Keep it in the family

Why large-scale projects in Abu Dhabi demand more of an equitable approach to contracting.
Keep it in the family
By Rupert Cornford
Sat 30 Jun 2007 12:00 AM

The size and scope of developments across the region have placed unique demands on the traditional procurement triangle. Large-scale multi-phased projects, which have completion schedules that span decades rather than years, are being treated with extra care by parties to ensure that they are completed on time and within budget.

Instead of sitting on opposite sides of the table, some developers are forming alliances with contractors in order to balance risk and reduce the adversarial nature of the construction contract, which has so far plagued the local construction industry.

We bring all of the contractors in at the concept design stage, show them who the team is and what the building is.

One of the projects in the region pursuing this approach to procurement is Al Raha Beach in Abu Dhabi. On a 10km-long site, which is 800m wide and 70% reclaimed land, the development will comprise 47km of beachfront, three parks, five beaches and four marinas. It will have a total of 130 towers and a peak population of 120,000. Construction started in 2005 and is expected to be finished in 2019.

According to Michael Cox, project director, Al Raha Beach, the only way to build a development of this size is to form close relationships with all parties involved.

"Partnering is the only way to build a major project," he says. "We need to have a team of contractors on board who are willing to be ‘open book', who are willing to deliver on the same goal as the developer.

"We are using the NEC3 form of contract, which says that ‘the developer is sharing the risk and the contractor is sharing the risk'."

Originally introduced in 1993, the third edition of the Engineering and Construction Contract - NEC3 - came into operation in 2005. It is designed to be a legal framework of project management procedures and is expected to set a new benchmark for procurement in the region.

"The NEC is drafted in simple non-legal language and is designed to be used across all industry sectors and international jurisdictions. [It] is an improvement over the more traditional forms of construction/engineering contract due to its flexibility, clarity and simplicity and stimulus to good management," says Gordon Moffat, managing director (Middle East & Africa), Systech International.

"It is more than just a contract; its ethos is to be a day to day management tool that is proactive rather than reactive. The notion of ‘let's get the job done and sort out the claims later' no longer holds," he adds.

NEC3 includes six pricing options that reflect varying degrees of risk between the employer and the contractor. And its focus is designed to improve the partnership between the project manager and the contractor, and encourage them to resolve matters, which may hinder progress or increase costs, as they arise.

On Al Raha Beach, careful integration of project teams from an early stage, and regular meetings, has facilitated a reduction in both design and construction schedules on certain aspects of the project.

"We bring all of the contractors in at the concept design stage, show them who the team is and what the building is," says Cox. "They take it away, come back, and give us a price. The concept is then evolved, with further pricing by the contractor, so by the time we come to the end of detailed design - they have a price, we have a design, and they can start. We've knocked four to five months off the programme from the tendering stage."

As well as sharing the risk between parties and getting contractors on board early, the approach of the NEC3 contract has been complemented on Al Raha Beach by the formation of joint ventures - the contract does not require the formation of formal alliances to operate, but a partnership does carry an obvious financial benefit for both companies.

Last year, a joint venture was formed between Aldar and UK contracting giant Laing O'Rourke. Aldar Laing O'Rourke is charged with designing, developing and executing sections of the project, looking after procurement of materials and improving time and cost management operations.
In a shrewd move for Aldar, the procurement arm of Laing O'Rourke is sourcing rebar, not just for Al Raha Beach, but for the whole company, which means that other Aldar developments in Abu Dhabi, including Al Gurm Islands and Al Raha Gardens, will be able to call on a company-wide supply of reinforcing steel. According to Cox, rebar is currently being procured from China and Turkey on lead times of three to four months and being stockpiled on a monthly basis. "We have to get it at least six months ahead," he says. The company is also believed to be setting up a joint venture with Abu Dhabi Readymix in order to set up batching plants on site to supply a continuous stream of concrete.

"I can imagine setting up 30-40 joint venture companies just for materials," adds Cox.

"We are going to need one million door handles, and hinges. It's no use going to 10 different suppliers, so we are looking across the board for everything - gypsum, glass, lights - everything.

"We have to set up strategic alliances with major suppliers otherwise it won't get finished, and we run the risk of late deliveries, high costs and poor performance. We've got to stop that by putting these measures in early," he says.

As industry capacity reaches fever pitch worldwide the importance of maintaining a secure supply chain cannot be overstated. According to Mark Prior, regional managing director, EC Harris, this concern is particularly prevalent in the Abu Dhabi market as developments start to come on stream.

"The pain that they are suffering down there at the moment is getting cement and rebar, because a lot of the developments are in the ground and are just starting to come out," he says.

"What we are saying to clients is that we have to look at other ways of de-risking procurement because with so much work around, people will become more selective."

So, as the market begins to respond proactively to capacity pressures, what does the future hold for the NEC approach to procurement and the formation of alliances in emerging markets such as Abu Dhabi?

Prior is adamant that the current practice of Al Raha Beach will become more common but admits that its pioneering approach may take some time to be accepted into the contracting fold.

"If you look at what Aldar is doing on Al Raha Beach - by using more of an engineering form of contract, with an approach similar to that as on Terminal Five (T5) at Heathrow Airport - it's another way of securing a supply chain on a major development.

"But when the British Airports Authority went down this route for T5, it took people two to three years to get used to the environment in which they were working in. Whether the market in Abu Dhabi is ready for this approach, remains to be seen. But there are certainly those who will embark on this route - a lot of the initiatives born in the UK and other markets will have an impact here."

But according to Cox, the collaborative approach will have to be adopted in a market where going out to tender is becoming more difficult.

"From a contracting point of view, it's the only way to go," he says. "I think that with the amount of work that is going on in the UAE, contractors can't take that risk anymore - there is just too much work.

"Al Raha Beach is the first development to do this and I think everyone else will start doing the same. A contractor has got to be your partner; it can't be your enemy."

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