Fierce competition leaves some firms wondering whether the Doha dream is all it's cracked up to be
Ever since the 2022 World Cup was awarded to Qatar, the country has been seen as the holy grail for building contractors. And with good reason; with an estimated $200bn being spent on infrastructure over the next ten years, the assumption has been that there’s plenty of work to go round.
It’s not just stadiums either. Among the biggest projects that are still to be delivered are Hamad International Airport ($15.5bn), the New Doha Port ($7bn), and the Qatar Integrated Rail Programme ($35bn). But the headline projects are only half the story. The country is going to need 400 new bridges and tunnels, 240 new intersections, new roads, new power plants, new desalination plants, new housing projects, new hotels and new malls.
No wonder the two big events in Doha last month – Project Qatar and Cityscape Qatar – saw packed-out crowds, with regional and international players all striving to get their foot in the door. The level of competition is such that some firms are wondering whether the Doha dream is all it’s cracked up to be.
At the last count, there were more than 200 contractors just in the mechanical, electrical and plumbing (MEP) field vying to bid for new contracts. With so many companies in the market, the inevitable has happened; margins are wafer-thin and there are rumours that some contractors have been bidding at below cost simply to get a foothold and to build a relationship with Qatari clients.
That may be great for the clients, but it’s not such good news for the builders. Making matters worse is the fact that contracts are already heavily weighted in the client’s favour. As a result, even those firms that have managed to secure a precious deal in Doha have little legal recourse if something goes wrong onsite.
This is not a recent problem, of course, and it’s certainly not one that’s confined to Qatar. Every year, the World Bank releases the Doing Business report, which currently ranks 185 countries according to how easy it is for a small or medium-sized business to operate in that nation over that firm’s lifecycle. The Gulf countries love this report, as a strong ranking allows them to showcase the fact that they are worthy bases both for small businesses and foreign direct investment. Saudi Arabia, which placed 22nd and first in the Arab world (again) this year, markets its ranking heavily on the Saudi Arabian General Investment Authority website.
But there’s always one area in the report where the Gulf countries, including Qatar, tend to fall behind other, more traditional, economies, and that’s the enforcement of contracts. Doha was ranked 95th in the world when it came to enforcing contracts in 2013, only slightly above the regional average of 113th. What’s more disturbing is that no legislation or regulations have been introduced to improve this rating in the last five years.
Now, you could argue that given the level of competition trying to get work in the construction sector, it’s understandable that Qatar might not see this area as a priority. But despite the fact that there are still nine years to go until the first ball is kicked, the huge amount of projects to be completed - and the fact that they are all, in some way, integrated with each other - means that there is actually little room for error.
I heard from one major contractor operating in Doha last week that his client had opted to defer a year’s worth of payment to his firm, with no reason given for the delay. His only options were to accept the decision and do nothing, or pull out and risk a reputation painstakingly built up over the course of a decade. He went with option one, but other future contractors might not – and that’s where more even-handed contract enforcement rules could come in.
No-one wants to see a repeat of what has happened at Hamad International Airport, especially as the World Cup draws closer. Regardless of what actually went wrong, it’s bad for the contractors, it’s bad for the client, and it’s definitely bad for Qatar.
Ed Attwood is the Editor of Arabian Business.