Are contractors e-competent or incompetent in online dealings?

The Middle East is leading the world in revolutionary construction techniques and cutting edge designs, but procurement strategies are often stuck in the last century. Is it time to ask if contractors are missing a trick? Angela Giuffrida reports.

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By  Angela Giuffrida Published  May 20, 2006

With margins under increasing pressure, contractors are being forced to make savings not just by sourcing cheaper products, but also by improving their procurement strategies. Yet although e-technology has been billed as a solution to alleviate risk and manage business processes more efficiently, its take-up within the UAE construction industry is still very much in its infancy. Some contractors say they simply do not have time to learn and adopt new technology, while others prefer to stick to what they know best. But faced with steeper challenges of getting the right material on time, as well as winning work, contractors are being encouraged to exploit the Internet as a tool for effectively managing projects, to enhance their global sourcing capability and reach, to better consolidate budgets and improving transparency. “There is a reluctance at the moment but it is no worse than in any other market,” says Anthony Faughnan, head of group procurement and property at EC Harris. “But if you can create a market and a way of working then it could soon become the industry standard.” Faughnan adds that because the market isn’t currently geared towards a consistent approach, one of the problems facing contractors and suppliers is clients who want to work in a number of different ways. “Some want to go down a competitive route, some want to work collaboratively, some want to use IT, while others prefer traditional methods — one of the problems is that when you’ve got very fast and complex projects, you can’t really blame people for going back to what they know. “We need to create a climate whereby we recognise that as we move towards a more e-enabled business we will encounter errors along the way, but we will get over that.” According to a study by EC Harris, about 80% of contractors’ budget goes on the services and materials they procure. Faughnan says that e-procurement methods eliminate budget losses that can occur because of information being misplaced or duplicated. “There’s always a danger that if you don’t have a way of controlling information then one of your parties could end up working with the wrong version, and this will impact on the budget. “One of the things consistently underplayed in construction is the importance of getting the initial budget right, but if you find a good way of working from the beginning of the process — getting the price right and getting the information flowing consistently — then you avoid a duplication of activity.” When it comes to buying building materials online, Faughnan says that weightings can be used on e-procurement systems to favour suppliers if they provided a good service. “For example, the system could be configured so that a rival supplier would have to offer terms five percent cheaper than the incumbent, in order to cover the cost of changing suppliers.” An independent driver in the spread of e-procurement in the Dubai construction sector has been Dubai Municipality — a key industry client. Once its system has been upgraded, Dubai Municipality plans to have at least 95% of its product transactions and tendering processes online. Fifty contracts have been tendered online so far this year. “We’ve designed and implemented an e-tendering package whereby we can open tenders online, communicate with contractors and negotiate online, while contractors can purchase online,” says Ibrahim Yaqob Ali, director of contracting and purchasing at Dubai Municipality. “The limitation is that the current bandwidth doesn’t allow us to put all the tender attachments online — but we’re working on this.” Yaqob Ali adds that another aim for the Municipality will be getting contractors to use the system. “The good thing about Dubai is that the government is taking the lead. You have to have some enforcement otherwise people will take their time. Many businesses are not used to using the Internet — we have to take the lead.” Although a relaxation of e-commerce regulations towards the end of the year is expected to further promote online working, changing the current mindset of contractors will be more of a challenge. “This part of the world is moving very fast and if people want to get material fast and move quickly, then they’ll have no choice but to resort to systems like this,” says Feisal Hammude, director of international sales and marketing at Abu Dhabi Pipes and Profiles Company. “But this will be a slow change. At the moment the reluctance is definitely down to culture — contractors want to go and see and touch the material. It’s also a very price driven market — contractors want to negotiate price in the old fashioned way, face to face.”

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