Contractors risk hurting their own finances and sub-standard projects by underselling during tender process
The regional head of a global strategy and marketing consulting firm has warned contractors against “underselling themselves” while bidding for lucrative Expo 2020 contracts, saying such price cuts can hurt a company’s finances and result in sub-standard projects.
Lovrenc Kessler, the managing director of Simon-Kucher & Partners Dubai, said the economic boom that will be generated by Expo 2020, including construction projects at Dubai World Central, was worth billions of dollars in investment.
However, he said to clinch the prestigious projects “companies will undersell themselves mercilessly”.
“Blinded by the attractiveness of new projects, they give the cost calculations only a cursory glance,” he wrote in an opinion piece provided to Arabian Business.
“The harsh reality hits a few months later when it becomes clear that the order can no longer be fulfilled according to the budget and strategic clients are no longer able to meet the financial demands of owners.”
Kessler said while there was no official data on how often this occurred, he said increasingly discussions with clients had found that price competition, particularly in the construction sector, had dramatically increased over the years.
“What we see from the clients’ responses is that they say a couple of years ago even though you were not the most attractive price competitor there was still an emphasis on quality, on other issues that you put in the tender,” he later told Arabian Business.
“Whereas over the last few years the tenders have become more and more focused on price – going as far as price is the only decision criteria to award a project.
Kessler said as they chased Expo 2020 projects companies ran the risk of endangering “their entire existence on the one side” while the entire sustainability of that project could be jeopardised” as quality was sacrificed for cost cuts.
“At the end of the day it should be meant that infrastructure is sustainable not just two, three years after the Expo but for at least two decades or more,” he said.
Kessler said companies should not “put aside good business sense and give in to price cuts” when they know the project costs will exceed the budget.
“In the end it’s better to lose an order than to ruin your company with overly aggressive prices,” he said. “Many bankruptcies in the UAE happen precisely for this reason.”
Kessler said he advised clients to offer different options to satisfy tender requirements, including recommendations for how a client can achieve a more sustainable project “rather than if they go purely for price”.
Asked if this worked in the Middle East, he said: “It has helped companies to open the eyes of the decision makers who designed the tender and it is a process of course”.
“I can’t give you an exact number but it some cases it did work, in other cases it did not work. It is a first step and of course if all companies act more rationally in that sense of course that initiative can be more successful.”
Kessler said the “professionalism” of tenders in the Middle East had increased as a result of bad experiences up to 15 years ago when assessment panels were less experienced.
“We see more and more consistent similarity between what might be the western world or in North America and now particularly in the UAE,” he said.