< Previous30 CONSTRUCTION WEEK MAY 2020WWW.CONSTRUCTIONWEEKONLINE.COM INVESTIGATION Four fi rms from the industry come forward Four fi rms from the industry come forward anonymously to reveal the fi nancial anonymously to reveal the fi nancial repercussions experienced from COVID-19, repercussions experienced from COVID-19, Construction Week’s editor Ashley Williams Construction Week’s editor Ashley Williams reportsreports T he economic fallout from the COVID-19 pandemic has piled further pressure on the construction sector, with some leaders warning that restructuring fees could hurt fragile and vulnerable rms. With several media outlets reporting that UAE contractors will have to go through the whole pricing negotiation process with developers and clients, Construction Week has dug for answers by reaching out to the industry to nd out the facts on this matter. One global consultancy rm, who asked to remain anonymous, con rmed the rumours on price re-structuring having been asked by one of its clients to provide a 25% temporary discount for all its on-going supervision activities on invoices from the 1 April to 1 August 2020. The spokesperson from the rm said: “I’m hearing that contractors have been asked to re-price at the tendering process across the board. We have been asked to re-structure our costs on the supervision side of all of our projects, with a 25% temporary discount on invoices from 1 April until 1 August. They added: “The remainder of our projects are continuing as normal, but at a relatively slower pace, while design activities and discussions with clients are continuing. Regarding the design side of our rm, which accounts for about two-thirds of our business, we haven’t experienced any pressure on fees for our on-going projects across CW Investigates: UAE price restructuring “detrimental” to construction market the UAE and Saudi Arabia.” Another rm, who also agreed to speak with Construction Week, but once again in con dence, revealed that they had one client “ irt” with the idea of a price renegotiation, which they said would prove “detrimental” to the project and would sacri ce on quality. “At this time, we had just one client who has irted with the idea of renegotiations. This was for a fast track project, which due to the current situation, dates were reset,” a spokesperson for the contractor said. “However, this suggestion was not entertained as most of the supply chain was locked in place. Having renegotiations down the chain would prove detrimental to the project and most certainly would sacri ce on quality. This project of course had no contract in place as the terms negotiations were ongoing; however progress on site had begun. They added: “Apart from that, no other projects of ours have actually suffered on this particular reason as we have been shielded. Most of our clients are diversi ed and we don’t generally pickup projects from one segment One firm confirmed a 25% temporary discount on project costs from 1 April to 1 August 2020 Photo: Pixabay [representational] MAY 2020 CONSTRUCTION WEEK 31WWW.CONSTRUCTIONWEEKONLINE.COM EMPOWERING WOMEN Acciona’s inaugeration of the world’s largest 3D printing center primarily.” However, another consultancy rm said that despite not experiencing or hearing of any of its clients adopting these tactics, they hoped the construction sector would not resort to this. “It [price restructuring] de nitely happened during the Financial Crisis of 2008/09, but back then fees and construction costs were quite in ated, so businesses could largely cope with the reductions,” said the spokesperson. “However, this time around we are starting from an already very aggressive market, so this will only serve to prey on this vulnerability and fragility.” The spokesperson added that companies, ghting for survival, will not be able to deliver, and this will almost certainly result in claims for variations and more disputes. “Morally this is entirely the wrong thing to do in such extraordinary times, where every part of our business and social communities are affected. “What the market needs is some tangible stimulus that creates stability and con dence now and into the future, and encourages collaboration and solidarity. Essentially, some of the values that the UAE was built upon.” This view was echoed by another major contractor in the region, who said that they had also not been contacted by any of its clients regarding price renegotiations. “If this is in fact true, I don’t believe it makes much sense and cannot imagine any practical discounts of any signi cance. The work has generally already been procured in a competitive market, so they already have the lowest price,” the contractor spokesperson said. “Markets are already under pressure so mark-ups are very thin. The COVID-19 crisis has added costs to projects, not reduced them.” While the industry has con rmed the nancial burden that COVID-19 is placing upon them, what are the Photo: Pixabay [representational] “Companies, fighting for survival, will not be able to deliver,” said one anonymous spokesperson Photo: Saudi Contractors Authority32 CONSTRUCTION WEEK MAY 2020WWW.CONSTRUCTIONWEEKONLINE.COM INVESTIGATION typically increase the cost to the employer because the employer becomes liable to pay the demobilisation, stand-by, and remobilisation costs of the contractor.” Wilson also echoes one of the points made by the consultancy rm about the 2008 nancial crisis, which he said proved “reminisent” to the current situation. “Whether or not the employer can force a better price may not matter if the project is in signi cant nancial stress,” Wilson explains. legalities of price restructuring? Is it actually legal to do this when a contract has been signed? According to global law rm Squire Patton Boggs’ partner, Thomas Wilson, re-negotiating construction contracts is in fact legal. “Even where a contract is signed, either party is free to ask for a renegotiation, i.e., ‘ask for a better deal.’ However, a signed contract can only be amended by agreement,” Wilson told Construction Week. “Typically, an employer cannot force a contractor to accept less money for his work, or intervene to slow the contractor’s performance and delay its entitlement to payment. Most construction contracts do have provisions under which employers can suspend contractors’ work for a period of time. He added: “However; but such suspensions typically cannot go on inde nitely and will not reduce the contract price. In fact, suspensions “Even where a contract is signed, either party is free to ask for a negiotiation, i.e, ‘ask for a better deal’,” said Squire Patton Boggs partner Thomas WilsonMAY 2020 CONSTRUCTION WEEK 33WWW.CONSTRUCTIONWEEKONLINE.COM INVESTIGATION near and medium term commercial positions; an understanding of how the counterparty is likely to view his legal and commercial positions; a visualised solution he reasonably believes can work for both parties; and a strategy for persuading the counterparty to accept that solution.” He concluded: “Where both sides follow these steps, they often sometimes nd a solution; albeit a different one than either envisioned at the outset. “There are pockets in the industry, especially for real estate, hospitality, and oil & gas, where some ongoing projects that were nancially viable when they were launched are not viable now, at least not on their original terms.” He adds: “In those cases, the current situation may prove reminiscent of the 2008 nancial crisis in that a project’s survival may require a restructuring in which all parties sacri ce something, regardless of the terms of their current contract.” Speaking about overcoming the obstacles in signing a contract, Wilson elaborated that he advises clients, both employers and contractors, that a frank and respectful discussion between senior business people is the best way to start addressing the challenges that come with unanticipated events. “For a discussion to be successful, both representatives should go into it armed with the following points: a brie ng on their legal rights and their “A frank and respectful discussion between senior business people is the best way to start addressing the challenges that come with unanticipated events.” Photo: Saudi Contractors AuthorityINTERVIEW 34 CONSTRUCTION WEEK MAY 2020 Metito’s managing director, Rami Ghandour, talks to Construction Week’s deputy editor Anup Oommen about the firm's ongoing desalination and wastewater projects, as well as its vision to “expand into other utilities and renewable project development” Global intelligent and sustainable water management solutions firm Metito – which has specialised in operations covering design and build, utilities, and specialty chemicals for more than 60 years – has begun to place a distinctive focus on project development in the renewable energy sector. Metito was the first company to introduce the reverse osmosis technology outside the US in 1972, and also the first to pioneer concession contracts with private entities, under a build-own-operate-transfer (BOOT) model, in the GCC region. Now, the firm’s involvement in Saudi Arabia’s gigaprojects; landmark developments such as the Burj Khalifa in WWW.CONSTRUCTIONWEE WWW.CONSTRUCTIONWEEKONLINE.COM Sustainable solutions for scarce resources Photo courtesy: Metito the UAE; among other GCC projects, are turning heads across the region. Sharing details on its ongoing projects in an exclusive conversation with Construction Week, the managing director at Metito, Rami Ghandour, says: “King Abdullah Economic City (KAEC) awarded Metito Saudi Ltd (Metito) the contract to design and construct a seawater treatment and desalination plant partially powered by solar energy." Metito was awarded the 45,000m2 project after competing with 10 regional and international firms in a competitive tender. Ghandour also revealed construction details on Metito’s $58.5m (SAR220m) desalination plant project in KAEC. Phase 1 of the KAEC desalination plant will produce 30,000m3 of drinking water per day. “We have put a lot of infrastructure in place and civil work is done for 60,000m3 per day, although currently the RO units will produce 30,000m3 per day,” Ghandour adds. He also alluded to Metito’s involvement in a fast-track project within Saudi Arabia’s gigaproject – The Red Sea Project – with details on the project likely to be announced in the coming months. Benefits of BOOT in wastewater plants A consortium led by Metito Group – which comprises Saudi Arabia’s Mowah and Egypt’s EPC contractor Orascom Construction – has begun construction of the first