Payment delays are a ubiquitous part of the construction industry around the world, but the Middle East’s engineering professionals have significantly been impacted by the trend in Q3 2018. Disputes, and their resolution, are also a major consideration for top-level executives working in the Middle East’s construction and related sectors.

These are the findings of Construction Week’s inaugural Business Confidence Survey, aimed at evaluating market sentiment in the contracting, equipment, facilities management (FM), and mechanical, electrical, and plumbing (MEP) sectors on a quarterly basis. The survey’s simple questionnaire has been designed by Construction Week and its sister titles, PMV Middle East, facilities management Middle East, and MEP Middle East with the busy schedules of our respondents in mind.

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Each quarter, an elite group of C- and M-level thought leaders, invited by the Construction Week group’s editorial staff, will share its views on the industry’s recent performance and foreseeable future through the Business Confidence Survey. Most importantly, the study will capture the quarterly successes of the wider construction market, as well as guide and advise decision-makers in the months to come. In the inaugural edition of the study, 60% of the 10 respondents approached to share their views said their businesses were most impacted by delayed payments in Q3 2018, with contract disputes and lack of skilled labour also affecting their operations during the period.

Barry Lewis, managing director of UAE contracting heavyweight ALEC, is one of the respondents that cited payment delays as a Q3 business concern. Additionally, he explained, the “resolution of legacy contracts” would impact ALEC in Q4 2018 – a quarter during which the firm’s revenue might increase, while staff numbers hold steady. Business conditions were ‘bad’ in Q3 2018, according to Lewis, who also noted that the volume of new business reduced between Q3 2018 and 2017.

A similar situation appears to be brewing in the MEP sector, with the heads of Griffin Consultants, JLW Middle East, and Al Sabbah Electro-Mechanical Company (Semco) all citing payment delays as a major business challenge in Q3 2018. 

Responding to Construction Week’s Business Confidence Survey – Q3 2018, Subhash Pritmani, chief executive officer (CEO) and vice president of Semco, said business conditions were ‘good’ during the studied period. The volume of Semco’s new business, as well as the number of new project commencements, were unchanged between Q2 and Q3, according to Pritmani. However, while he expected Semco’s revenue to increase in Q4 2018, he also said that the number of new project commencements was expected to decrease during the quarter.

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Pritmani cited delayed payments and contract disputes as the factors that “most impacted” Semco in Q3 2018, adding that the cost of doing business – including the “steep rise in labour costs” – was also a consideration for the firm. Similarly, Omnia Halawani, director of Griffin Consultants, said business was good in Q3 2018, with the company’s volume of new business increasing on both a quarterly and annual basis. However, Halawani expects the number of new project commencements to decrease in Q4 2018 – a period during which delayed payments will likely continue to affect the MEP consultancy, according to Griffin’s director.

Ramy Boufarhat, chief operating officer of JLW Middle East, is one of the three respondents that cited contract disputes as a major business consideration in the last quarter. According to Boufarhat, a “substantial number of project variations without prompt determination” was another factor that most impacted JLW Middle East in the quarter.

The problems of delayed payments and staffing were echoed by Rajesh Kumar Krishna, chairman and CEO of Beaver Gulf Group – Krishna and Semco’s Pritmani said both factors would continue to impact their respective businesses in Q4 2018. Beaver Gulf Group’s top boss also said business conditions were ‘good’ in the last quarter, adding that he expected revenue to increase in Q4 2018, even though the number of new project announcements will likely remain unchanged.

Aaron Chehab, chief commercial officer at KBW Investments, described business conditions as ‘middling’ in Q3 2018, adding that the firm’s volume of new business noted a year-on-year (YoY) increase between Q3 2018 and 2017. Chehab said he expected revenue to increase in Q4 2018, and cited “market sentiment” as a factor that would impact KBW Investments during the period.

