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The road ahead…

Stakeholders blighted by payment delays and the experience of being at the receiving end of lopsided contracts expressed their feelings at The Consultant Contractor Conference 2017, in September in Dubai. In the first of a two-part report, Benwen Lopez presents the discussions that unfolded at the event.

| | Nov 29, 2017 | 11:36 pm
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Picture an architecturally beautiful building, with plush landscaping. Can the aesthetic aspects tell the whole story within it, though?

If a building-performance specialist were to tour the facility, the chances are that his informed eye might see a different picture, if MEP design and installation exercises have been partially or fractionally compromised. His training and engineering instincts might allow him to perceive the occupant experience as being different from the intended goal of an enlightened developer.

At a time when there is much talk of enhancing the performance of buildings, against the backdrop of government efforts to reduce carbon emissions and to improve indoor environmental quality, an area that needs as much attention as the approval of equipment that promotes energy efficiency, water efficiency, safety or air quality is the systematic aggregation of well-qualified expertise in the country to carry out the multiple tasks and functions that go into erecting a habitable structure.

A springboard for action

The premiere edition of The Consultant Contractor Conference, which ran from September 18 to 19, 2017, in Dubai, offered a springboard for the construction community to antiquate those conventional practices that lead to poorly performing buildings and to embrace a holistic approach and excellent practices towards sustainable development goals.

As Saeed Al Abaar, Director at AESG, pointed out, “The industry is involved in a lot of rapid design, construction and commissioning, and there is a lot of simple things done wrong.” He affirmed that the current issues faced by the industry need to be microscopically investigated and introspected to find solutions and improve the situation, while exploring the opportunities for building performance.

It is a familiar mantra that quality is the cornerstone of building performance, and Al Abaar asserted that it is not just the quality of products but also the quality in people. He also agreed with Carlos Amaya, Senior Specialist, Conformity Scheme Services – Product Conformity at Abu Dhabi Quality & Conformity Council (ADQCC), who highlighted the role of his organisation in setting industry benchmarks of quality for products and people.

A need for a trickle-down effect

While Amaya’s words are music to the ears, the need is for the government’s well-intentioned actions to trickle down to the construction sites, for instances abound of small-time or new and often incompetent contractors trying to bite more than they can chew. Through under-quoting for projects, they bag contracts and but soon discover they are not able to deliver. As George Berbari, CEO, DC PRO Engineering, said, sometimes, contractors take on projects that are beyond their technical expertise and, then, struggle with the finances.

Berbari also said there is a void in the quality of engineering, owing to the lack of specialised MEP consultants and contractors. In other words, the market is populated with general contractors trying their hand at specialised MEP works without the necessary expertise in their ranks. Bearing this in mind, Khaled Derhalli, Operations Director, Efeco (Arabtec), called for specialised MEP consultants and contractors in the market to truly contribute to the success of UAE Vision 2021.

For Berbari, it is difficult to identify the “right” MEP consultant or contractor, owing to the rampant practice among developers of going for low-cost MEP expertise, or to architects offering in-house MEP services. He affirmed that there is no framework to control MEP certification or drive up quality consultants.

In reality, the fancy term, ‘low-cost services’ is what is driving down the market and spiking up the competition, the participants at the conference agreed. As a result, Berbari said, several contractors have gone bankrupt – a case of maxed-out financial constraints. One of the primary drawbacks that caused the downfall, he said, is the lack of knowledge among new or small contracting firms on the pricing of the various-sized projects.

Voicing a similar opinion on the lack of expertise, Sameer Daoud, Chief Development Officer and Managing Director (Saudi Arabia), Drake & Scull, said that capabilities are the keys to success, and small contractors need to know and understand their limitations, especially when it comes to taking on projects that may be beyond their reach, technically and financially speaking.

At the same time, he pointed out to the reality of big contractors trying to expand marginal services into areas that are outside their domain of business. This particular practice, he said, leads to disruptions and financial calamities, owing to their inability to resolve the issue at hand on time. “We are in a challenging and competitive market, but there are a lot of opportunities and enough work for all,” Daoud said. “But the key is to focus on the core business and make sure that we have the right technical expertise in addition to financial stability to deliver.”

