INDUSTRY HOPEFUL DESPITE PAYMENT DELAYS IN Q3 2018
Payment delays are ubiquitous in the construction industry worldwide, but the Middle East’s engineering professionals have been significantly impacted by the trend in Q3 2018. Disputes, and their resolution, are also a major consideration for top-level executives working in Middle East construction and related sectors.
These are the findings of Construction Week’s inaugural Business Confidence Survey, which aims to evaluate market sentiment in the contracting; equipment; facilities management (FM); and mechanical, electrical, and plumbing (MEP) sectors on a quarterly basis. The survey’s simple questionnaire has been designed by Construction Week and its sister titles, PMV Middle East, Facilities Management Middle East, and MEP Middle East with the busy schedules of our respondents in mind.
Each quarter, a group of C- and M-level thought-leaders, invited by the Construction Week group’s editorial staff, will share their views on the industry’s recent performance and foreseeable future through the Business Confidence Survey. Most importantly, the study will capture the quarterly successes of the wider construction market, as well as guide and advise decision-makers in the months to come. In the inaugural edition of the study, 60% of the 10 respondents invited to share their views said that delayed payments had the biggest impact on their businesses in the third quarter of 2018, with contract disputes and lack of skilled labour also affecting their operations during the period.
Barry Lewis, managing director of UAE contracting heavyweight ALEC, is one of the respondents that cited payment delays as a Q3 business concern. In addition, he explained, the “resolution of legacy contracts” would impact the company in Q4 2018 – a quarter during which the firm’s revenue might increase, while staff numbers hold steady. Business conditions were “bad” in Q3 2018, according to Lewis, who also noted that the volume of new business reduced between Q3 2018 and 2017.
A similar situation appears to be brewing in the MEP sector, with the heads of Griffin Consultants, JLW Middle East, and Al Sabbah Electro-Mechanical Company (Semco) all citing payment delays as a major business challenge in Q3 2018.
However, responding to Construction Week’s Business Confidence Survey – Q3 2018, Subhash Pritmani, chief executive officer and vice president of Semco, said business conditions were “good” during the studied period. The volume of Semco’s new business, as well as the number of new project commencements, were unchanged between Q2 and Q3, according to Pritmani. But while he expected Semco’s revenue to increase in Q4 2018, Pritmani also said the number of new project commencements was expected to decrease during the quarter.
Pritmani cited delayed payments and contract disputes as the factors that had the most impact on Semco in Q3 2018, adding that the cost of doing business – including the “steep rise in labour costs” – was also a consideration for the firm.
Similarly, Omnia Halawani, director of Griffin Consultants, said business was good in Q3 2018, with the company’s volume of new business increasing on both a quarterly and annual basis. However, Halawani expected the number of new project commencements to decrease in Q4 2018 – a period during which delayed payments will likely continue to affect the MEP consultancy, according to Griffin’s director.
Ramy Boufarhat, chief operating officer of JLW Middle East, is one of the three respondents that cited contract disputes as a major business consideration in the last quarter. According to Boufarhat, a “substantial number of project variations without prompt determination” was another factor that had a significant impact on JLW Middle East during the quarter.
The problems of delayed payments and staffing were echoed by Rajesh Kumar Krishna, chairman and CEO of Beaver Gulf Group. Krishna and Semco’s Pritmani said both factors would continue to impact their respective businesses in Q4 2018. Beaver Gulf Group’s top boss also said business conditions were “good” in the past quarter, adding that he expected revenue to increase in Q4 2018, even though the number of new project announcements would likely remain unchanged.
Aaron Chehab, chief commercial officer at KBW Investments, described business conditions as “middling” in Q3 2018, adding that the firm’s volume of new business noted a year-on-year (YoY) increase between Q3 2018 and 2017. Chehab said he expected revenue to increase in Q4 2018, and cited market sentiment as a factor that would impact KBW Investments during the period.
Unsurprisingly, the payment delays faced by construction contractors are, in turn, squeezing cash flow for equipment specialists and distributors in the market.
Ajit Kumar, chief operating officer at Al Naboodah Commercial Group, said the company’s volume of new business decreased in Q3 2018 compared to the same quarter of 2017.
While he expected revenue and new project commencements to increase in Q4 2018, Kumar said “delayed payments and slow decision-making” would affect the business during the quarter. Both these factors, combined with poor “business sentiments”, had also affected in the firm in Q3 2018.
In this environment, it is understandable that FM companies are also facing payment delays – after all, real estate developers that award construction contracts are often also the clients of building management firms. Consequently, FM companies are as prone to cash flow problems as their construction counterparts, the Q3 2018 survey reiterated.
Richard Naylor, chief executive of Cushman & Wakefield Middle East, described business conditions as “bad” in Q3 2018, adding that the company’s volume of new business decreased on a YoY basis. The firm’s revenue and staff numbers are expected to stay the same in Q4 2018, Naylor said. In his responses, however, he pointed to delayed payments as the factor having the greatest impact on Cushman & Wakefield Middle East in Q3, adding that it would continue to have an impact in Q4.
Similar views were expressed by Khaled Bayad, business support specialist at QBG Facilities Management, who said the FM company’s volume of business decreased on a quarterly and annual basis in Q3 2018. Bayad said he expected revenue and new business volume to increase in Q4, but cited payment delays as the period’s most decisive business factor. Contract disputes, along with slow payments, also impacted QBG Facilities Management in Q3.
One FM company appears to have bucked the trend for the quarter, however. Vincent Montanet, chief business development officer at Cofely Besix Facility Management (CBFM), said business conditions were “good” in Q3 2018, adding that CBFM’s annual and quarterly business volumes rose during the period. Montanet said he expected revenue and new project commencements to increase in Q4, adding that CBFM’s staff numbers would also likely rise during the period. However, he cited client budgets as a critical factor for the business in Q4, alongside a lack of skilled labour.
While Q3 might have been a mixed bag for the construction, equipment, FM, and MEP sectors, the final quarter of 2018 is expected to be a period of growth for the industry. Eight of the 10 respondents to the Construction Week Business Confidence Survey – Q3 2018 said they expected revenues to rise in Q4 2018. Considering that most clients end their financial year in this quarter, it is likely that the closure of overdue payments will be prioritised for the next 100 days – contractors and equipment providers may, as a result, note increased incomes in Q4 2018. Our respondents also saw Q4 2018 as a promising time in terms of new project commencements, with only three professionals predicting that the number of new builds would reduce during the period. Fifty percent of respondents said commercial and residential projects would drive their businesses forward in Q4 2018. Additionally, 60% of respondents expected their respective staff numbers to hold steady during the quarter, while 30% believed the size of their workforce would increase between October and December.
Despite some operational challenges in the market, leaders from the contracting, equipment, FM, and MEP sectors see the value of doing business in the Middle East – a region that is working to quickly achieve ambitious targets such as Expo 2020 Dubai, as well as Saudi Vision 2030, Abu Dhabi Economic Vision 2030, and UAE Vision 2021. As indicated by the participants in Construction Week’s inaugural Business Confidence Survey, the industry has much to look forward to in Q4 2018.
Cautious optimism: The Middle East’s industry leaders are optimistic about growth in Q4 2018, despite facing payment delays in the last three months.
Surveyed leaders’ revenue expectations for Q4 2018. A site visual shot as captured by a Skycatch Viewer.
^ How industry leaders believe staff numbers will change in Q4 2018.
^ How each industry leader described business conditions in Q3 2018.