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Piling and foundations contractors have suffered a complete reversal of fortunes since the financial crisis struck the region late last year. CW talks to several industry insiders to see how they are weathering the storm, when things might pick up and how the industry might evolve.
A year ago you would have been lucky to get hold of a piling rig in the Gulf, with the giant machines in huge demand across the region amidst a bonanza of new construction projects.
It was a time that is now nostalgically referred to as "the golden years" by many in the piling and foundation industry, including Shad Asif Khan, the general manager of Keller's Gulf operation.
We now have to carefully study the financial capability of any client we’re contracting with.
"At that time in Dubai the prices of contracts were hardly negotiated; you got the job just because you were available and you could finish it in time," he says.
"But now it's totally the other way around."
Since the onset of the global financial crisis and the subsequent demise of the property market late last year, new projects have been few and far between.
Piling and foundation contractors, many of whom built up enormous human and equipment capital during the boom times, are now scratching around for contracts in an extremely competitive market.
"There are so many companies out there that grew so quickly and now all that equipment is standing idle," says Khan.
"I was speaking to some people recently who said they don't even discuss profit, they just want their rigs to move. They have reached that level of desperation."
Keller, a firm with a global presence and one of the big players in the Dubai market, is faring better than many of the smaller outfits, says Khan.
They made a small number of redundancies to streamline operations, have shifted some rigs from Dubai to work in Bahrain and India, and are surviving on the cash flow from several large projects last year.
Khan says the real test will come towards the end of the year when it's expected that a few big contracts, some in the hundreds of millions of dollars, will be awarded.
"There are inquires in the market, but nobody wants you to come next month, it's all at the end of the year," he says.
"Everybody [in the piling industry] is eyeing those projects and whoever loses the contracts is going to have it really tough in 2010."
As for the price of contracts, Khan says it's difficult to tell where prices have really settled because few contracts are being awarded. In addition, he says Keller has slashed its bids by 20% to 25%, based largely on falling material costs and reduced margins, and says it could get worse.
"When it comes close to the final negotiations I believe the client will be clever enough to make us fight and expose the competition and it will probably come down even further," he says.
"With those kinds of delays it also means that there probably won't be any substantial contracts awarded until next year."
Mark Newton, operations manager for Dubai's Dutch Foundations, says it too has cut prices by around 20%, although he believes that's pretty much rock bottom.
"Nobody in the market is talking about margins at the moment, they're just talking about securing a certain level of turnover in order to cover their overheads and pay their salaries," he says.
Dutch Foundations hasn't had a fantastic 2009 having cut its staff from a peak of 1300 to around 580 and reduced its operational piling rigs from 40 to 24.
The company has also initiated a voluntary resignation scheme and a rotating long leave system for key people that they don't want to lose permanently.
Now sufficiently streamlined, Newton says the firm is capable of being sustainable in a highly competitive market, but it is being hindered by late payment from previous clients.
"This is one of the most difficult aspects of being able to continue successfully, obviously you need that cash flow to keep the cogs turning," he says.
"Especially when you consider that on most standard piling contracts 50% to 60% of your direct cost are permanent materials.
"When you're financing this in advance to keep your projects going then it makes things very difficult. We're contractors and not banks at the end of the day."
Newton says that some outstanding payments have started to trickle in but there are at least two "rouge clients" where it's clear that litigation or arbitration are the only options left, both being expensive and time consuming exercises with no guarantees.
"It's something that we try to avoid but when you're talking about the tens-of-millions and in some cases hundreds-of-millions overall, you really don't have a choice," he says.
Bahrain
While Bahrain's piling industry has been affected by the downturn, the relative size of the market, when compared to Dubai, has meant the impact was substantially less.
Both Keller and Dutch Foundations say their small operations in the Kingdom have been less affected than in Dubai, which is partly due to the fact that there are only around four to five small piling and foundation outfits in Bahrain.
Atin Bhattacharyya, the general manager of Bahrain-based contractor Simiplex Almoayyed, says there was a period of two to three tough months with no enquiries and several contracts put on hold. But he says this has started to ease in the last three weeks and there are a number of small contracts available, "enough to sustain the operations".
In terms of price corrections, Bhattacharyya says prices have come down 7% to 8% in line with material costs, but he doesn't expect this to go any further with prices "already at rock bottom".
He also doesn't expect to see an increase in outside competitors in the Bahrain market.
"Bahrain doesn't operate in a very professional way, getting contracts here is heavily dependent on interpersonal relationships, it's more who you know rather than big tenders," he says.
"Part of that is because there are only a few operators but it makes it very difficult for new comers."
While Bahrain's piling industry has been affected by the downturn, the relative size of the market, when compared to Dubai, has meant the impact was substantially less.
Both Keller and Dutch Foundations say their small operations in the Kingdom have been less affected than in Dubai, which is partly due to the fact that there are only around four to five small piling and foundation outfits in Bahrain.
Atin Bhattacharyya, the general manager of Bahrain-based contractor Simiplex Almoayyed, says there was a period of two to three tough months with no enquiries and several contracts put on hold. But he says this has started to ease in the last three weeks and there are a number of small contracts available, "enough to sustain the operations".
In terms of price corrections, Bhattacharyya says prices have come down 7% to 8% in line with material costs, but he doesn't expect this to go any further with prices "already at rock bottom".
He also doesn't expect to see an increase in outside competitors in the Bahrain market.
"Bahrain doesn't operate in a very professional way, getting contracts here is heavily dependent on interpersonal relationships, it's more who you know rather than big tenders," he says.
"Part of that is because there are only a few operators but it makes it very difficult for new comers."
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