Agreeing with Berbari and Daoud, Jeán van Loggerenberg, Director, CKR Consulting Engineers said there is a serious lack of specialised MEP contractors and that there are only two or three contractors at the moment in the country who can take on major projects worth millions. He also said the success of a project hinges on the consultant’s and contractor’s ability to understand the objectives of the client. Doing so, he asserted, would help them deliver the project on schedule. Darrel Strobel, Managing Director, MEP Engineering, Design Division, KEO International Consultants, also emphasised on the need for contractors and consultants to understand the developer’s objectives and requirements. Typically, the developer is looking to address critical issues associated with budget controls and optimisation, he said. At the same time, he is looking at getting the job done swiftly with excellent design quality.

Against a strong need for MEP specialists to fully understand the developer’s perspective, Strobel pointed out to a growing trend of hiring offshore MEP consultants sitting in different parts of the world. This approach, he said, causes problems, owing to lack of constant communication and, more critically, a lack of understanding of the construction principles of the GCC region. However, developers choose the option, because it is cost-effective.

Daoud said the correct approach is for the developer to appoint the right [specialised] consultant at the right price, apart from the practice of peer reviews. It is equally important that the developer is involved at the time of drafting the contract.

Drawing up the plans

It is a known fact that the foundation of a building project is the contract that is drawn. Keeping in mind that every stakeholder’s interest must be protected, it is important to ensure a fair contract. However, the reality is that the MEP contractor is always facing the music in many projects. Berbari believed the problem owes its origin to the fact that many developers do not set any key performance indicators (KPI) except for the area ratio and the cost ratio.

Elaborating on Berbari’s thought process, Sagar Kulkarni, Managing Director, Consistent Engineering Consultants, said that most contracts are of verification and compliance type in the region. One person covers the design and the other covers supervision, resulting in no intent to transfer between deep-design and the contractor supervision team, he said.

Kulkarni said the problem can be solved if the contracting process transitions from verification and compliance to performance-based contracting, where such KPIs as consumption per square feet per year and energy-used index can be implemented. Such a practice would give flexibility to the designer in selecting the materials without affecting its quality.

Riad Nashif, Executive Vice President, AECOM, drew attention to the often unreasonable time frame that consultants and contractors are pressurised to work under, as another issue relating to the drafting of contracts. He said clients and developers need to specify their goals from the beginning and make the intent evident, along with the budget and objectives of the project.

Nashif said that a semi-contemplative approach is required during the conceptual stage. Even if it takes an additional couple of months than needed, it is beneficial in the long run and, ultimately, drives up the building performance, he added. Nashif also suggested a performance-based design as a viable option for smart MEP systems, if they are directly contracted. However, he said, the level of skills of the contractors and consultants leave a lot to be desired.

From a contractor’s perspective, Chandra Shekar Reddy, CEO, Elemec Electromechanical Contracting, the situation is bitter when it comes to contracts. From his experience, he said other stakeholders do not give the MEP contractor the due respect. He said this could change if there is a team-based approach among stakeholders, where knowledge is shared and solutions are collectively reached.

Reddy said it is imperative to usher in best practices, given the rapid market changes, especially driving up to the EXPO 2020. A firmly entrenched set of best practices, he said, is the only way for the specialised MEP community to cope with the situation.

Explaining how transparency and trust factors can be translated into the contract, Reddy suggested a team approach method with all stakeholders present as a possible solution. The document must not be tampered with, he added, which would eventually strengthen the bond and boost the level of confidence among the stakeholders.

Offering a solution to the typical problems faced by the contractor, Christopher Seymour, Director, Mott MacDonald, cited a case-in point of the UK Government getting involved in driving change among the construction community. He suggested the adoption of the NEC Engineering and Construction Contract to drive transparency and alignment of purpose in the region. The NEC, he said, leverages the considerable experience concerning design, installability and contractibility. It, thus, involves all the stakeholders in the project right at the early stage. The UK Government, he said, used the NEC to demonstrate that working together dictates the positive outcome of a project.

