Deloitte GCC Powers of Construction 2018 report - Has the industry turned the corner?

5 March, 2019 – Deloitte has launched the 2018 edition of the annual GCC Powers of Construction report, in which experts consider whether the industry has turned the corner, and how it could benefit from adopting alternative project delivery methods, and shares perspectives on the smart development of tomorrow’s cities.

The report highlights the challenges that affect the GCC construction sector and the importance of embracing change through more‑balanced contractual relationships; greater stakeholder collaboration focused on delivery; a sensible approach to risk allocation; quicker ways to resolve disputes; innovative delivery models; and the adoption of global standards that will prove attractive to international project financiers and investors.

“Deloitte’s GCC Powers of Construction 2018 summarises the year gone by and the challenges this has presented, and then discusses ideas and potential solutions to help change the contracting environment and enable a more efficient delivery of large capital projects for owners. A shift that will not be easy but has the potential to be hugely rewarding,” said Cynthia Corby, Partner and Construction Leader at Deloitte Middle East.

“A highly competitive and price‑conscious market over the past few years has unfortunately led to a ‘lowest bid wins’ model that has seen price as the deciding factor for awards. When you have choice in a highly competitive market, you can demand quality and the lowest price, but this is not a sustainable approach for contractors or developers. Pressure to reduce costs to win work often results in frequent disputes, and leads to eroded profit margins, which ultimately affects project delivery,” states Corby.

“As developers look for ways to build assets at a cost that’s recoverable through an acceptable ROI, there has to be more focus on the whole‑life cost rather than just the initial capital cost. This paradigm shift will drive the change required in terms and conditions and a collaborative approach between stakeholders.”

In the report, senior industry executives give their perspective on a range of topics, including alternative delivery models and innovative construction practices. Mark Andrews, Managing Director at Laing O’Rourke Middle East, highlights the importance of modular construction, and says, “In the UK, our innovations are around the increased use of off‑site methods – our Design for Manufacture and Assembly (DfMA) approach. This approach uses digital engineering and BIM modelling, construction manufacturing capabilities and logistics – all of which enable an on‑site assembly process. The UAE could benefit from a DfMA approach, but to get there we need to influence the market, which involves increasing the use of D&B and creating more collaboration. There are hurdles to overcome, including the relatively low cost of labour in this market, which does not currently incentivise the use of the DfMA model.”

The ambition and scale of investment in infrastructure and capital projects in the Middle East is significant- and not only from a financial perspective. Tim Parr, Deloitte’s Global Head of Capital Projects and CEO, Consulting, Deloitte Middle East says, “To realise the ambition and enable better performance from the supply chain, perhaps it’s time to fundamentally rethink how capital projects are delivered.”

“Given that these projects often deliver important national infrastructure, they sit at the boundary between the public and private sectors; a boundary that has shifted recently, with previously hands‑off governments becoming more active in project delivery to create an environment that enables the private sector to be more effective. Alternative delivery models and digital innovations are helping break the traditional delivery structures that have come to hinder capital project delivery. There are many examples where this ‘rethinking’ is improving performance, and these pioneering projects are shaping how future projects will be delivered.”

If you would like to discuss the report in more detail, please contact Cynthia Corby.

To view the full report please click here.