Rethinking how Saudi projects are delivered
25 January 2024
In early January, Italian contractor WeBuild secured a $4.7bn contract to construct the three dams that will create a lake at the centre of Saudi Arabia’s Trojena mountain resort in Neom.
Like most in the kingdom, the project is large in scale and technically challenging. It also has an aggressive delivery schedule as the lake – and the surrounding resort and ski slopes – must be ready for the Asian Winter Games in 2029.
The project will also have to be completed at the same time as the rest of the growing volume of construction work in the kingdom. According to regional projects tracker MEED Projects, there were close to $95bn of contract awards across all sectors in the kingdom in 2023 – an all-time record and significantly higher than the $59bn recorded the previous year.
For construction specifically, there were $23bn-worth of awards made in 2023, which is marginally less than the total for 2022. With this level of awards expected to be maintained or exceeded in 2024, the challenges facing the kingdom’s construction sector will be amplified this year.
New approach
The development firms that have been tasked with delivering Riyadh’s five official gigaprojects – and the raft of other large masterplanned projects – are rethinking how projects in the kingdom are delivered.
The first area of concern is procurement, and securing sufficient resources to complete projects.
In the case of the Trojena dams, this was done by engaging with a group of construction firms on an early contractor involvement (ECI) basis. Contractors took part in a two-stage tender, with bidders submitting preliminary prices and then working with the client to arrive at a final price for the project.
By working on the project at an early stage, contractors have a better understanding of the work involved and are more likely to bid.
Neom is not the only giga- project developer using this approach. Last year, Qiddiya Investment Company appointed UAE-based Alec to build the motorsports Speed Park at its entertainment city project on the outskirts of Riyadh.
Qiddiya is also engaging with contractors on an ECI basis for its Prince Mohammed bin Salman Stadium, which features a complex design that will be built on top of a 200-metre cliff.
Other steps that have been taken to make projects in Saudi Arabia more attractive include better payment terms and an overhaul of the use of performance guarantees.
Red Sea Global (RSG), which is developing the Red Sea Project and Amaala gigaprojects, no longer requires contractors to submit bid bonds and returns performance bonds on completion of the project, along with half of the retention.
By working on the project at an early stage, contractors have a better understanding of the work involved
Packaging projects
Projects are also being packaged differently. For the Trojena dams, the work was packaged as a large infrastructure project. This route also appears to be the favoured solution for other developers undertaking large-scale infrastructure projects.
For building work, there are several approaches. RSG created much noise in the market when it decided to adopt a construction management approach for its projects. This meant breaking the project down into a series of smaller packages, which are then managed by an in-house construction management team.
The aim of this approach is to give the developer more control over the project. It also helps to overcome some of the deficiencies of the market that have existed for main contractors in the kingdom for the past decade.
Other clients are taking a different approach. In recent months, clients such as Diriyah Company and Rua al-Madinah have tendered contracts for constructing superblocks, which include the construction of a district within a development that comprises several buildings. This approach aims to offer contracts to major local, regional and international construction firms with enough scale for them to invest in the project.
The superblock approach was used in previous eras of Saudi construction when major firms – led by Saudi Binladin Group and Saudi Oger – would regularly take on large work packages.
Phasing is another way that the pressure in the market can be alleviated. Last year, executives of Saudi development companies spoke privately about the need for project priorities to be set so that they can focus on specific objectives.
At the end of last year, that notion was given more weight when Finance Minister Mohammed al-Jadaan told reporters at the launch of the state budget that Saudi Arabia needs more time to deliver its projects.
“A longer period is needed to build factories, build even sufficient human resources. The delay or rather the extension of some projects will serve the economy,” he said, adding: “There are strategies that have been postponed and there are strategies that will be financed after 2030.”
As the minister did not give specifics, it is not clear which projects will be delayed and which will remain on their original schedule. That said, projects with event-driven deadlines – such as the 2027 Asian Cup, the 2029 Asian Winter Games, Expo 2030 and the 2034 World Cup – will have to be delivered on time.
This package also includes:
> LEADERSHIP: DHB Holding CEO Omar Delawar on constructing a sustainable future
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