Teamwork: capacity issues shift client-contractor relations

Rupert Cornford looks at how market dynamics affect the relationship between client and contractor.

In a resource-constrained market
In a resource-constrained market

The relationship between contractors and clients has traditionally been quite a tense one. Market forces of supply and demand have created power struggles between each party and led to a long-standing adversarial relationship.

But in the last year the winds of change have started to pass through the UAE construction industry. Traditional approaches to procurement are being questioned and key clients have evolved their contracts in an attempt to secure delivery in a resource-constrained market.

More and more clients are negotiating contracts with who they want to work with, because time is money now.

This has led to an increase in direct source negotiation and the advent of partnerships between client and contractor.

"More and more clients are negotiating contracts with who they want to work with, because time is money now," said Steve McConnachie, general manager, Al Masaood Bergum. "Overheads are so expensive and delayed projects are costing money."

In a market where tight deliverables and stretched capacity are among the main challenges, many parties to construction contracts have realised the importance of improving their working relationships. On Aldar Properties' Al Raha Beach project in Abu Dhabi, which has a construction phase spanning decades, the developer has adopted a partnering form of contract that sees contractors being brought in at an earlier stage to overcome time and cost issues. It also offers more of a risk-sharing approach, something that has traditionally led to an imbalance between parties.

"The relationship will balance itself out with the potential of partnering," said Gordon Moffat, regional managing director, Systech International.

"If a client selects a contractor who offers various options at an earlier stage, it can optimise the build time by discussing methods of building with a contractor early.

"Ultimately, clients are concerned about delivery: getting the right contractor with the right track record who will be able to deliver on time is a priority."

But for others, the situation is more clear-cut, with economic factors playing a greater role in the successful procurement of a contractor.

"Good client and contractor relationships are essential for the smooth flow of things, but at the end of the day it's the bank guarantee that a contractor provides that will get them the job," said one local contractor.

"Relationships take a back seat when the time of awarding the contract comes up. Business is business in the end and that's how the client sees it."

But while economic viability will always remain a concern for developers, there are further indications that the wider picture is being considered in order to bring contractors on board.

In a move to improve the risk-sharing relationship, the Abu Dhabi Government recently adjusted certain clauses in its FIDIC-based contracts for infrastructure works. Although the move has received a mixed response from the industry, with some experts saying that it doesn't go far enough, one local contractor believes it is a step in the right direction.

"I think the government is really trying to improve things," said Fatima Obaid Al Jaber, chief operating officer, Al Jaber Group.

"The Executive Council has approved the FIDIC contract - which is really a step forward for contractors. Whereas before the contracts were biased towards the government and we found difficulty in negotiating certain conditions, now, it's much easier. And also the terms of payments are getting better," she adds.

But while forms of contract can go some way to help the industry come together on larger jobs, they are generally considered as a last resort for the majority of projects. For some, individual relationships are thought to be far more important to the success of a development.

"I think that individual people and personalities have a lot more to do with it - the contract is a last resort. You only go to that when you can't sort it out face to face with the people you're dealing with," says Moffat.

And this feeling is shared by Grahame McCaig, general manager, Dutco Balfour Beatty.

"On any construction project you do, it's all about teamwork - if you get the right team together, it doesn't matter how you procure the job," he says, before explaining how a close relationship with the Dubai Roads and Transport Authority (RTA) has secured repeat work and a culture of trust.

"The RTA is one of our key clients, we have done a lot of work with them and I think there is a huge amount of mutual respect between them, their engineers and ourselves.

"There are going to be hassles on any job you do, but I think we have the kind of relationship with the RTA where we can sit down and discuss issues openly."

While the RTA uses its own standard form of contract based on FIDIC guidelines, it has begun to roll out internal initiatives, including regular discussion forums, to increase communication between parties.

"What we are trying to do is achieve a balance of the three Cs - client, contractor and consultant," said an RTA spokesperson.

"At the end of the day, the objective of any project is to deliver. So a win-win situation is what we are looking for."

While the forces of supply and demand will continue to place both contractors and consultants on unequal footings, there is no doubt that capacity issues and the industry's continued success could be the catalyst for more of a partnering approach to procurement - new forms of contract, adjustments to the small print, communication initiatives and direct negotiation have all been driven by the local boom.

Although the feelings of mistrust may take a while to fade, it appears that a ‘them and us' approach will not work in an industry with its sights set higher than any other in the world.

"If the pendulum starts to swing again, we have got to make sure it doesn't go past equilibrium," said McCaig.

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