a concern and competition is tough, but I think that now, no more big players are operating [in the market]. Competition might reduce in 2018, and margins will definitely improve.”

Clearly, the challenges caused by delayed payments cannot be overlooked, and their impact is multi-faceted – overdue funds not only reduce vendor liquidity, but also add to an organisation’s costs if litigation is pursued. Commenting on how late payments may contribute to legal costs, Fernando Ortega, an independent legal consultant based in Dubai, explained: “The most common causes of construction disputes for the last two years continue to be non-payment and wrongful termination.

“The low oil-price environment has led to many projects being deferred or cancelled. This has produced many claims and the initiation of formal dispute resolution.

“Existing legislation in the region supports dispute resolution by resolving disputes quickly and efficiently, while minimising costs. The more the rules are clearly set out and followed by the local courts, the more a contractor would be comfortable to operate in the relevant jurisdiction,” Ortega added.

While predicting future market trends is difficult, it is undeniable that the Gulf’s contractors will have to focus their business acumen and resources on overcoming these financial roadblocks in the new year.