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Unsurprisingly, the payment delays faced by construction contractors are, in turn, squeezing cash flow for equipment specialists and distributors in the market. Ajit Kumar, chief operating officer at Al Naboodah Commercial Group, said the company’s volume of new business decreased in Q3 2018 compared to the same quarter of 2017. While he expects revenue and new project commencements to increase in Q4 2018, Kumar said “delayed payments and slow decision-making” would affect the business during the quarter. Both these factors, combined with poor “business sentiments”, had also affected in the firm in Q3 2018.

In this environment, it is understandable that FM companies are also facing payment delays – after all, real estate developers that award construction contracts are often also the clients of building management firms. Consequently, FM companies are as prone to cash flow problems as their construction counterparts, Construction Week’s Business Confidence Survey – Q3 2018 reiterates.

Richard Naylor, chief executive of Cushman & Wakefield Middle East, described business conditions as ‘bad’ in Q3 2018, adding that the company’s volume of new business decreased on a YoY basis. The company’s revenue and staff numbers are expected to stay the same in Q4 2018, Naylor said. In his responses, however, he picked ‘delayed payments’ as the factor that most impacted Cushman & Wakefield Middle East in Q3 2018, adding that it would continue to have an impact in Q4.

Similar views were expressed by Khaled Bayad, business support specialist at QBG Facilities Management, who said the FM company’s volume of business decreased on a quarterly and annual basis in Q3 2018. Bayad said he expected revenue and new business volume to increase in Q4, but cited payment delays as the period’s most decisive business factor. Contract disputes, along with slow payments, also impacted QBG Facilities Management in Q3.

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However, one FM company appears to have bucked the trend in the quarter: Vincent Montanet, chief business development officer at Cofely Besix Facility Management (CBFM), said business conditions were ‘good’ in Q3 2018, adding that CBFM’s annual and quarterly business volumes rose during the period. Montanet said he expected revenue and new project commencements to increase in Q4, adding that CBFM’s staff numbers would also likely rise during the period. However, he cited client budgets as a critical factor for the business in Q4, alongside the lack of skilled labour.

While Q3 might have been a mixed bag for the construction, equipment, FM, and MEP sectors, the final quarter of 2018 is expected to be a period of growth for the industry. Eight of the 10 respondents of Construction Week’s Business Confidence Survey – Q3 2018 said they expected revenues to rise in Q4 2018. Considering that most clients end their financial year in this quarter, it is likely that the closure of overdue payments will be prioritised within the next 100 days – contractors and equipment providers may, as a result, note increased incomes at the end of Q4 2018.

Our respondents also see Q4 2018 as a promising time in terms of new project commencements, with only three professionals predicting that the number of new builds will reduce during the period. Sixty percent of the total respondents expect their respective staff numbers to hold steady during the quarter, while 30% believe that the size of their workforce will increase between October and December. Fifty percent of the respondents say commercial and residential projects will drive their businesses forward in Q4 2018, and 30% of the experts are also closely watching education and oil and gas projects for growth.

Clearly, despite some operational challenges in the market, leaders from the contracting, equipment, FM, and MEP sectors see the value of doing business in the Middle East – a region that is speedily working to achieve ambitious targets such as Expo 2020 Dubai, as well as Saudi Vision 2030, Abu Dhabi Economic Vision 2030, and UAE Vision 2021. As indicated by the participants of Construction Week’s inaugural Business Confidence Survey, the industry has much to look forward to in Q4 2018.   

IN NUMBERS

50%
of the respondents believe the residential and commercial sectors will drive their businesses forward in Q4 2018

10%
of the respondents said healthcare projects drove their business in Q3 2018

PARTICIPATE IN THE NEXT SURVEY

Construction Week’s Business Confidence Survey is a quarterly review of the Middle East’s contracting, equipment, MEP, and FM sectors. The results of each survey are published on constructionweekonline.com, pmvmiddleeast.com, mepmiddleeast.com, and fm-middleeast.com. To participate in the next quarterly survey, please email any of the following editors:

neha.bhatia@itp.com

dennis.daniel@itp.com

rajiv.pillai@itp.com

nikhil.pereira@itp.com