Douglas OHI's top boss on the state of Omani construction in 2019
EXCLUSIVE: Aaron Hennessy outlines how his contracting outfit will seek growth amid a price war in the sultanate's market
Douglas OHI is neither the smallest nor the biggest civil construction company in the Sultanate of Oman. Founded in 1981 by a joint venture between the UK’s Interserve and Oman Holdings International, the business has proven its credentials in the market. Its ability to operate at both ends of the spectrum by working on multimillion-dollar desalination and power plants through to hotel renovations, roads, and refurbishments continues to drive in-country value in Oman’s people-driven construction sector.
While many companies in Oman face a growing liquidity crisis and a price war, Douglas OHI’s general manager – and Construction Week Oman Awards 2019's Highly Commended Construction Executive of the Year – Aaron Hennessy, says the business has avoided this fight for survival.
I believe that the challenge is moving over to the client to be able to decipher and chose the correct contractor at the correct price level – and this is not always the lowest quoted price.
“That is a true statement for the economy of Oman at present but, like everything, I am confident it will pass with time,” says Hennessy when Construction Week asks him if Oman’s macroeconomic challenges have affected contractors.
“We have been fortunate to have secured work for the coming two years, whilst we still have capacity to deliver further works. A large volume of our work is from repeat clients that share similar values, and this may act as an umbrella for us to seek refuge as the economy looks to overcome its current challenges,” he adds.
Douglas OHI appears well-placed to overcome such economic pressures. After all, it has recently secured two packages for the biggest ongoing construction project in Oman, Duqm Refinery, and was the first contractor to pour concrete on site. Both civil packages are for major, critical work related to the $7bn (OMR2.69bn) megaproject.
A large volume of our work is from repeat clients that share similar values, and this may act as an umbrella for us to seek refuge as the economy looks to overcome its current challenges.
Joint venture Tecnicas Reuindas and Daewoo (TRD) is one of three joint-venture parties delivering Duqm Refinery, itself a joint venture between Oman Oil Company and Kuwait Petroleum International. Douglas OHI recently picked up a deal to deliver the building integrator package. Hennessy says the scope includes construction and coordination of 23 buildings, covering a total area of 18,328m².
TRD also awarded Douglas OHI a civil works package for the process units at Duqm Refinery, which will eventually have capacity to produce up to 230,000 barrels of crude oil per day. As part of the second contract, Hennessy says the contractor will set up civil and underground pipes to support the installation of equipment, piperacks, and specialist structures and networks across Duqm Refinery’s EPC Packages 1 and 2.
Collectively, Douglas OHI’s two construction contracts for Duqm Refinery are worth $64.2m (OMR24.7m). In March 2019, the company made the largest concrete pour at the Duqm site to date after pouring approximately 2,500m³.
Duqm Refinery is a huge project and is expected to create thousands of new jobs in Oman. As a result, it will also play a significant role in Oman’s GDP, contributing up to 8% during development alone. However, Hennessy’s vision expands far beyond the energy hub.
We can stand strong in the timeframe and cost we put on the table – and we don’t mind being challenged on either, because we know it so well that we can get into the fine details.
“Duqm is a new and exciting area, and it’s the start of new projects to come in the future, but as a result of this, every contractor is Oman is looking to operate in Duqm. Everybody is going down there and there is a lot of competition.
“In the good times, Duqm was just an average job. Those figures of around $7bn were touted a couple of years ago and people were not paying as much attention to it. However, the economy is slowing down and there is pressure in the market, so people are focusing on one project [Duqm Refinery].
Hennessy says he is pleased to raise Douglas OHI’s flag in Duqm. But with contractors only chasing projects in the area due to economic headwinds elsewhere in Oman, he stresses that the contracting firm wants to broaden its sphere of influence. To this effect, Douglas OHI has secured work in Salalah and Sohar to ensure revenue streams are diverse. Cross-sector expertise is important too, he adds.
In the good times, Duqm was just an average job. Those figures of around $7bn were touted a couple of years ago and people were not paying as much attention to it.
“We are fortunate that our skillsets can operate across multiple sectors and offer different services to a wider range of clients,” he adds. “All sectors currently have opportunities; however, some clients are increasingly seeking [the] lowest price only, rather than best value. We will not sacrifice our brand by securing work at a price level that is below cost – no one wins in this situation.”
A PRAGMATIC VIEW
While Douglas OHI is not embroiled in a contracting price war, Hennessy admits “there is” a bitter race to the bottom in the market. Indeed, it is a battle that nobody – not the client, contractor, or consultant – is likely to win.
“The contractor who prices the bid incorrectly in order to secure work takes on a big risk. The client is also taking on a risk. But the sector suffers as a result, because you may end up with projects that are behind on time, with shoddy workmanship, and it reflects on every contractor in the country,” he says.
Clients can be a challenge at the moment; they known the market is down and they know that there are contractors out there that are very hungry for work and they will allow them to price off each other.
With some contractors allegedly pricing work incorrectly amid an environment where some firms are “fighting for survival”, Hennessy says clients can be tricky to convince as well.
“Clients can be a challenge at the moment; they known the market is down and they know that there are contractors out there that are very hungry for work and they will allow them to price off each other,” he notes.
Client selectivity is becoming increasingly important as a result of this trend. When it comes to choosing the right client or project, Douglas OHI wants to know more about the plan than anyone else, but as the top boss explains, this strategy that can work both for and against the firm.
“We put a lot of time and effort into understanding everything about the project. We can stand strong in the timeframe and cost we put on the table – and we don’t mind being challenged on either, because we know it so well that we can get into the fine details,” Hennessy says.
While Douglas OHI is careful about the clients it works with and has a pipeline of work secured for the next two years, Hennessy admits the year ahead will be “tough”. Competition will rise and prices could drop as firms fight for a limited pipeline of work: “There will be more competition, which we don’t mind, and within that mix of contractors there will be a large spread of capabilities as well as prices.
“I believe that the challenge is moving over to the client to be able to decipher and chose the correct contractor at the correct price level – and this is not always the lowest quoted price.”
With more than 4,000 workers across the sultanate, Douglas OHI has the resources to weather any economic storm and create the infrastructure, desalination plants, and oil refineries that Oman needs for the future.
Since its inception more than three decades ago, the contractor has been involved in 80% of Oman’s power and water projects by capacity. Its track record on corporate social responsibility and employee welfare has also won it multiple CW Oman Awards accolades. Indeed, Douglas OHI is neither the largest contractor in Oman just yet, but with Hennessy at the helm, it continues to punch above its weight.