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Behold the bottlenecks

The third edition of The Client, Consultant, Contractor Conference, organised by CPI Industry and held on September 30 in Dubai, provided a platform for developers, clients, government bodies, consultants, contractors, FM service providers, manufacturers and suppliers to flesh out individual challenges in a bid to help the MEP industry overcome issues that are barriers to the development of an energy-efficient and sustainable built-environment.

| | Nov 20, 2019 | 10:32 am
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A holistic approach is vital if energy management is to be achieved, and undoubtedly, the future of sustainability lies in the hands of all stakeholders. However, in today’s market, clients, consultants and contractors are faced with a number of challenges, as emphasised by Abdulrahman Hussein, PMO – Technical Control, North 25-Project Management, MERAAS. Reflecting on difficulties facing each stakeholder within the MEP industry, and how they serve as a hindrance to the development of a more efficient built- environment, Hussein said, “From the contractor side, the challenge is to digest the requirement of the employers (clients), as all projects are designed to budget.” Providing a client perspective, having been involved in project management, Hussein said that developers also face a number of issues, which require them to work hand in hand with consultants, in order to close the gap. Such dialogue is vital, added Sougata Nandi, CEO, 3E advisory, who pointed out that the realisation of high-performance assets is primarily the responsibility of developers who are driving project demand.

For the most part, clients recognise the value that specialised MEP consultants and contractors provide when it comes to ensuring the optimum energy performance of building assets. However, Hussein said that given constraints related to time and budget, the lack of availability of skilled labour is drastically affecting the quality of projects in the market. “It’s about the quality of engineers,” he said. “Quality of labour affects the quality of the product, at the end of the day.”

CHALLENGES FACING CLIENTS

For Hanan Ahmed, Head of Engineering & Maintenance Services, Al Baraha Hospital, the issue is all the more challenging, as healthcare facilities require contractors that have strong knowledge and understanding of specialised assets. “Our MEP is different,” she said. “I need someone who can do it with a backup system, not just [with a] first backup, but second and third backup. I have patients, and my priority in the hospital is to protect the patient, visitors and staff.” Given the critical nature of the facility she oversees, Ahmed pointed out that as a client it is imperative for her that a contractor provide quality cooling systems and ventilation, according to their particular requirements. “The contractor has to follow ASHRAE, AHRI, JCI standards for the hospital,” she said. “I need this worker to have knowledge of healthcare facilities, and he has to give me the right thing with low cost and energy-saving at the same time.” Ahmed pointed out that air quality is also a must. “It’s not only about the cooling,” she said. “The humidity also has to be controlled, it can’t be more than 60%, because if so, it will spread infection in the hospital.” Lastly, Ahmed said, a proper FM mechanism must be taken into consideration, as it makes up 40% of the hospital’s running cost.

In view of these requirements, Ahmed said that there are challenges when it comes to finding the right stakeholder with the right experience, and that contractors are designing assets without taking into account the unique challenges posed by the region’s environmental conditions. “In the GCC region, our weather is a challenge,” she said, highlighting that the extreme temperatures, dust, sand and humidity lead to erosion of equipment such as chillers and AHUs. There are also instances, she said, where contractors are providing chillers that do not go up to the specified temperature requested. “The contractor should understand where they are working,” she said. “These are all challenges for us.”

Ahmed added in instances where they are able to get a contractor with the necessary expertise, the rest of the staff may not reflect the same level of experience. “The project manager may be excellent, qualified and have knowledge in healthcare, but he will reduce cost by bringing someone who doesn’t know what is behind the wall, if there are medical gas pipes, and later so many incidents are happening,” she said.

Paul Groves, Business Development Manager, Khansaheb Industries LLC, sharing his experience from the perspective of an AC ductwork supplier, said: “There is a big gap between what the client thought he was getting and what the contractor was planning to install. The consultant specified that anti- microbial duct is important, and the contractor just took it out of the specs. The client has to get what he is expecting.”

