Gaining market share
Can the MEP sector keep pace with the scale of construction in the Middle East market? With news of staff poaching and selective tendering the answer may appear to be 'no' but today's volume of tenders it also providing golden opportunities for contractors. Alison Luke reports.
The Middle East has produced the most unique construction market in the world. Where else would you see enormous islands being formed in the ocean, buildings set to top 180m tall and a science park disguised as a series of flying saucers?
But as the world stands back and stares in awe at the developments, news of yet more projects reaching planning stage is bringing mixed reactions from those on the ground. The speed at which developments are being started, ambitious completion dates and the fact that so many major schemes are being carried out concurrently is putting a huge strain on resources, with the MEP sector no exception.
“Because everybody is stretched to the maximum, getting qualified resources is now the biggest problem,” states Ziad Taleb, MEP manager with Consolidated Contactors Co (CCC). “There is a big shortage of good contractors who can do big works and who can take up these mega projects,” adds Prakash Khatri, director of Trans Gulf Electro-Mechanical.
The opening day of the recent Big 5 exhibition also saw the release of the latest research from the Middle East’s online recruitment firm GulfTalent.com, which brought mixed news for contractors. The research reports “acute shortages” of staff, with problems in the supply of engineering and managerial level staff as well as site operatives. But on a positive note, a changing balance of power in favour of contractors was also noted.
The economic growth of other areas of the world has exacerbated the problem of finding suitable staff. Countries that traditionally were recruitment grounds for operatives, such as India, are now undergoing their own development and wages being offered to qualified workers are similar to those in the Gulf. There is also a movement of Western employees to new opportunities in China, reports GulfTalent.
“One of the problems I see now with our subcontractors is they are getting resources from India and Pakistan, but they are not qualified; the qualified guys are all taken. And this is creating a big, big problem. It’s hurting progress,” states Taleb.
“There is no skilled labour left in India and anyone qualified will stay there. Why come away from home when the market there is booming and you get paid just as much to stay in your own country?” reasons Thermo director Alan Sporle.
The difficulty in finding staff is creating a culture of poaching in the market. “Now everybody is stealing from everybody; people are getting paid crazy [salaries] and getting offers left, right and centre from different firms trying to steal them,” reports Taleb. “This is not ethical. I don’t believe in that, but they’re forced to because they are signing contracts without having enough resources.”
“Most people are having to bring in agency contractors,” states Sporle. “Some of these are from the UK, so we’re having to pay extortionate salaries and this of course disrupts your own people…You have to counterbalance this and end up paying them a lot more money than they are actually worth. The danger comes if the workload comes down – these guys are then overpriced and you may have to sack them,” he warns.
The quality of staff available is varying across the workplace as well. “There are a lot of pretenders in the market. In many cases guys we’re terminating as supervisors I’m now seeing employed on other projects playing project directors roles,” states Sporle. “Firms are playing the numbers game with clients and although clients say they realise this, nothing is being done about it.”
Employing personnel for jobs outwith their experience can have a major effect on the quality of installations and ultimately will affect the reputation of the sector as a whole. “Everything is a house of cards. If the main pin is weak then everybody gets this feeling and it feeds down. It’s like a cancer feeding through the industry now,” Sporle states.
International players are now seeing the opportunities for work and beginning to enter the local market, such as the Australian firm Hastie, which has picked up a significant amount of work at Dubai Festival City. And in another trend, firms that have not traditionally operated in the MEP sector are branching out and forming new divisions.
Many smaller firms are also now vying for MEP work and outbidding the larger, more established firms reportedly by cost-cutting on quality assurance, quality control and safety measures. “All that’s doing is rubbishing the big companies that have tried hard to put quality into this country,” stresses Sporle. “They call it a small segment of the industry, but it has a big effect.”
“I think we’re heading for a bottleneck. Work is coming out in droves and if the client is happy to accept division four companies then they’ll survive, but the quality [of projects] will suffer,” stresses Sporle. “The projects that have died a death and have cost people dearly have done so because low-rate firms have been employed to carry them out. It will get a lot worse and something will have to snap,” he warns.
The reduced experience levels of available staff is changing the training patterns of firms and as well as more investment in training, the recruitment policies are altering. “We have a problem getting qualified engineers, that’s why now we’re getting junior engineers out of school and training them heavily. We always do it, but this year we increased the number of junior engineers hired because we’re planning for the future,” reports Taleb.
Other such as Thermo have gone one step further, the firm has begun an internship scheme for engineering staff and is currently taking applications for the first intake in February 2007.
