The appliance of science when it comes to alliance

Angela Giuffrida takes a look at the trend of construction companies to form partnerships, and the pros and cons of this approach.

DOUBLE TEAM: Aldar was among the first developers to form a partnership
DOUBLE TEAM: Aldar was among the first developers to form a partnership

Angela Giuffrida takes a look at the trend of construction companies to form partnerships, and the pros and cons of this approach.

In the last year or so, joint ventures among construction firms in the UAE have gathered prominence.

The alliances have come in a number of different guises: property developers have tied-up with contractors, subcontractors and suppliers; local contractors with international contractors, and project managers with masterdevelopers.

The partnerships have either targeted one-off projects or are based on a shared consensus of longer-term strategies, with the ultimate aim being to find a solution to the combined problems of capacity constraints, tight construction schedules and meeting the demand for mega-projects.

Aldar Properties was among the first developers to move away from the adversarial 'them and us' approach with its contractors through partnering.

The company teamed up with UK contractor Laing O'Rourke in late 2006 for the execution of its Al Raha Beach project in Abu Dhabi.

Since then, it has formed partnerships with other contractors, developers and subcontractors for the delivery of its project portfolio in Abu Dhabi, which is currently valued at US $60 billion (AED220 billion).

Among its partners are contractor Belhasa Six Construct (Besix), developers Zabeel Investments and Investment Holdings and district cooling firm Tabreed.

Aldar's CEO, Ronald Barrott, has advocated the joint venture strategy since joining the company in 2005.

"The way forward is to integrate with the contractor at the earliest possible stage," he said. "To leave the contractor to just build is, quite frankly, an historic way of going about construction. Our partnerships enable us to integrate design and construction to get the building finished."

One example of a major local/international partnership is last September's merger between Al Habtoor Engineering and Australia's largest construction firm Leighton Holding. The merger led to the creation of a new entity, Al Habtoor Leighton Group.

Shortly before the companies came together, Leighton had been eyeing alliances in the Middle East as a way of expanding its portfolio of projects in the region, while Al Habtoor was looking at ways of growing its business.

"Al Habtoor and Leighton complement each other," said Chris Gordon, general manager, corporate affairs and strategy, Al Habtoor Leighton Group. "Leighton provided a broad range of different capabilities - particularly in large-scale infrastructure - as well as extensive international experience."

Gordon added: "Leighton was looking to consolidate its presence in this region, and Al Habtoor's unrivalled track record in major building work made it the ideal partner."

Al Habtoor Leighton aims to generate $3.2 billion in revenue in 2008.

Along with major building projects, the company is targetting transport infrastructure (road and rail), oil and gas projects, and marine engineering opportunities.

"Both Al Habtoor and Leighton share a similar approach to doing business, and this has made the partnership significantly easier to implement," added Gordon.

"And it's important that the two parties are compatible. It doesn't matter how big or capable the companies are individually, if they can't work together, it's destined not to work."

Al Habtoor has established partnerships with other international contractors for projects in the region, with one being the $1.2 billion contract at Dubai International Airport in joint venture with South Africa's Murray & Roberts and Japan's Takenaka.

According to Brian Bruce, CEO of Murray & Roberts, partnerships are on a par with 'contracts'. "To believe that partnering is a fuzzy relationship where everyone gets along is wrong," he said.

"Essentially, partnerships are contracts. It's more about having equality in decision- making."

In June last year, Sama Dubai, the international real estate and investment arm of Dubai Holding, announced it was joining forces with international real estate, infrastructure and construction consultant EC Harris to create a project management firm.

At the time, Farhan Faraidooni, executive chairman of Sama Dubai said that partnering with an international firm would accelerate the professional development of the new entity.

But while pooling capabilities and resources to create a bigger entity, or deliver projects more efficiently, is the desired goal of most alliances, problems can arise if the partnering selection process is not properly executed.

One example is a European and Bahraini firm who teamed up a few years ago for the delivery of a project in Bahrain. Although the European partner had executed several projects as a joint venture in Europe, it ran into difficulties in Bahrain.

Although the company will still seek to partner for projects in the Middle East, its experience in Bahrain was a learning curve.

A spokesperson at the company, who wished to remain unnamed, said: "The first thing you have to do is due diligence of your partner. It's important to know the structure, the finances, their track record and what is the added-value of them in your organisation and yours to theirs."

"It also depends on the nature of the project. There are projects which cannot accommodate partnerships, while there are projects where you have to accommodate partnerships in view that the project is big - you cannot expose yourself or your capacity is insufficient to take all the load."

"This is the main reason why companies form partnerships."

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