Providing a perspective of the requirements of clients in the hospitality sector, Gurjit Bhui, Engineering Manager, Grand Hyatt Dubai, said that since hotels operate 24/7, the vendor should be able to give service in such a manner. “If there is a breakdown they have to attend to it in 24 hours,” he said. However, Bhui said this is not always the case. “When it comes to the implementation of new and energy-efficient technologies, the contractor will come and commission the system, but when it comes to the fine-tuning after the commissioning, they don’t give support,” he said. “We chase them, call them, and they say they’re busy. That shouldn’t be the case.” Bhui said it is vital for contractors to provide better service following the commissioning of the system, by possibly assigning a member to the hotel to monitor and address any challenges that may arise and that energy management systems needs to be fine- tuned and integrated with existing systems, so it can be operated by the hotel’s FM team in an efficient manner.

EVALUATION PROCESS

In view of the existing challenges, a number of developers have become more discerning when it comes to awarding projects. “For Meraas, we are, on a yearly basis, evaluating vendors, contractors, consultants and suppliers,” Hussein said, owing to the fact that many of the projects were not being executed in time. As such, he said, the company is willing to undertake the due diligence and conduct the necessary interviews to make sure the team allocated, be it local or international vendors, fits the purpose and understands the employer’s objective, especially as there is often no room for increasing the project budget.

Bhui shared that hotels undertake a similar procedure. “We definitely evaluate vendors, and we do a technical and techno-commercial evaluation,” he said. “We need a vendor capable of completing the project timeline. The cash-flow should be okay, as well as the post-commissioning service.” Bhui added that it is also not always the case that the project is awarded to the lowest-priced consultant or contractor, emphasising that over cost they favour vendors that showcase a sense of responsibility and with the proper background of handling the project.

Ahmed said that healthcare facilities are also stringent in the evaluation process. “Yearly, we are reviewing terms and conditions,” she said. “We are adding more strict standards and more technical issues. If stakeholders cannot compete anymore, it is very easy for us to kick them out of the tender.” Such measures, she said, is necessary, as a hospital cannot be a trial project for new and inexperienced consultants or contractors. “I cannot bring someone who has no knowledge and give them a contract for the MEP of a hospital,” she said. “It’s a very critical situation, and we are facing, day to day, a very critical system.”

THE ROOT CAUSE

While empathetic to the challenges faced by clients, consultants and contractors draw attention to what they believe to be the root cause of these prevailing issues: cash-flow. Suresh Kumar, General Manager, Voltas, said, “The real crisis in the Middle East market is there is no proper budgeting done on projects based on square metre. Second, there is no contractor classification.” Timothy McLaren, Senior Commercial Contracts Engineer, Ramboll, shares a similar view. “You have competing elements of wanting a good design or build-out at lowest possible cost, and the word ‘cost’ is where this whole conversation hinges,” he said.

Jeán van Loggerenberg, Partner, CKR Consulting Engineers, added that when it comes to discussing standards and budgets, a lot of clients understand the cost of everything but not necessary the value of it. “A lot of value is missed,” he said. “Quality is an issue, and it is something that will cost them.” Dr Zahid Rizvi, CEO & General Manager, Aspire Consulting, added that this is especially challenging when it comes to introducing new technologies in an effort to enhance performance of assets. “As consultants, you try to bring in innovation in projects,” he said. “Challenges you face mostly relate to communication and whether you can get the right ideas down to the contractor.”

However, Ayman Saad, Project Manager – Dubai Hills Estate – DCP1 & CHWN Projects, Allied Consultants Ltd, pointed out that lack of planning among stakeholders is also leading to cash flow issues in projects. “There is an allocated budget, and it is also up to contractors to have a proper plan and lower cost,” he said. “We are getting blamed from an employer submitting low cash flow, because we are allocating one million a month and getting only 400,000.”

Kumar said that in every project there has to be a financier. “Unfortunately, the contractors and subcontractors become the financier – that is where the confusion is,” he said. Kumar added that while it is the responsibility of the project manager to develop an integrated plan, he is yet to see projects where an integrated programme was put on the table. “The finance has to be in place,” he stressed, “I believe it’s time for some government authority to put a rule that unless the client has enough money he shouldn’t be allowed to start a project.”

