Dropping margins are making contractors in Dubai more selective about the projects and clients they engage with, according to the boss of one firm.
Rajesh Kumar Krishna, chairman and CEO of Beaver Gulf Group, said contractor margins in Dubai currently top out at around 7 percent.
“Gone are the days when Dubai contractors used to make 20-25 percent margins; with good clients that have cash flows in place and don’t delay their payments, the margins are between 4-7 percent,” Krishna said in comments published by Construction Week Online.
He said regulatory changes and fees are impacting contractor costs, which are further tightened as developers seek greater returns on investment.
These factors are driving up the competitiveness of contract bids and making tender pricing even more important for construction firms, Krishna said.
As a result, select contractors are declining to work on the projects that are not financially sensible for their organisations, he added.
Krishna said it is necessary for contractors to work with clients that have a good track record of stakeholder management, and to negotiate the right contract terms, including advance payment timelines.
In May, PwC Middle East found that the region’s “governments and industries continue to face challenges and pressure to perform and deliver ‘more for less’ on social and economic infrastructure projects, despite an increase in oil prices compared to 2016”.
PwC Middle East’s Capital Projects and Infrastructure Survey, which included responses from project owners, developers, contractors, external advisers, and financiers, found that for contractors, the spending slowdown in 2017 caused “increased pressure on an industry that was already thinly capitalised”.
Funding constraints on capital projects impacted those at the end of the food chain, with contractors reporting that the biggest challenge they face in 2018 was “payment delays by clients, with availability of funding coming second”.
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