Union Properties (UP) announced that it would downsize its contracting business "to a closure level".
Thermo LLC is a subsidiary of the Dubai-listed developer that, according to UP's latest financial statement, provides mechanical, electrical, and plumbing (MEP) services.
In its financial statement for Q3 2017, UP said that Thermo "faced significant issues, and is still facing them through [its] current business of MEP work".
UP added that the group recorded "significant provisions" on the MEP company's contracts, but the company's board of directors "decided to downsize Thermo [...] to a closure level".
The statement continued: "As claims which were not recognised in the books are still arising, the [board...] continues to review and assess the risk associated with the group's contracting business.
"Accordingly, based on the historical claims arising, management [has] recorded provisions [...] against [Thermo's] work in progress, and on certain contract and retention receivables."
Moreover, UP's management was said to believe that future claims would "more likely than not" come through, and that performance bond guarantees against some of Thermo's projects "will not be retrieved, as the final take over certificate is still awaited".
The statement added: "Accordingly, a provision [...] is recorded to mitigate the risk and obligation that may arise against future claims towards the group's contracting business."
UP posted a net loss of $626.2m (AED2.3bn) for the first nine months (9M) of 2017, a significant decline compared to the net profit worth $39.8m (AED146.2m) it recorded in 9M 2016.
A one-time loss on fair valuation of investment properties – which followed the identification of inconsistencies mentioned in UP's H2 2017 financial statement – led to the company's net loss during the period.
The developer, which boasts First Avenue mall (pictured) and hotel and Motor City in its portfolio, launched a facilities management (FM) company in the 9M 2017 period.
Cash constraints amid low market liquidity are driving down the number of MEP contractors in the UAE's construction sector, an expert told ConstructionWeekOnline this July.
Niall McLoughlin, senior vice president at Damac Properties, said the number of MEP contractors in the market was lower than main contractors.
He added: "MEP is a heavily cash-driven business, [and is especially] driven by advance [payment].
"MEP contractors have to invest in equipment, send it to site, and start work – only then might they receive some income from the main contractor."
Typically, this arrangement would require MEP contractors to be financially comfortable so as to deliver projects "on proper terms", McLoughlin continued.
"Most MEP contractors have been through a very difficult time between 2009 and 2013," he explained.
"It came with financial burdens, which is why you’ll find that some MEP contractors [ended] their operations locally."