For site operatives it has two training schools. “We carry close on 15,000 labour – where do you get these from?” questions Sporle. “When we go out we know that we won’t get skilled people, so we appreciate that the people we’ve recruited are enthusiastic enough to have left their own countries to come and work here and we provide them with safety training and basic skills training.”
The positive side of the quantity of work available is that contractors are now in a very strong position. This change in market dynamics has swung the balance of power from developers to contractors. Firms should not need to take on work without guarantees of payment and acceptable contractual conditions. Many report that they are now regularly turning down offers of work because they do not have the capacity of staff to take them on or, perhaps more importantly, because the conditions are not right.
The increased costs of benefits to retain staff are also playing their part in the decision process. “We are still fighting for the same prices and its just killing our profit margins,” says Sporle. “Most MEP contractors are starting to say the same thing – lets not do it. I think all the MEP firms are doing that in our own way.”
“We are receiving two or three new tender documents every day and I’m putting them in the dustbin,” states Khatri. “We are not taking any more jobs until January 2007 and are only quoting for selective tenders for the first quarter of next year. We target some clients who have a good reputation in the market, payment is on time and then you don’t have any problems. If the client is right we will take the project.”
“We look for those with a good name and that give us confidence that they can pay on time,” adds ETA-Ascon senior executive director Ashok Agarwal.
Sporle confirms: “Because of the shortage of labour we do only selective tendering now and I turn away 80% of tenders because we’re full for next year already. What we take on has got to be worth the money, be a decent job and we’ve got to be appreciated for what we do,” he adds.
Gareth Lucken, managing director of Drake & Scull Group’s Industrial Water and Power Division comments: “As a business plan you always want to be able to move to a point where you can select the projects you want to work with because you’ve got the skillsets that are productive and potentially you’ve got the opportunity to make money out of them. Otherwise you’re taking work for work’s sake.
“Whereas five years ago the market was very, very competitive, there wasn’t the quantity of jobs in the market so people tended to go and bid for as many jobs as were coming into the market because the strike rate was lower,” he adds.
The volumes of work in the local market also mean that firms no longer have to travel for projects, which is putting a strain on other areas developing in the region. “We are sticking to Dubai,” confirms Khatri. “We’ve had offers for jobs in Doha, Qatar but we’ve had to say no.”
But is there really a skills shortage in the market? Some firms argue that this is not the case. “There’s not a shortage of skills, the problem is that people are ramping up their business, so they’re bringing in more people,” opines George Shields, general manager of BK Gulf. “The skills that I have are adequate, but if I’m increasing the volume of the business then I need more people, so yes I have to get more skills base, and the world is not an idle place at this moment of time.
“I used to have this conversation in London where people say ‘we haven’t enough people’. I say that’s not true, they’re there, it’s just how you go about recruiting them,” he adds.
Lucken reports that while the lack of experienced engineers is “becoming apparent”, that there is still a supply of tradesmen, Drake & Scull recently having recruited another 270 employees from India. “A lot of people are saying there’s a shortage, but a lot of it’s because you’re having to go and look a bit further than your doorstep, which is no surprise,” he stresses.
“We’re having to look further afield to get quality, qualified people with the relevant experience and obviously with that it takes more time to do and it escalates the cost,” adds Lucken.
“One of the bigger challenges is finding engineers with the relevant experience for the work in the market. So when somebody says ‘I’ve got a good cv for you’ we don’t say no, we always make sure we put the effort in to see somebody so we don’t miss an opportunity,” he stresses.
Clients have also noticed the issue and are getting more discerning about their own choice. “Developers are now negotiating with contractors,” reports Khatri.
“The market here is just at pressure-cooker level and people are taking on work when they don’t have the resources to do it, so we end up trying to broker a deal where we are assured of getting at least some level of assurance of getting it done,” confirms Ron Coulter, building services manager with MKM Commercial Holdings.
Where preferred contractors lists are now common in some areas of the world, clients are reporting that this is not always possible in the local market. “In modern Dubai we have to go out to tender, because its so volatile and fast moving and so dependant on resources…we just can’t afford to say we’ll have the same people all the time,” explains Coulter.
“From the information that one looks at, construction is likely to go on for another ten years and I don’t know how we will build up a datum of skilled contractors and staff when everybody is fighting over each other and staff to do the work,” Coulter adds. “The situation is not conducive to creating an infrastructure of skilled workers and good quality products. What happens is the price goes up and the quality falls.”