independent MAY 2020 CONSTRUCTION WEEK 35 INTERVIEW Ghandour adds: “Many a time, the most optimum solution is neither the cheapest bid, nor is it the most expensive option that consultants suggest to the developers. That’s why when you have a structure like the BOOT model in place, where the responsibilities rest with one entity, we have to deliver the project whether the solutions are optimum or not. “It’s our responsibility to take care of the entire project – and that’s the ultimate benefit at the end of the day.” Combatting COVID-19 in construction Metito completed work on certain desalination plants before the precautionary measures – such as the lockdowns, social distancing, and remote working – were announced by the government to curb the spread of novel coronavirus (COVID-19) outbreak. Ghandour confirms: “The delivery deadlines and milestones have not yet been adversely affected by the COVID-19 crisis. We are still on track as of right now. “However, this is also dependent on how long the lockdowns and other measures will be in place. We have been granted limited WWW.CONSTRUCTIONWEEKONLINE.COM RUCTIONWEEKONLINE.COM exceptions for critical personnel to be able to continue working on site. “At this stage, it’s very difficult to quantify what is the impact of COVID-19, as we’re still in the early stages, and we’re dealing with situations two weeks at a time. However, if the COVID-19 precautionary measures are deemed necessary for an extended period of time, it will definitely have an effect on deadlines.” On the other hand, it is interesting to note that despite the liquidity crunch and the ongoing COVID-19 situation, the tender process continues to be extremely competitive in the GCC region. “We are still witnessing extremely aggressive prices in the tendering process. For example, on the desalination side, the latest project – which we were not part of – that was awarded was particularly interesting. The total per-cubic-metre cost that was quoted for the entire project was lower than the client’s operating costs alone on existing plants,” he says. High levels of competitiveness are in turn optimising all aspects of the project. “The costs of a project primarily comprise of the EPC, the O&M, and the finance costs. “It’s our responsibility to take care of the entire project – and that’s the ultimate bene t at the end of the day” Photo courtesy: Metito sewage treatment plant (ISTP) project in the kingdom’s Dammam West site. The project marks the first ISTP to be awarded by the Saudi Water Partnership Company (SWPC) to investors under a build-own-operate-transfer (BOOT) model. Ghandour says: “This is an exciting landmark project in the kingdom. It is expected to play a key role in the KSA’s plans to tender similar projects to the investors in different regions across the kingdom. “The plant has a designed capacity of 350,000m3 per day, as well as an initial capacity of 200,000m3 per day, and will serve the western region of Dammam. We’re also involved in the construction and in the operations and management of the project.” The notice to proceed (NTP) has been issued – allowing contractors to mobilise and start construction on site – following the submission and execution of relevant project and finance documents by the banking group and the consortium developing the project. Commenting on the benefits of the BOOT model, Ghandour says: “The build- own-operate-transfer model is quite new to the kingdom. Saudi Arabia, of course, has witnessed private sector investment and development of projects in the power sector, and more recently, in the desalination sector. “However, this is the first project of its kind in the wastewater sector. Our project has proved that the BOOT model works in the wastewater sector. Subsequent to us winning this project through a large international public tender, two such projects have been awarded.” By definition, the BOOT model places the point of responsibility for the entire project on a single entity. “If you are the government entity giving out the contract, you no longer have to worry about a different firm designing it; a different firm building it; and a different person operating it,” Ghandour explains. “Instead, all of those interfaces are gone because all of the tasks – build, own, operate, design – are all done by the same entity. So, the chances of one firm blaming another when something goes wrong goes out the window.” In addition, since the BOOT model is a long-term contract, it provides a full life- cycle vision. “The developer is naturally incentivised to come up with the best long-term solution. It’s important to note that this might not necessarily mean the bid with the lowest capital expenditure."INTERVIEW 36 CONSTRUCTION WEEK MAY 2020 the feedwater for the district cooling of the Burj Khalifa and the Dubai Fountain in Downtown Dubai. The water used in the fountain is ‘our water’, which is something that we are excited about,” Ghandour says. Metito is also well recognised for the first wastewater BOT project in the Middle East, which was in the Dubai Investments Park (DIP). The amount of wastewater generated by approximately 10,000 people in the DIP community due to water consumption amounts to approximately 2 million litres per day. “We implemented a technology to