Nandi said that while the procurement process remains a challenge, an aggravating factor is market conditions. “Every project is born on an excel sheet,” he pointed out. “Any financial model is based on certain emotions, and the flip side of this dynamic geography is the fact that your market conditions can change overnight.” K Anbalagan, Managing Partner, Proleed Engineering Consultants, added: “If you look at the number of projects, it starts and stops again. Last year, there was a correction. Many of the contractors and consultants are fighting for survival. Basically, the construction market has slowed down. Plenty of projects handed over are empty. Even now, many of the buildings with District Cooling are running at 10-15% just for a few offices.” However, Anbalagan pointed out a smaller pool also brings an opportunity for bringing in higher quality consultants and contractors. Mansour Kharoub, Associate Principal – Mech Engineering Services, Khatib & Alami, added that while compared to 10 years ago, construction is less, there are still many jobs available in the market. “When you see number of bids we do, it’s quite good,” he said. “It also depends on the party: Is he a good consultant or strong developer? We see that small developers are going out from the market.”

MOVING AWAY FROM THE NORMS

In view of the current market conditions, McLaren said it is evident that “a fundamental shift has to happen in the region”. Currently, he said, the market is primarily driven by an LPTA (low price, technically acceptable) mentality. “Once the contract happens, we are not planning for cost, we are planning for price,” he said. “The model just doesn’t sustain itself.”

McLaren said that in the United States, the market is dominated by ‘cost contracts’, while in the Middle East region, the market typically uses lump sum contracts. “It may not be the best model or fit for what is going on in the economy today with shrinking budgets and appetites that haven’t changed from when we had larger budgets,” he said. “Time and time again, with different discussions going forth about performance and the way things get completed, on time or off time, I always see root cause to be the type of contract you are using. There are other ways, it doesn’t always have to be the same two or three contracts that everyone seems to use in the region. There’s a better mode.” Dr Rizvi echoed this saying that contracts typically drive cost-based selection of equipment, which can be challenging and difficult to execute.

Kharoub said that while lump sum contracts have dominated the Middle East in the last five years, he has encountered different types of contracts in recent projects, such as design-and-build contracts. “There are new types of contracts on the big projects,” he said. “So, the different parties can try to change the contract if they find they can benefit more, or to fit their budget or to achieve their targets.”

McLaren said that he believes there is still scope for FIDIC contracts, which he described as the gold standard for the industry, to be further adopted in the region. Vasanth Kumar, General Manager, IFMC Electromechanical Works LLC, added that such practice is currently widely followed in the market and that the FIDIC template has been localised
in terms of payment and scope of contract. Kharoub said that while FIDIC has been a generally accepted standard and model used in construction, in some instances, clauses have been disabled according to the wishes of the client. “As consultants we have experienced before that to transfer some of the risk from the client side, it has been done through disabling some clauses in FIDIC,” he said. Commenting on this, Kumar said, “There is nothing called modified FIDIC, but we are using a modified FIDIC.”

To demonstrate the financial ramifications owing to the lack of coordination plaguing the market, Khaled Derhalli, Regional Director, EFECO, presented a case study of a project with the planned duration of 12 months and a contract value of 100 million. The budgeted cost for the project, he said, was 95 million, with a profit of five million. However, in reality, Derhalli shared that the project got completed in 18 months, with cost overrun by 12 million and resulting loss of seven million.

Derhalli said the reasons the contractor was not able to achieve a sustainable cash flow was the design changes introduced; the extensive coordination for design development; the unresolved and unapproved variations; the under- certification, with consultants insisting on approved Inspection Request for work certification; arbitrary contra-charges by the main contractor; non-certification of materials on site; the vendors’ inability to meet specifications; the change of scope, due to local authority compliance; delays and sequence change by the contractor; and unachievable programmes resulting from constant scope changes and out-of- sequence works.

Reflecting on the project, Derhalli said, “As MEP contractors, we are the weakest part of the chain. Even if we are doing the budgeting in the correct manner, after the award, the contract moved different ways, causing negative cash flow due to wrong acts in the industry from the client’s, contractor’s and the consultant’s side,” he said. “This is primarily due to poorly drafted contract. You will not get what you expect or planned for. That’s why we are selective.” Kumar added it is important for all stakeholders to exhibit the same judgment, “At the end of the day, you have to learn how to say a strong ‘no’, if the indication is not good, if the contractor is not good, if the consultant is not good, if the client is not good.”

 


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