No guarantee for good contractors: Al Shafar

Contractor says millions of dollars are blocked from use in UAE’s construction sector

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By  Eudore Chand Published  April 9, 2005

A leading Dubai-based contractor has called for the removal of the labour bank guarantee system required by the UAE Ministry of Labour and Social Affairs, especially for ‘good’ contractors. He also made it known that the requirement has led to the blocking of millions of dollars from productive use in the thriving construction sector. “The cost of the labour guarantee is very high,” Emad Azmy Gendi, managing partner of Al Shafar General Contracting Company, explained to Construction Week. “It should be made obligatory only for those who do not have a good track record of paying their workers on time,” he pointed out. The UAE Ministry of Labour and Social Affairs requires contractors to submit a bank guarantee of AED3000 (about US $817) for every worker they employ. This guarantee is cashed by the ministry to pay the workers’ dues if the employer does not pay them. Even as the construction sector in the UAE — and elsewhere in the Gulf — is booming, there are more and more cases of workers heading for the ministry to demand due payment of their wages. Labour disputes are common in the country and are mostly caused by cash flow problems of contractors. In the on-going boom conditions, it is very tempting for some contractors to take on jobs that they may be hard-pushed to complete on time. The problem is further compounded, says Emad, by the fact that the much-publicised contractor-labour disputes have led to the banks becoming over-cautious. They are insisting on full 100% deposit of the labour guarantee amount with the bank before they will issue the obligatory labour guarantee to the contractor. In all other cases of bank guarantee requirements, banks are happy to issue the required documents for a fee or a percentage of the amount involved, Emad pointed out. “This puts a heavy strain on contractors. The contractors are the largest employers of staff in this country and for every 1000 employed, they have to block AED3 million ($817 500). For a company like ours that may employ 6000 workers, imagine blocking AED18 million ($4.9 million) at a time when the construction sector is booming and we could effectively utilise those funds,” Emad explained. “In this way, the ‘good’ contractors are being penalised for the practices of those who do not pay their workers on time,” Emad said. He called for a system that would use the labour guarantee as an incentive for contractors: “Those who have a good track record of paying their workers on time and whose overall performance and reputation in the market is good, should be exempt from the labour guarantee requirement as an incentive.” He pointed out that as it stands, contractors are required to pay for workers’ accommodation that has to meet with municipal regulations, for their transport and utility consumption. “If the bank guarantee was removed, we would feel more relaxed. It would help a lot of good contractors,” said Emad. SGC’s managing partner also felt that the federal labour guarantee requirement was the only blight on an otherwise ‘good business environment’. “Our sector had problems with sourcing steel, concrete and cement products, but that has been eased by the government, which has facilitated materials imports. We are getting early approval of visas. Now the market is stable and everything is going in the right direction except for labour guarantees.” There is, however, another blip that needs to be addressed, adds Emad’s daughter, Mariam, who manages the company’s human resources requirements. Mariam says that due to the huge amounts of work going on here, there is a shortage of specialised workers in the market. “We need specialised people. How many have engineers who have experience in building towers?” she asks. “It is difficult to find the right people, even from overseas. It is very difficult to find a good project manager or a construction manager, or even skilled labour,” she pointed out. She solves the problem by bringing in however many specialist workers she can get, and mixing them with unskilled ones. “This way, the experienced and the skilledtrain the unskilled and monitor their work. We get the people in early so they can train the others and all are ready when we get a big project” Mariam pointed out. Al Shafar General Contracting is currently on a roll and has recently won substantial new contracts. Amongst these is a 59-storey tower in the Al Marsa area of Dubai, that is being built for Mohammed Saif Al Shafar.

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