Face to face: Mark Andrews, Laing O'Rourke
Myopic contracting practices are wearing down the UAE’s construction sector, according to Laing O’Rourke Middle East’s managing director, Mark Andrews
“The problem with our industry is that in order to survive [during] bad times, the prices get too ridiculous,” Mark Andrews declares. As managing director of Laing O’Rourke Middle East, Andrews’ remarks aren’t exactly controversial. This region is well known for its price-sensitive tendencies.
What’s more, the Gulf’s construction community would do well to heed the advice of industry veterans like Andrews – one of the select few who managed to weather the storm of 2008 and come out fighting.
Over the course of the past 20 years, Andrews has held senior- and management-level positions at a selection of the industry’s biggest players, including Balfour Beatty, Drake & Scull International (DSI), Murray & Roberts, and Arabtec Holding.
When last decade’s global economic crisis hit, he was working outside the GCC for UK-headquartered engineering consultancy, NG Baily. He arrived in the region in 2010, and was appointed to his current position in 2014.
Speaking to Construction Week at Laing O’Rourke’s regional offices in Dubai’s Deira locality, Andrews reflects on the development of the construction industry over the past decade.
“My feeling is that the recession was just as bad in the UK [as it was in the Middle East],” he begins.
“It manifested itself in different ways, but it was bad,” he reiterates, adding that large-sized contractors took major hits, whilst smaller outfits found themselves rapidly losing business.
These market dynamics resulted in bidding wars, which Andrews argues served to drive the unsustainable contracting practices that followed.
“The UAE was still a tough environment, but a lot of contractors were sitting around on some fairly hefty legacy projects,” he explains.
“I think a lot of people were surviving off of contracts they’d won previously, but inevitably the pricing level coming through on new work was bleak.”
Andrews agrees that “a hardening of the supply chain” has taken place over the past 12 months, the impact of which is being felt by contractors during the sourcing of building materials. This, in turn, has become a burden on project funding, which has also been negatively affected by the low oil price.
Diversified economies, such as the UAE’s, can endure this cash-flow squeeze even as ambitious projects are planned, but private sector developments will have to be driven by realistic market conditions until global oil prices regain stability.
“One of the problems you sometimes still feel is that there’s someone who’s prepared to throw a lower price to win the job. But in reality, that kind of strategy will hurt them at some point,” Andrews warns.
In Andrews’ opinion, this problem permeates the entire spectrum of contracting activities in the GCC.
Some builders looking to float an initial public offering (IPO), for instance, will seek work to maintain lucrative share prices based on a busy project backlog. Others may chase advance payment to improve access to project funds. In any case, Andrews insists that a thorough understanding of a contracting outfit’s long-term prospects is key to ensuring that project bids are appropriately priced.
“My feeling is that there’s a lot of work coming up over the next five years, provided [those projects] get funding and we see sensible behaviour from the industry,” he says, noting that a higher number of planned projects will increase demand for experienced industry professionals, and that contractors will have to realign their recruitment strategies to meet the standards required.
When asked whether the local construction sector has the right number of skilled workers to meet development targets, Andrews replies: “I think recruitment is a key issue for the whole industry, and if you get it wrong, then you’ll fail.
“There are some specific areas that require people who are trained on modern technology such as BIM [building information modelling], and there have certainly been shortages in the number of people with the right skillset in that area,” he continues.
“I think there’s an argument that while some of [this shortfall] is to do with inherent issues with the resource base here, some of it is also due to the way contractors and other [industry players] operate in this market.
“If you look at a market like the UK, you’ll find that companies are investing a lot more in developing and training those people, and there’s probably an expectation in the environment that they’re going to stay longer. Whereas here, there’s a sort of sense in the market that people will hop from one project to another; they’re not particularly long-serving or loyal to a company. I think we have to address some of these issues.”
Andrews opines that overcoming such challenges will require a two-pronged approach. “Firstly, you’ve got to [promote] continuity in the volume of work, and that’s extremely difficult in this market,” he says.
