Qatar's contractors must study its risk structures
Contractors new to the Qatari market must understand the Gulf state’s contractual and risk structures to reap the benefits of its construction industry
Talking to contractors today, the general feeling within the construction industry appears to be that we have possibly entered a prolonged – and quite severe – downturn. With the recent round of OPEC talks in Doha showing no sign of agreement regarding production caps, it remains likely that Gulf States will continue to be circumspect with budgets and only push forward essential work. This view appears supported by many contractors reporting a failure to secure any significant contract awards since late last year.
However, despite the doom and gloom, the Gulf continues to be an attractive market for international contractors to enter and do business in. Whilst there may be a downturn in the region, as oil prices continue at the ‘new norm’ of $42 a barrel, the potential for workload to be had remains well above what may be available within other countries and regions.
If you are an international contractor aspiring to be involved with billion dollar projects, the Gulf still remains the place to be.
Entering the marketplace and securing work involves many risks, not least starting with finding an appropriate sponsor, securing places on tender lists, and establishing a functioning supply chain. But certain key issues are sometimes missed in the hustle and bustle to deliver a competitive tender. Should you be a new contractor to the region, it may be worth spending some time reviewing the following three key risks.
It may sound like an obvious suggestion, but it is vital that any potential contractor reads the contract terms thoroughly to fully understand the allocation of risk anticipated under the proposed agreement.
On first inspection, many contracts in the region appear to be derivatives of the International Federation of Consulting Engineers’ (FIDIC) Red Book, which may suggest to the contractor that the scope is traditional ‘Construct Only’, with an accompanying equitable share of risk.
Look closely at the specification’s details, because most projects are being procured in a hurry and may actually contain design and build activities, or responsibilities verging on engineering, procurement, and construction (EPC) to cover for an incomplete design. Read the proposed contract agreement in detail to fully understand the risks involved, or have the proposed agreement independently reviewed.
It is all too easy for contractors from different cultures to assume the contract agreement will be administered in line with the norms of what would be expected in their home jurisdictions. Particularly risky is an assumption that a contractor’s efforts to resolve design discrepancies, accommodate substantial change, and drive a project forward, would be compensated reasonably without substantive recourse to the contract agreement. As one contractor put it to me, he assumed the contract agreement would remain ‘placed in the bottom drawer’ for the duration of a project.
Most project management consultants are sophisticated entities specifically employed to correctly and diligently administer the terms of the contract agreement. Contractors must therefore be ready to administer the contract agreement on equal terms.
Despite the size and geographical reach of many international contractors, they remain, in essence, just a ‘people business’. Construction is not like manufacturing, where significant investment is ploughed into research and development, equipment, and fixed assets. It is instead based around the mustering of flexible resources to deliver one-off and bespoke schemes.
Contractors rarely carry large inventories of staff and, typically, procure workforce on a flexible basis to suit the geography and nature of the projects at hand. As a consequence, a contractor’s performance is often greatly affected by the competence and capability of particular individuals they’ve based on the site.
As a priority, contractors need to focus on training and retaining the key staff whom they can trust and rely on to look after their interests around the world. Flowing from that, contractors should then take care with the selection and recruitment of the balance of temporary staff – be sure to focus on securing quality and experience in people, rather than procuring the cheapest resources available.
Andrew Woodward is executive director at Quantum Global Solutions.