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Sat 4 Jul 2009 04:00 AM

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On shaky ground

How piling and foundations contractors have suffered a reversal of fortunes since the financial crisis struck.

On shaky ground
On shaky ground
Dubai’s Dutch Foundations operations manager Mark Newton.
On shaky ground
Simiplex Almoayyed general manager Atin Bhattacharyya.
On shaky ground
Dutch Foundations is eyeing potential business in Saudi Arabia.
On shaky ground
Due to the financial crisis, new projects have been few and far between.
On shaky ground
Some piling companies have been hindered by late payments.

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.

BahrainWhile 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."

"We now have to carefully study the financial capability of any client that we're contracting with."

Looking forward Newton says Dutch Foundations is eyeing potential business in Saudi Arabia, Kuwait and India as well as bolstering support for its sister operations in Abu Dhabi and Bahrain.

In Dubai he says an emphasis will be placed on value engineering as both developer and contractor become more cost conscious and less time stressed. One of the biggest potential areas to save will come through optimising the foundation design.

"Things have tended to be overdesigned to allow for lapses in quality control, just in case something is not right," says Newton.

"But if you design more to the optimums and minimums, then it forces contractors to improve their quality control because there are no overestimated factors of safety.

"There's a lot of money to save here and it'll be good for the industry."

Newton adds that he expects the practice of preliminary test piling will become more commonplace in order to verify designs and potentially shorten the foundation lengths.

"That's pretty normal in the rest of the world, but in this region time has been prohibitive and overdesigns have gone ahead just to get the project moving," he says.

"Now the onus has changed from time to cost."

Similarly Keller is also looking to focus on value engineering as a means of undercutting its competition with a particular emphasis placed on using their stone columns machine, or Vibrocat, as an alternative to piles in some instances.

"Before it was very easy for a consultant to just go for piling and save a lot of headaches when it came to precise details about economising," he says.

"We are trying to say look, here you need piles, but here you don't, let's go with stone columns or other improvements. This is how we're trying to position ourselves in the market."

Khan says techniques such as vibro-replacement (stone columns), vibro-compaction, grouted columns or deep soil mixing can be more economical solutions and less labour intensive, although limited to structures under 10 storeys.

"The consultants have more time now to research these different options and are more willing to do trials," says Khan.

"It doesn't cost the client anything and it's a good opportunity for us to show off what we can do and how we could save them money."

Ten piling companies to knowSwissboring

Swissboring was established in Switzerland in 1952 and opened its Arabian Gulf office in Dubai in 1973. The firm currently has more than 100 piling rigs and more than 1000 employees, excluding labourers, operating out of offices in Abu Dhabi, Dubai and Oman. Swissboring is currently working on the Emal Smelter Complex in Abu Dhabi, the Al Sufouh Transit System in Dubai and the Barwa Financial District in Qatar.

Middle EastFoundations

Middle East Foundations (MEF) was established in 1995 and now has offices in Dubai, Abu Dhabi and Sharjah. The firm currently operates 55 piling rigs and 33 cranes with a total workforce of around 1300 people. MEF is currently working on Dubai's Botanica Tower and Burj Al Alam, the tallest residential tower in the world. Previous projects include the Dubai Metro, the Burj Dubai, Dubai Mall and Dubai Airport.

Bauer

One of the biggest piling and foundation contractors in the world, Bauer started its Gulf operations in 1982 and now has offices in Abu Dhabi, Qatar and Saudi Arabia. The firm has more than 1500 staff in the Gulf and currently operates more than 50 piling rigs and 100 service cranes. Current projects include work on Abu Dhabi's Al Bustan Complex and the Doha Centre project in Qatar. Previous projects include the Dubai Metro, the Burj Dubai and the presidential palace in Abu Dhabi.

APCC

APCC was founded in 1979 and currently has offices in Dubai and Abu Dhabi with project experience across the region. The firm currently has a staff of around 1000 and a total of 32 piling rigs at their disposal. APCC is currently working on a number of projects in the UAE including the Al Jalila Hospital and the Wave and Pixel tower at the Dubai Waterfront.

Keller

The Keller Group operates in more than 30 countries around the world and its Gulf operation was established in the 1970s. The firm now has offices in Dubai, Bahrain and Saudi Arabia, which share 30 piling rigs and have a total skilled staff of 230. The company is currently working on the Saudi Kayan project in Jubail, which requires a total of 17,000 piles, as well as the Khalifa Bin Zayed Stadium in the UAE capital of Abu Dhabi, for which Keller will provide 2000 piles.

Dutch Foundations

Dutch Foundation was launched in Dubai in 1998 and now also has sister companies in Abu Dhabi and Bahrain. The firm's Dubai office currently has a fleet of 24 piling rigs and 580 staff while the Bahrain office maintains a staff of around 60. The Dubai office recently downsized its operation from a peak of 40 rigs and 1300 staff last year. Dutch Foundations has an impressive list of projects to its name including plots in Business Bay, Dubai International Financial Centre, Dubai Media City and Jumeirah Lake Towers.

NSCC

NSCC was founded in the UAE in 1968 and is now considered a regional leader in the design and construction of foundation engineering. The firm currently has a workforce of around 1700 and boasts offices in Abu Dhabi, and one in Dubai, Sharjah, Bahrain and Doha. NSCC is currently working on a US $124 million (AED 456 million) contract for the expansion of the Abu Dhabi International Airport Midfield Terminal, which require 3700 piles.

Edrafor Emirates

Edrafor Emirates is a sister company of Edrafor Lebanon and opened its branch in Dubai in early 2007 when it won the foundations contract for Churchill Towers in Business Bay. Its machine fleet currently includes 16 piling rigs and over the years, the firm has bought equipment from the likes of Bauer, Casagrande and IHC. Edrafor Emirates is currently working on the ground works for a new Emirates Bank on the border between Dubai and Sharjah, UAE, which involves using a unique foundation method called strutting.

Sharaf Foundations

Sharaf Foundations is a privately owned firm based in Dubai and working throughout the entire Gulf region. The company was established in 2007 with a main office located in Ras Al Khor Industrial Area. In October the company was awarded the piling and foundations contract for the Creek Towers and Plaza at Dubai Maritime City, which covers 69,273m² and is expected to be complete Q3, 2009.

Simplex Almoayyed

Simplex Almoayyed is the piling and foundations wing of Bahrain's Almoayyed Contracting Group and an offshoot of India's Simplex Concrete piling company. Simplex India has four regional head-quarters in Kolkata, New Delhi, Mumbai and Chennai. The Bahrain outfit currently has four piling rigs in its fleet.

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