Renegotiation becomes the order of the day

Mish'al Moosa, managing director for the Muscat-based Dar Al Zain project.
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Clients, contractors and suppliers across the region are beginning to renegotiate contracts. CW talks to some of the top experts in the industry to find out what they think about the trend.

Last week, Construction Week discovered that City of Arabia – the Ilyas & Mustafa Galadari-owned US $3 billion development – is currently renegotiating certain contracts.

According to the company, a shortlist of two consultancy firms have been drawn up, one of which will replace the original lead consultant P&T Architects. Along with this, the company is also renegotiating a number of construction contracts.

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After speaking to several more people within the industry, it quickly became evident that this was just the tip of the iceberg and that renegotiations are the order of the day.

While some of the industry felt it was the best option in a difficult market, a part of it felt it was ‘unfair’ and it undervalued the legal strength of contracts in the region.

“It is the normal thing to do,” said City of Arabia project director Alex Vacha, when asked why he was renegotiating.

“How can you expect us to keep on paying prices that don’t make sense in the current market? Everyone knows how over-inflated the market was two years ago, so a correction had to come; raw material prices were out of control earlier and because that’s changed now, construction costs have corrected drastically.”

Steel and concrete prices plunged last year due to the economic slowdown.

The price of steel plummeted almost 45% while concrete rates declined 15%, according to a report issued last week by the Statistics Centre Abu Dhabi.

Steel products were the worst affected in the construction material sector, falling from around $1100 per tonne in 2008 to about $550 per tonne in 2009.