Business

UAE construction needs new framework

UAE construction needs new framework

Dubai: Only a complete redoing of construction contracts can remove some of the persistent issues troubling the industry in the UAE, according to a top banker.

“These contracts are badly drawn up on the one side and takes a long time to understand if they come into dispute,” said Mohammad Khader Al Shouli, Managing Director and Head of Contracting Finance at Mashreq Bank. “The major flaw is that there is no uniformity in what’s put into them.

“The issues are systemic, contractual … and cultural.”

Mashreq Bank has now come up with a set of recommendations to reset how the UAE construction industry functions, cutting across all levels, from signing off on a contract to project delivery. And even where the contracting parties end up in disputes. (The Bank came out with the recommendations in tandem with MEED, the construction industry publication.)

Enforce

The language used carries quite a punch. “Enforce a Construction Contracts Act … codifying payment time frame, adjudication and certification terms. At present, clients are free to impose conditions due to the highly fragmented nature of the industry.”

It does not stop there — the sector also needs to “place restrictions on contractors with less experience or a negative track record by judging them on the basis of technical competence to ensure submitted bids focus on best practices. The current lowest-price-wins model rewards a short-term approach to quality, safety and innovation.”

The current lowest-price-wins model rewards a short-term approach to quality, safety and innovation.

- Mohammad Khader Al Shouli | Managing Director and Head of Contracting Finance at Mashreq Bank

Payments

Even with a slowdown on the real estate development side, the local construction sector has got plenty to build on, not least with the many infrastructure projects, including, of course, all of the works associated with the Expo 2020.

But the industry continues to be weighed down by sundry issues, with payments — or the delay in receiving them — topping the worry list. A few players have been forced to exit as the cash needed to keep bare minimum operations disappeared.

“So many projects keep getting floated that it’s clogging up the system,” said Al Shouli. “For a solution, the sector just needs to see how contracts get done in the oil and gas industry. There, the contracts are done to international standards … and it’s something rarely seen in the construction space.”

The Mashreq Bank recommendations also see the need to create a “Construction Industry Development Board to encourage continuous dialogue between the industry and authorities. This board could help set standards and regulations, while also addressing disputes and other legal matters.

“It could also monitor projects that generate a greater number of disputes and investigate the reasons behind various issues.”

Learn from banking

But can any such a Board amount to much without being given the regulatory power to enforce? The Mashreq Bank official says the construction sector players could learn a thing or two from the UBF — UAE Banks Federation, where banks get to sound out their issues with government entities. And resolve them.

A dedicated court?

The time may also have come for the UAE or at the emirate level to set up a “special court” that only takes up construction-related disputes. “London has got such a legal platform, and the UAE needs one to resolve only those in the construction industry,” said Al Shouli. “This will have such a profound impact — we have examples even here of how such a sector-specific legal process can work.

“Dubai’s rental disputes court has done its part well. One to do the same in the construction sector can be just as effective.

“As we enter a new phase of economic and technological growth in the UAE, it is imperative for this sector to progress in parallel and be able to adapt and thrive in a digital-led era.”

Some of the key recommendations

  • Introduce a contractor accreditation scheme that grades contractors in terms of financial strength, and technical and practical capability; Provide a transparent pipeline of future projects, allowing contractors to counter the transient nature of construction contracts. Coordinate timing of government and government-related entity (GRE) projects to ensure countercyclical spending;
  • Establish professional development bodies for technical workers and a unified accreditation committee for built environment professionals. Work closely with renowned international civil engineering bodies;
  • Introduce incentive schemes to reward companies that deploy new technology on their projects; and
  • Establish a “Construction Industry Development Board” to encourage continuous dialogue between the industry and authorities. This board could help set standards and regulations, while also addressing disputes and other legal matters. It could also monitor projects that generate a greater number of disputes and investigate the reasons behind various issues.