Abu Dhabi's Tourism Development and Investment Company (TDIC) has re-invited contractors to bid for the construction of Saadiyat Beach Residences and is reviewing tenders on other projects in reaction to the economic slowdown. "TDIC is reviewing and finalising certain tenders on several announced projects," said a company spokesman.
"Our review is a responsible response to the prevailing economic scenario. "Contractual negotiations are subject to commercial confidentiality, we do not discuss the status of negotiations at any time and any further comment would be inappropriate." Industry experts have said the move to re-tender projects was a way for developers to take advantage of lower construction costs, which are expected to drop by a further 10 per cent next year after growing at a rate of 20 per cent year-on-year in the past few years, according to estimates from EC Harris, a UK-based construction consultancy.
Arabtec Construction had been in line to clinch the Saadiyat Beach Residences project after months of talks, but the deal has now been withdrawn. "We received a letter of intent... Maybe the client thought it would get a better deal," said Riad Kamal, the chief executive of Arabtec. Al Jaber Engineering and Contracting (ALEC) also submitted a bid in the early stages of the tender process, but did not make it to the final stage.
Kez Taylor, the managing director at ALEC, said the company would bid for the project again. TDIC has given companies until Jan 26 to place their bids. The contract involves the construction of a 380-room hotel, seven residential buildings, car parks and 32 villas on one site, and 75 villas with a clubhouse and sports facilities on another. While reopening the competition may allow the developer to benefit from cheaper construction, abandoned deals mean wasted time and expense for contractors, who have no legal recourse.
"Developers will be making the best of lower construction costs," said Imad al Jamal, the vice chairman of the UAE Contractors Association. "Contractors need to be smart by putting clauses in contracts that reach the "letter of intent" stage, saying the developer must pay a penalty if the deal doesn't go ahead. The trouble is the contractor is the underdog, not the one making the contract." Until a couple of months ago, construction firms enjoyed direct negotiations with clients, allowing them to name their price and be judged on their track record. This was due to a severe shortage of quality contractors.
A surge in the cost of construction materials, which hit the industry hard last year and in the first six months of this year, meant developers agreed to include price escalation clauses in contracts. If materials prices went up further during the period of construction, the developer would pay. But as liquidity restrictions threaten the feasibility of projects and construction costs decline further, securing work will become tougher for contractors, and conditions possibly less favourable.
"The environment is going to get a lot more competitive," said one contractor who asked not to be named. "Construction costs have come down a lot, so developers are now considering this. It will get much more difficult for us." The most significant drop has been the price of steel, with a tonne of steel reinforcement bar now fetching Dh1,652 (US$450), after peaking at Dh6,000 in July. The price of steel plates and beams has also dropped by about 15 per cent, while the price of cement remains capped at Dh340 per tonne.
"But what has dropped is the price of materials, not the cost of salaries, other overheads and equipment," said Mr Kamal. "So the net effect of all of this is going to be for the benefit of the developer, rather than the contractor." The TDIC official added that while other construction tenders were under review, all projects announced so far were expected to continue. "TDIC would like to take this opportunity to reaffirm that all announced projects will be progressed." email@example.com