“The second thing you’ve got to do is become an employer who is better than the pack. [You must] become an employer of choice, which involves a whole range of different issues: from training, the way you treat people and the way you remunerate [your staff], to the way you behave and the company culture. We have a positive morale at Laing O’Rourke, and I’d like to keep it that way,” he emphasises.
Continuity represents a recurring theme in Andrews’ role at the UK-headquartered contractor, which boasts an historic project portfolio of high-profile GCC developments such as Abu Dhabi’s Al Bandar, Al Raha Beach and Aldar Headquarters, and Dubai’s Atlantis Hotel.
Laing O’Rourke also worked on Dubai International Airport’s Concourse 3 project, as well as “various other residential and commercial developments” in the UAE.
“I guess in comparison to [these projects], over the last four years or so, business [has] wound down,” he continues.
“The Aldar joint venture amicably came to a close, some large projects evaporated, and I suppose [that over] the last three to four years, Laing O’Rourke has been fairly quiet, being run on a more ‘care and maintenance’ basis.
“I think my predecessor’s brief was to clean up the balance sheet; to not take too many risks and just try and keep the thing ticking over. I joined the business in the latter part of 2014 with a brief to try and pick it up again, and so far, we’ve been very successful with that,” he adds.
Laing O’Rourke now boasts a project backlog that could more than double its turnover, but Andrews is quick to add that the contractor’s presence in the region is about more than quick financial gains.
“The trick is to try and continue the growth going forward for the next few years; you don’t want it to be a one-year blip,” he explains.
“That will depend upon the pipeline work that is coming through, and being able to secure it at reasonable terms and prices.”
The contractor has already secured a series of large projects in the UAE, including packages at Dubai Parks and Resorts’ (DPR) motiongate Dubai, the Emirates Flight Catering (EKFC) facility, and Majid Al Futtaim’s (MAF) Hilton Garden Inn.
Laing O’Rourke’s scope at EKFC comprised a production kitchen, the extension of existing offices, and the upgradation of its security facility. The contractor was picked to deliver the structure, fit-out, and mechanical, electrical and plumbing (MEP) works – and also to manage specialist equipment packages at the development – within a 15-month timeframe.
Similarly, the Hilton Grand Inn project involved Laing O’Rourke working under a design and build (D&B) contract with MAF. Andrews says his team devised a construction programme that involved the provision of “precast assembly, full modular bathrooms, and modular MEP systems”.
Emirates Precast, partly owned by Laing O’Rourke, manufactured the project’s precast concrete frames, Crown House Technologies provided mechanical and electrical elements, and bathroom ‘pods’ were created by Modulor.
All these companies sit within the Laing O’Rourke group, and Andrews says the agreement with MAF offered the contractor a greater degree of control over the supply chain. “We hope that’s a model that we can take forward with other developers and other hotels of that ilk,” he continues.
“As Laing O’Rourke, we’d like to see far more contracts going down the D&B route. If you look at a market like the UK, about 95% of what we build is D&B. [In the Middle East], this statistic is probably reversed. Some of the more sophisticated clients here are now trying it out, and some others were trying it few years ago; but it’s very much the exception rather than the rule.
“As a contractor [deploying D&B], you get far better control of the design process because you’re managing it, you’re responsible for it, and in our case, you get a far better opportunity to influence the design so that it can be constructed effectively,” Andrews adds.
“Laing O’Rourke is a company that passionately believes that anything that could be made in a factory rather than on a construction site should be made in a factory. But you can’t do that retroactively, and you have to design it in at early stage.”
Laing O’Rourke was awarded the main construction contract for DPR’s motiongate Dubai in September 2014. Under the deal, the firm will construct, commission, test, and complete the park’s DreamWorks’ zone, including its substructure, superstructure, façade and roof, MEP works, ride installations, and fit-out operations.
Encouragingly, the year ahead looks busy for Laing O’Rourke, and Andrews is confident that it can achieve realistic success in a challenging economic climate. However, he believes that any evolution in contracting philosophy will have to be driven by the industry itself.
“The [GCC construction sector] has gone through a fairly rough period over the last five or six years, and what’s required is a change of behaviour from contractors, consultants, and clients across the board.”