Boom time or bust?

To the outside world, it’s boom time for the construction industry in Dubai. With so many buildings underway and countless more new projects in the pipeline, surely if ever there was a time to make money in the region it is now?

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By  Alison Luke Published  September 9, 2006

|~||~||~|To the outside world, it’s boom time for the construction industry in Dubai. With so many buildings underway and countless more new projects in the pipeline, surely if ever there was a time to make money in the region it is now?

But reports from MEP contractors are showing otherwise. The fixed price nature of contracts in the region is hitting firms hard. At a time when everyone’s order books are full for months in advance, profit margins are falling to dangerously low levels.

Many contracts were agreed months or even a few years ago and since then several factors have sent the actual costs of agreed installations spiralling upwards. The rise in the cost of raw materials such as metals is one area much talked about in the industry and price rises in the metals market show no signs of abating. On top of this, labour costs are increasing as firms compete to recruit and keep their top staff.

The lack of skilled staff, ability to move more freely between firms, plus the increased cost of living in Dubai following the escalating rent costs has meant salaries have had to be raised to attract and retain employees.

All of this means that the profit margin included when jobs were tendered for have all but vanished by the time construction completes. If firms are to survive, never mind flourish, in the local market, something has to change.

The inclusion of escalation clauses in contracts would seem a sensible solution. Allowing for those rises that actually occur during a contract period would protect all involved, including the client. And it would mean MEP contractors could get on with the job they do best, without the worry that completing a contract may leave them in financial hardship.


Alison Luke
Editor, MEP Middle East||**||

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