Reducing margins are making developers in Dubai more particular about the projects and clients they work with, as per the boss of one firm.
Chairman and CEO of Beaver Gulf Group, Rajesh Kumar Krishna, stated that the contractor margins in Dubai at present are top out at around 7 percent.
Krishna mentioned in comments published by Construction Week Online, “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.”
He told that the regulatory changes and fees are effecting contractor costs, which are further secured as developers look forward for greater returns on investment.
Krishna mentioned that these components are driving up the competitiveness of contract tenders and making tender pricing even more crucial for construction firms.
As a result, select contractors are reducing to work on the projects that are not financially sensible for their organisations, he noted.
Krishna told that it is important 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 involved responses from developers, project owners, external advisers, contractors 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 effected those at the end of the food chain, with contractors reporting that the greatest challenge they face in 2018 was “payment delays by clients, with availability of funding coming second”.
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