This article is extracted from the report 'Removing Waste from UAE Construction'

The UAE’s construction sector has lived in a constant state of struggle for nearly a decade, fighting to recover after the global financial crisis in 2008, which led to a collapse in property markets and destroyed liquidity.

The crude price plunge in late 2014 further distressed recovery efforts as challenging macroeconomic conditions in oil-dependent Gulf states brought contracting giants in the industry to the brink of insolvency. Several firms are still working to restructure debt while others have fled the country or exited operations in the region.

But while the downturn has driven improvements in efficiency across the oil and gas sector, veterans of the construction industry say operations in their line of work continue to follow wasteful patterns.

Legacy problem

“The construction industry has been facing a continuing productivity problem, with its average growth rate over the past few decades being lower than that of other sectors,” says Robert Jackson, managing director for Europe, Middle East and Africa at the UK-based Royal Institution of Chartered Surveyors.

Jackson notes that project delays, budget overruns, disputes and a lack of skilled professionals are some of the biggest challenges faced by the industry that can be considered ‘waste’.

“Our sector is wasting time on ‘fighting fires’ rather than focusing on innovation, sustainability and the future,” says Jackson.

However, a UAE-based contractor says the constant fire-fighting mode of operations simply underlines the root cause of waste – a “blame culture” that is commonplace across the region’s construction industry. 

“In a toxic blame culture, everyone lives in a constant state of insecurity and low productivity,” says the contractor. “I have also seen two extremes where there is [either] a complete breakdown of communication or inefficient over-monitoring where everyone is more focused on assigning blame rather than addressing how to improve execution.”

The contractor adds that businesses continue to operate the same way they have for years. The only difference now is that previously, companies could “afford waste” because there was more work and money to go around.

Our sector is wasting time on ‘fighting fires’ rather than focusing on innovation, sustainability and the future.

- Robert Jackson, managing director, RICS EMEA

A UAE-based consultant says waste, which he broadly defines as “anything that isn’t productive”, represents more than 20 per cent of contracting output globally, but in the Middle East this can be “as high as 50 per cent”.

Human challenge

In the end, waste primarily boils down to human resource challenges, the contractor insists. Hiring unsuitable candidates and then setting unrealistic goals across teams leads to a waste of time, money and manpower, he says.

“After more than 25 years in the industry, I have yet to see rational human resources management in our industry. Instead of addressing challenging times by working to improve our operational efficiency and productivity, the answer is always rash cost-cutting for balance sheet purposes and then either hiring cheaper or expecting one person to do the job of three.”

Another issue, the contractor says, is that various roles only hire candidates with qualifications from certain countries that companies believe merit “disproportionately higher salaries” along with perks such as vehicles and housing. 

“Meeting this requirement does not mean you necessarily add more value to operations,” he says. “On site, you have to deal with human emotions. You must be able to [communicate with] everyone from labourers to foremen, procurement and finance, in a way that drives productivity. Many highly qualified candidates cannot do this and [are thus] of no use on a site.”

The contractor adds that such hiring policies have goaded industry professionals far too long. “Discord, poor communication – which often leads to issues being discovered too late – and mistrust are the most common scenarios that cause direct and indirect losses,” he says. 

Factoring workplace cultural fit is especially crucial in the construction sector, where projects can last years, says a headhunter.

“Most hiring managers do not want to listen to our recommendations. They often insist on a profile that is nationality-centred typically because it is the C-level directive. But a mismatch in cultural fit for the company, especially in mid-to-senior management, proves to be a huge loss for the project. This is less about just nationality and more about how people will mesh.”

The recruiter adds that while companies no longer offer the same expatriate benefits as before the 2014 oil price plunge, candidates are willing to accept the updated packages in current market conditions. Many employers opt to “pay as per passport”, she acknowledges, with plans to offset the higher salaries by hiring cheaper for other roles.

Zero profit

Lowest-priced bids and consequently battered margins have made waste an “extremely serious” concern, industry players admit, even on projects worth billions of dollars.

“Most of our projects are making zero profit,” the contractor confesses. “We’ve gone from 8-12 per cent profit margins to barely 4-6 per cent, but then projects almost always go beyond the estimated budget.”

Cyrus Engineer, managing director of India’s Shapoorji Properties, says lowest-priced bids and executing projects in the absence of completed designs and approvals are among the biggest challenges. 

“In the current environment, with a lot of challenges on cost and profitability for organisations and individual projects, [organisations resort to] a sub-optimal approach [in aspects such as] vendor selection [and] specifications to reach lower costs, which affect delivery and quality,” he says.

“Likewise, organisations with inadequate project management capability, in order to meet project delivery timelines or interim milestones, resort to an unplanned execution approach, consequently resulting in waste and inefficiency.”

He adds that time and cost – in that sequence – are the “most critical slippages”. “[These] then have a ripple effect on the under-utilisation [and] wastage of all other factors such as resources, quality and customer satisfaction.” 

Ultimately, the consultant adds, the correlation between the right team, cost and delivery remains the biggest challenge. But a more pressing concern, he adds, is the lack of awareness among individuals of when they are being wasteful.

This report is produced under the MEED Mashreq Construction Partnership.To learn more about the report or the partnership, log on to: www.meedmashreqindustryinsight.com