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Middle East infra contractors face payment delays in 2018

by Neha Bhatia on May 9, 2018


A survey by PwC found that payment delays are challenging the Middle East's infrastructure contractors [representational image].
A survey by PwC found that payment delays are challenging the Middle East's infrastructure contractors [representational image].

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The Middle East's infrastructure project teams, particularly contractors, are said to face pressure in terms of value for money. 

Multi-service advisory, PwC Middle East, found that the region's "governments and industries continue to face challenges and pressure to perform and deliver 'more for less' on social and economic infrastructure projects, despite an increase in oil prices compared to 2016".

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PwC Middle East's Capital Projects and Infrastructure Survey, which included responses from project owners, developers, contractors, external advisers, and financiers, found that for contractors, the spending slowdown in 2017 caused "increased pressure on an industry that was already thinly capitalised". 

Funding constraints on capital projects impacted those at the end of the food chain, with contractors reporting that the biggest challenge they face in 2018 was "payment delays by clients, with availability of funding coming second". 

Additionally, decision-making by clients about factors such as scope changes, was also an external challenge for contractors, 33% of the 95-strong base surveyed on this topic revealed. 

Delayed payments from clients was a major issue according to more than half of the contractors surveyed, with the number being more than thrice as much as developers.

PwC found that margins are also facing pressure, in large part as a result of "cost inflation for labour, materials, and equipment". 

However, 30% of the 95 respondents that answered this set of questions said their margins had improved over the past year. 

"This may indicate a divergence where better-performing contractors have been able to benefit from failed rivals leaving the market, while others that are more leveraged, particularly smaller organisations, have seen their margins shrink," PwC said. 

"As they seek to tackle these pressures, 48% of contractors are focusing on efforts to improve productivity and performance, which is by far the most important internal challenge they face.

"This is followed by the need to improve time and financial performance. The ability to invest in initiatives that would lift productivity is limited, particularly among smaller operators."

Among the factors that limited productivity initiatives last year was a decrease in the "volume of advance payments, due to fewer projects being commissioned", PwC explained. 

 



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