‘There is no honey without money’

While the proper drafting of the contract remains a prickly issue in the region, so does timely payments for works executed. There are numerous instances of contracting companies floundering, owing to delayed payments and, in worst-case scenarios, unrealised payments. Prabhakar Naik, Managing Director, VASTU & Engg Consultancy DMCC, said that without positive cash flow, nobody can sustain, especially the contractor. This problem, he said, could be resolved if all stakeholders strictly work around a timeframe, including remaining committed to their roles, especially a project manager, who must control the cost, review the accounts every month and provide continuous feedback to the client. Otherwise, he chillingly added, “there is no honey without money”.

A contributing factor to the overrun of costs in a project, Naik said, is the unreasonable instruction of variations, causing a bottleneck for the cash flow. Therefore, he suggested, it all begins with sound design principles; and the expertise of a consultant plays a vital role in the entire process.

Offering a differing view, Derhalli suggested that variations occur when the clients change their mind, and such an action can create more trouble for the contractor if the variation is not recognised.

In some cases, construction contracts can be a shortcut to a bypass surgery, if not handled properly. As K Anbalagan, Managing Partner, Proleed Engineering Consultants, put it, “Contracts in this region are professionally unprofessional.” He said the problem emanated from a selective professional approach by the offending stakeholders, as per their convenience.

He suggested that even as a consultant, he misses out on receiving payments owing to specific clauses mentioned in contracts, which subject the amount to be retained after the handover of the design.

Another widespread problem related to payments, Anbalagan pointed out, is when architects step in and take over the project. This invites changes in the design and causes the consultant to lose at least 50% of the contract value, owing to the contract administration charges.

For Nathan Cartwright, Partner, Godwin Austen Johnson, cash flow problems can be resolved if one conducts extensive discussions with peers and the supply chain to thoroughly understand the payment process and also what would be the best price. The worse clause, he said is when one signs up for deliverables that cannot be delivered within the time frame. Harmony needs to be maintained through open channels of communication, especially when changes are taking place, he said. Everyone needs to be aware what the changes are, records need to be maintained and the most straightforward method is to conduct regular meetings, which would benefit everyone in the long run, he added.

Echoing Reddy’s comment that MEP contractors are not given the due respect, Derhalli said that they must be given due recognition, as they are not the enemy of the developer or the general contractor. The MEP contractor is a vital aspect of the building, he said, so he should not be treated as an enemy. But this change can occur only if there is a change in mind-set and culture, he added.

Scott Coombes, Director, AESG, believed that smaller businesses, in particular, need a stronger legal protection, which would be more cost-effective, as the bigger players already have cash reserves and easily take things to court. He pointed out that strong clarity should be maintained while using the FIDIC contract, with the payment terms and conditions mentioned clearly. He advised that small consultancies or contractors must not be treated as a bank and exploited for several months, without receiving payments. Such practices, he warned, would result in the disappearance of small businesses in a span of 12 months.

Supporting the community

It is strongly evident that the construction community needs the support of other sectors, especially manufacturers, suppliers and other specialised consultants.

Speaking from a manufacturer’s perspective, Abhay Miglani, Business Development Manager, Armacell, said that manufacturers should offer innovative products that could help the contractor and end-user to enhance the performance of buildings.

Offering another approach, Sadath Hussain, Senior Sales Engineer, TIM TTC Gulf Consulting, suggested that customer orientation about the available technologies is paramount. He also pointed out that contractors and consultants may not have complete technical knowledge about a particular product. In that context, he said, technical exposure is critical for them, so that they can adopt the technology in their projects to enhance the efficiency of the building.

Summing up

While several conclusions were drawn from the conference, a key solution that emerged was that industry stakeholders need to regularly and accurately communicate with one another to augment building performance in a constantly changing market. Simply put, they need to do business with the “I got your back” attitude.

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