Construction Week Newsletter 21st August 2004

Any grace period granted to contractors should be carefully considered.

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By  Colin Foreman Published  August 21, 2004

Editorial Leader|~|building body.jpg|~|The government should think hard before granted blanket extensions|~|

Time is money in the UAE market

The expected decision by the Ministry of Economy in Abu Dhabi to give a grace period of three months to members of the UAE Contractors’ Association working on government projects will surely be welcomed by many contractors. The decision was made to relieve the cement difficulties that many contractors have faced. All contractors have had to pay higher prices for their cement and in many cases shortages have meant that some works have literally ground to a halt no concrete was available to pour. This has placed many contractors in a situation where they are now likely to incur penalties, if they haven’t done so already, for not meeting the target dates set in their contracts. These fines are not a mere slap on the wrist. On a low margin job they can turn a profitable job into a loss-making job. Time is literally money. Some may argue that a savvy contractor should have made allowances for such increases, but it is simply unfair to expect contractors to anticipate increases as frequent and as spiked as those experienced back in May. The market pressure to drive down margins is so great that any attempt to factor rapidly escalating prices into a tender would more than likely result in commercial suicide as the contractor would almost certainly be outbid by competitors that are prepared to take the risk and submit lower priced tenders. In a market where arguments over Dhs50 are not unknown the lowest price bid always has the advantage and in many case will bags the contract. While offering a grace period will help resolve a lot of the issues it may also create some. Offering a near blanket time extension may present an opportunity for works that are delayed for reasons that are well within the contractor’s control to slip through on time, providing the delay is less than three months. This may mean that some projects, without good reason, will now be completed later than expected at a cost to the government, and to the inconvenience of the public. This is not to suggest that no measures should be taken to protect contractors from rapidly escalating material prices, just that any assistance offered should be carefully considered so that it can’t be abused. ||**||

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