Project overruns remain but payment issues improving

December 7, 2023, 12:48 PM

Construction project delays in the Middle East average more than 22 months

Delays often down to ‘sheer ambition’
Payment systems more sophisticated
Better contracts could enhance process

Delays in construction project timelines and payments remain a concern in the Gulf. However, things seem to be on the up on the payment side at least, multiple industry professionals said during the Big 5 Global conference in Dubai this week.

The larger Middle East region suffers from some of the worst project overruns in the world, just behind Africa. Delays average 22.5 months, or 82 percent of a typical project timeline, according to the 2023 Crux Insight Report from consultancy HKA. The global overrun average hovers just above 67 percent.

The same study also found that about 26.6 percent of Middle Eastern projects were plagued by cash flow and payment issues.

Such challenges were acknowledged by Saudi finance minister Mohammed Al-Jadaan, who conceded on Thursday that some 2030 projects would be delayed.

“The delay or rather the extension of some projects will serve the economy,” Al-Jadaan was quoted as saying by Bloomberg.

“Certain projects can be expanded for three years — so it’s 2033 — some will be expanded to 2035, some will be expanded even beyond that and some will be rationalised,” he added, without naming any specific projects.

According to James Duncan, Middle East director for business development at Hill International, the “sheer ambition” of projects in the region renders some delays almost “inevitable”.

“But … increasingly developers and clients are becoming more sophisticated and realistic in their expectations, and I think it’s up to the project management industry and the consultants in general to give good advice as to what is achievable and what isn’t,” Duncan said at Big 5.

As for payment delays, Duncan was one of several Big 5 attendees who told AGBI those are not a major problem for their organisations at the moment.

“Obviously it varies from client to client, but, in the main, I think the payment ecosphere is a lot better than it used to be and that’s partly a function of a better understanding of the dynamics of the way projects are delivered … parameters set out and agreed at the beginning of a project,” he said.

Contractual issues

Not everyone agreed that ambition alone was to blame for continuing overruns, and rather pointed to the nature of contract and project design as key issues.

“Back when they built the Empire State Building … it was the highest building in the world at the time and it was completed ahead of schedule and under budget,” noted Mansour Faried, chief engineer for the Middle East affiliate of China State Construction Engineering Company.

“There are different types of contract for the contractors and for the consultants within the same project, one of them is a lump sum contract … to finish as soon as possible, and the consultant is … on a timesheet,” Faried told AGBI. “Maybe there is even a question about conflict of interest.”

The region also needs to speed up non-construction “intermediate holding points,” such as approval and inspection times, Faried added, highlighting China’s success with building hospitals and high-rises in just days or weeks.

Faried agreed with others that the payment landscape has improved since the Covid-19 pandemic, but said it remains sub-optimal. “If the client understands that delaying payment may delay his own project … it might react differently.”

Design flaws

According to Barry Lewis, chief executive of Dubai-based Alec Engineering and Contracting, construction overruns flow naturally from the fact that projects in the region tend to start with incomplete designs.

“The design evolves during the lifecycle of the contract,” he said. “You get the job started and during the project you’ll resolve the issues, with an expectation that the jobs are generally going to finish a little bit late.”

Lewis confirmed that payment delays are not presently a significant problem, but that contractors in the region need to learn to choose their clients wisely and establish a “robust” relationship with them.

As governments and developers across the Gulf, in particular Saudi Arabia, aim to build more and better, contracts’ quality is bound to only grow more relevant. Greg Karpinski, chief operating officer of KEO International Consultants, called current contractual structures “patently unfair” at Big 5 in the way they nickel-and-dime builders.

“It is this idea that I gotta squeeze and I gotta squeeze and I gotta squeeze, instead of having a conversation around how do we make something great together… by having the incentives well-aligned,” Karpinski said on stage at Big 5.

“[Such as] bonuses for contractors for delivering ahead of schedule, ways to think about how we can share the profits so that we can get a better product on the backhand.”