Middle East contractors embrace selectivity to manage financial risks
As payment delays challenge parts of the Middle East’s construction sector, cash-savvy contractors in the region are adopting a selective approach to safeguard their growth
Cash-flow delays, while a significant business concern, are not new to the Middle East’s construction industry. In the last 12 months, numerous business leaders have told Construction Week about their struggles in terms of cash collection and management. However, despite these challenging market conditions, a new trend is emerging that could redefine how the regional construction sector does business.
A growing number of contractors in the Middle East are adopting a more selective approach when it comes to picking the projects and clients they engage with. Of course, being the preferred vendor and receiving repeat orders still holds aspirational value for the building community – and bidding activity is as competitive as ever – but contracting leaders are also gradually becoming more comfortable with refusing work when doing so makes more financial sense for their organisation.
Take the example of Praveen Sarapure, group director and chief executive officer of Brayan Group. In November 2017, he explained his company’s selective policy for success in the mechanical, electrical, and plumbing (MEP) sector. “If there is no bank finance, we will not even touch that project. An MEP contractor enters the picture almost at the end, and if you do not take precautions, you could [suffer],” he told MEP Middle East.
Last month, Semco’s Subhash Pritmani reiterated the need for selectivity in the MEP contracting community, saying that MEP contractors must refrain from getting “carried away by the booking order”.
However, even civil contractors – which typically have a greater scope and a longer timeline on projects than their MEP counterparts – are being more judicious as they seek new work.
For example, speaking to Construction Week in July, Rajesh Kumar Krishna, chairman and CEO of Beaver Gulf Group, said pricing margins and increased costs have led his company to take an even more discerning view of the projects it bids on.
Krishna explained that selecting clients that agree to – and follow through on – equitable payment terms is the most critical factor in ensuring corporate efficiency and growth: “We have not had bad debts or payment delays beyond 60 days in the last three or four years – that is why we have been successful and the company is growing: because of the good clients and the projects that we are able to select, and our prudent cash-flow management.
“If someone offers me a better [price] and a 20% margin, [but promises to pay] in four months, I do not go for the project. Pay me in 30-45 days and give me a 7% margin, and I will do the job,” Krishna added.
With some of the Middle East’s biggest contractors beginning to embrace this new approach in order to safeguard their long-term growth, the onus is now on clients to make it easier for regional contractors to do their job.