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Mon 12 Dec 2011 08:48 AM

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Architect firm eyes insolvency over unpaid Abu Dhabi bills

Austin Smith: Lord claims it is owed AED45.3m in outstanding fees from Abu Dhabi agency

Architect firm eyes insolvency over unpaid Abu Dhabi bills
Abu Dhabi plans to invest $500bn in industry, tourism and culture under its 2030 plan

A UK architectural firm has claimed its business is under threat after an Abu Dhabi government agency failed to pay millions of dollars in outstanding fees for work completed on the emirate’s cultural quarter.

London-based Austin Smith: Lord (ASL) said it is owed £7.85m (AED45.3m) by the Abu Dhabi Authority for Culture and Heritage for its work on the Qasr al-Hosn fort in the centre of the city.

The 62-year-old design firm last month signed a Company Voluntary Agreement (CVA) with its creditors in a bid to avoid administration. ASL has made more than 80 staff redundant, including 13 employees from its Abu Dhabi office, which has since closed.

A spokesperson for ASL said the Abu Dhabi state agency had made payments of £2.4m (AED13.8) and £750,000 (AED4.3m) in recent weeks, but that these came too late for the company to avoid filing for a CVA.

 “The damage [to ASL] has been absolutely colossal,” said partner at the firm Jennifer Dixon. “Our reputation, and the opportunity cost of this has been just mind-blowing.

“And the human toll has been tragic. We made 70 people redundant on the spot before entering the CVA, and some of our UK staff are more than two months in arrears with their salaries.”

ASL began work on the Qasr Hosn fort project in 2006, and opened an office in the UAE capital late last year. The firm employed hundreds of staff work on the development, with the job of transforming the old ‘White Fort’ into a cultural centre with a museum and theatre house.

Until April 2010, executives said they enjoyed “a very good, strong relationship” with the authority, with no commercial or payment difficulties.

“From the spring of last year it became increasingly difficult to keep the cash flowing and cover the costs of our resources and spending,” said Dixon. “We had a very large consultant team, hundreds of people, all working to very tight programmes and producing very large bodies of work. They all need to be paid and accommodated.”

In the midst of the cutbacks, Dixon said the project reduced in budget and slightly in scope, but this was “not surprising” given the global economic picture.

By June, ASL was unable to cover its expenditures and asked ADACH to expedite payment, said Dixon. By mid-November, the company had not received payment.

“We worked very hard to communicate to [the authority] how serious our position was, but very sadly we just could not get that message through [in time], and we had no sign of any funds from ADACH at that point,” said Dixon.

The Abu Dhabi agency transferred funds within 48 hours of ASL filing for the CVA, but it was too late for the design firm to avoid the insolvency process, Dixon said.

In a statement to Arabian Business, ADACH said the architect firm’s outstanding fees were being reviewed as part of a settlement process, and questions remained over some payments.

“There was a contractual obligation to Austin Smith Lord (ASL) that has been paid in full,” said a spokesperson.  “There are other amounts that are being reviewed thoroughly; however, the amounts being asked for are without signed contracts.

“In the current global economic climate it is not uncommon for government contracts to be reviewed and or delayed. The ASL contract is a unique stand-alone project, in terms of ADACH's business, and separate from the day-to-day running costs of the authority.” 

Abu Dhabi has seen an emirate-wide slowdown in major infrastructure projects in recent months, in a sign it may be feeling the pinch of funding its ‘2030’ development plan.

The emirate, holder of 7 percent of the world’s oil reserves, plans to invest $500bn in industry, tourism and culture to increase non-oil revenue to 64 percent of the economy.

In October, two of the capital’s flagship museum developments on Saadiyat Island - the Louvre and the Guggenheim - were put on hold after the TDIC recalled the tenders for contracts.

ADACH, which is also overseeing the Al Jahil Fort restoration, made about 160 of its 500 employees redundant earlier this year, the Financial Times reported in June.

“There has been a review of not only the central government budget of Abu Dhabi but also of the government authorities and government-related enterprises,” said Farouk Soussa, chief economist for the Middle East at Citi Investment Research and Analysis.

“That review has resulted in a significant tightening of belts across the board. In particular they’re cutting back in areas like real estate, hospitality and tourism; the non-oil sector being affected most. So it’s not surprising that individual authorities and entities are experiencing cash flow difficulties and having to rein in expenses, which would naturally result in the contractors who have been working for these entities feeling the knock-on effect.”

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Telcoguy 8 years ago

And this is why many people believe that the cheque laws here are essentially unjust. I will really appreciate if any of the many readers who have posted previously supporting them, would explain the difference between these situations, both involving non-payment.

Zaid 8 years ago

We have the same problem with Al Ain Municipality

RaOne 8 years ago

In business contracts like this service provider does not get Post-dated cheques. Its payment against the invoices for the service given.

Whereas dealing with banks and loans post-dated cheques is the norm. But the worry part here is the concept of security cheques (though there is no such category). where people are in jail cause the holder thought of encashing this for double return.

Telcoguy 8 years ago

@Ra, my question is why non payment through a cheque is such an offense while non payment of an invoice is a non issue.
From a moral perspective I can see no difference. Can you?
Well, I actually see a difference.

Hush 8 years ago

Telcoguy, the law here makes cheque bouncing a criminal offence. The banks and other organisations who deal with individuals here know they have no recourse if someone defaults on a payment, so they take a cheque to ensure payment.

Any private company dealing with another company whether private or government, ideally should have taken a post dated cheque to guarantee the payment. During the boom if you had asked a govt entity for a pdc you would have probably been shown the door and people werent to know what was about to follow.

I agree with you its unjust, and to be fair to the government here, I believe they know its unjust too. However the law is the law and one party had a pdc and the other didnt. Its not about right and wrong.

Due to the transient nature of Dubai, the PDC system allows people to do business here and allows credit to be given. Without it the place would fall apart. Unfortunately there are victims who possibly didnt know or understand the pitfalls of it.

Telcoguy 8 years ago

@hush, this is beating the dead horse, but I will go for it.
The postdated cheques only punish those who fail in good faith. nothing prevents a person keen on playing the system from signing as many postdated cheques as you want and then vanish. The systems is not only useless, but harmful as it gives a false sense of security. You just need to look at the banks situation in Dubai to see how effective the risk scoring systems were.
If the transient population of Dubai does not allow to provide credit, then maybe, the solution is not to extend credit rather than put your trust on a fiction. At some point reality needs to be paid their dues.
About companies having legal recourse... good luck with that.
I agree that people were not keen on hearing this a few years ago, I guess chickens are coming home to roost.