For MEP engineering firms, 2019 must be the year of change
MEP leaders must find new ways to boost the profitability of their businesses as price competition squeezes margins
It is not uncommon for clients, contractors, and consultants to have their differences, but every part of the construction supply chain currently agrees that a market-wide cash crunch is reshaping the Middle East’s building sector in a multitude of ways.
For one, tight liquidity conditions are intensifying price-based competition, which will likely compound problems for an industry that already operates on low margins. Michelle Nelson, a partner at law firm Reed Smith, succinctly explained the problem at Construction Week’s Dispute Resolution Question Time: Dubai event, which was held on 20 March (watch video).
“There is a drive to put in the lowest bid, even though you know that you are taking on significant risk,” she said, adding that contractors follow this practice despite recognising that their low prices will squeeze their margins.
The impact of the cash crisis is most visible on companies operating in the Middle East’s mechanical, electrical, and plumbing (MEP) sector. This is illustrated by the annual rankings published by Construction Week’s sister title MEP Middle East.
The Middle East’s trillion-dollar construction sector will continue to generate work opportunities for contractors across the spectrum, provided they can efficiently manage their resources.
The Middle East’s Top 25 MEP Contractors 2018 list, which was published last September, profiled the region’s most successful MEP leaders of the year. More than half of those included on the list were MEP contractors that are part of larger parent organisations – both regional and international – that also offer building services such as civil engineering, product supply, and facilities management. As MEP Middle East readies to release the 2019 iteration of the list this September, it will be interesting to see how many independent MEP contractors make the ranking once again.
MEP industry leaders have consistently voiced concerns about the low margins available in their sector. As cash shortages – and the resultant payment delays – impact the building market, these engineering leaders will have to find new, innovative ways to do business more profitably.
The good news is that the contractors featured in MEP Middle East’s 2018 list are still driving growth for their firms. Jayant Balan, who ranked number one last year, has been instrumental in the success of India’s Tata Group-backed Voltas, which was named Contractor of the Year at the recently concluded Construction Week Oman Awards 2019. In second place in MEP’s 2018 ranking was Nathan Hanns, who leads ALEC’s MEP arm, Alemco, which is currently working on the One Za’abeel and Marina Gate 1 projects in Dubai, among others.
It remains to be seen exactly how existing market conditions will influence the dynamics of the Middle East’s construction sector in the year ahead. However, there is no denying that the Middle East’s trillion-dollar construction sector will continue to generate work opportunities for contractors across the spectrum, provided they can efficiently manage their resources.