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UAE construction shifts to negotiated contracts

7 May 2024

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There has been a notable shift towards construction contracts being negotiated in the UAE, says UK consultancy Turner & Townsend in its latest UAE market intelligence report.

According to Turner & Townsend’s market survey, 25% of respondents indicated negotiated procurement routes as their most common experience. Clients, particularly on large-scale complex projects, are also seeking early contractor engagement, which, in some instances, is formalised through the use of a pre-construction services agreement.

The trend towards more negotiated contracts reflects the high volumes of new work coming onto the market, a finite pool of contractors and regional competition for resources. “With the combination of a more regulated real estate market and incentives for longer-term investment driving population growth, it’s difficult to see a significant tail-off in market conditions in the short term. As such, we expect tendering conditions to remain similar for the next 1-2 years,” says David Griffiths, director, UAE real estate lead, Turner & Townsend.

“The market may also experience a continued shortfall of suitable contractors, due to an exodus of major global contractors and the lures of the project pipeline in [Saudi Arabia], leading some UAE contractors to expand their operations regionally,” he adds.

The survey also showed that the use of design-and-build procurement routes has declined significantly, indicating a potential change in project delivery preferences or client demands.

Single-stage tendering

Despite more negotiated contracts, single-stage procurement remains the predominant method for the UAE construction industry, driven by competition and efficiency. Some 44% of survey participants reported experiencing single-stage procurement routes most frequently during the last six months of 2023, marking a 3% decrease from Turner & Townsend’s November 2022 figures.

The firm added that the figures do not show a shift away from the single-stage, traditional lump-sum fixed-price approach, which places significant risk on the contractors during the pricing phase, to a single-stage tender that is often heavy with provisional sums.

Another important factor is supply chain disruption. Among respondents, 88% reported disruptions in supply chains during the last six months of 2023, with 22% of them characterising the disruptions as significant.

MEED's April 2024 special report on the UAE includes:

> COMMENT: Non-oil activity underpins UAE economy
> GVT & ECONOMY: Non-oil activity underpins UAE economy
> BANKING: UAE banks seize the moment
> UPSTREAM: Adnoc oil and gas project spending sees steep uptick
> DOWNSTREAM: UAE builds its downstream and chemical sectors
> POWER: UAE marks successful power project deliveries
> WATER: Dubai tunnels project dominates UAE pipeline
> DUBAI CONSTRUCTION: Dubai real estate boosts construction sector
> ABU DHABI CONSTRUCTION: Abu Dhabi makes major construction investments

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Colin Foreman

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