Aconex hosted on 11 May, in Dubai, a roundtable discussion with industry leaders from client bodies, consultancy firms and contractors to discuss the importance of project controls for the Middle East region’s ever challenging construction sector.
Background: Lower oil prices impact Middle East private sector projects
Since late 2014 lower oil prices have put downward pressure on government budgets, which has constrained infrastructure spending across the region. At the same time, lower oil prices have meant the region’s oil exporters have less funds on deposit within the regional banking system which has constrained the level of liquidity available for private sector projects.
This has meant that capital expenditure on projects has decreased, putting pressure on project clients, consultants, contractors and suppliers.
Market conditions have also changed. Feasibility studies prepared before the fall in oil prices may no longer be applicable and developers, both public and private, have been forced to review their plans and adjust them so that they meet the new market requirements.
Unlike the Dubai property crash of 2008/09 when billions of dollars of projects were abandoned, as the market changes today few schemes have been completely abandoned. Instead they have been rephrased, downsized and value engineered to reflect diminishing budgets.
Contractors are squeezed
For the supply chain, tightening clients’ budgets have squeezed margins. When tendering companies have to submit increasingly competitive bids with slender margins to win new work, and on existing projects clients are reluctant to entertain claims, this impacts the overall profitability of a project for contractors.
Need for project tracking / monitoring
For clients, the revision of designs and schedules means clients need more transparency so that they can see, in real time, how changes to the design and the programme impact the final cost of the development and its profitability.
They then need to establish project controls with their consultants and contractors to make sure that the new budgets set are not exceeded, and work is completed on time and to the required standard.
At the same time, contractors need project controls to monitor spending and progress, as well as having an independent record of changes on the project to support any future claims or dispute.
Squeezed margins can also be a concern for clients. While they may mean cheaper prices for construction, they also increase the risk of a contractor not delivering, which enhances the argument for comprehensive project controls.
Awareness is another crucial factor. Project schedules are separate to costs, and traditionally clients have chosen cost over quality. As budgets and margins are squeezed and, in some cases, projects fail, the focus should move towards value with an emphasis on quality and delivery.
Project controls will require more openness and transparency from everyone working on the project. Some forward thinking clients in the Middle East region have already made this transition on their projects, but the majority of schemes are still adversarial in nature.
As project controls software is adopted the market needs to adapt. Clients, consultants and contractors will also have to develop new skillsets that allow them to implement, use and benefit from project controls.
A modern approach to Cost Controls
Collaborative project controls tools do what yesterday’s solutions do not, by connecting project controls to the rest of your project information across your teams. Access, measure performance and forecast with confidence. Increased visibility and transparency enable better project decisions to keep your project on schedule and within budget.
Watch this webinar with the University of Oxford and Fluor to learn more about keeping your projects within budget using collaborative project controls.