recycle raw wastewater to a level where it can be used both for irrigation purposes as well as the water required for cooling towers. The amount of water purified by Metito in a single day in DIP is able to irrigate approximately 150,000m2 of dry land.” Given that it operates in a region where water is a scarce and highly valued commodity, water reuse has always been at the core of Metito’s core values as an organisation. Ghandour says: “It is a very valuable resource and it is only natural for it be reused. We have been focused on this for many decades, and we’ve built such plants across Dubai, not just for the Dubai Fountain, but also on the Palm Jumeirah, in the Dubai “Our project has proved that the BOOT model works in the wastewater sector. Subsequent to us winning this project through a large international public tender, two such projects have been awarded" Rami Ghandour Managing Director, Metito Parks and Resorts, among others.” The firm has also built three of Egypt’s four largest desalination plants, including the one in Al Galalah, which is near the Suez on the Red Sea. “We have also been awarded the world’s largest water reuse plant – the El Mahsama project in Egypt, which has a capacity of 1 million cubic metres a day. This project is particularly interesting because we’re collecting irrigation runoff water, treating it, passing it through a tunnel under the Suez Canal, and that water is being used to irrigate Western Sinai,” he adds. Project development of renewables Metito delved into renewables by developing solar for its water-based projects. Two of its desalination projects in Saudi Arabia had a solar component to them, which helped the firm venture into solar expertise. “Following the implementation of solar in our Saudi desalination plants, we put a full solar roof on our factory and headquarters at the National Industries Park in Dubai. This way, we achieved a net zero power consumption on these facilities,” Ghandour explains. “Continuing on that, we decided that this is a good business to be in – even where it’s WWW.CONSTRUCTIONWEEKONLINE.COM Trying to optimise all three at the same time, results in quite an aggressive pricing. In fact, I would argue, the last few bids may have had too much competition.” Ghandour explains. “Such aggressive pricing and competitiveness may not be sustainable as it may cause a loss of interest due to the highly compressed margins of returns. In the long-term, it’s likely that the market will stabilise, although at this point it remains to be extremely competitive.” Making a mark in the industry Metito is also constructing a large expansion project for Sharjah Municipality, which involves the upgrade of the Sharjah Sewage Treatment Plants 4 and 5. “We also have recently put in a facility to recycle treated effluent, which produces “We implemented a technology to recycle raw wastewater to a level where it can be used both for irrigation purposes as well as the water required for cooling towers" Photo courtesy: MetitoMAY 2020 CONSTRUCTION WEEK 37 INTERVIEW not purely related to water. So, we decided to build up our capabilities through a project development team focused on the renewable sector.” In 2019, a Metito Group-led consortium won its first tender for a solar power plant in Bangladesh. The consortium included Metito Group, solar power producer, Jinko Power, and the energy and water arm of Saudi's AlJomaih Holding Company, AlJomaih Energy and Water. The consortium was awarded the Rangunia 55 megawatts electric (MWe) ac grid-tied solar power plant project. The project was awarded by the Bangladesh Power Development Board (BPDB) following approval from the Power Division of the government's Ministry of Power, Energy, and Mineral Resources. The consortium was recognised by BPDB as the lowest bidder with a tariff of $0.0748/ kWh, accounting for the lowest tariff ever reported in Bangladesh. The project, which is expected to be developed on a build-own-operate (BOO) basis under a 20-year concession agreement, WWW.CONSTRUCTIONWEEKONLINE.COM is in line with Bangladesh's vision to reduce environmental pollution. The solar power plant will be constructed in Rangunia, in Chattogram, Bangladesh, on a BPDB-provided land. The project is expected to be commissioned by the second half of the year 2021. This project demonstrates Metito’s transition from being a water management solutions company to becoming a utility management solutions firm, with a focus on project development in the renewables sector. Ghandour concludes: “We are not doing standalone EPC projects in the renewables sector as there are other firms that are competitive in that. “However, in terms of being a project developer, we are across the board and we have plans – in due course – to grow into other utilities. “Our history, origin, and our sheer volume and size of projects is rooted in the water and wastewater sector. However, we are expanding into other utilities and renewable project development as we continue to grow.” “We are expanding into other utilities and renewable project development as we continue to grow" Photo courtesy: MetitoPROJECTS WWW.CONSTRUCTIONWEEKONLINE.COM ON SITE CW provides a collection of its most recent site and plant visits to keep you up-to-date with project progress PROJECT UPDATE FOLLOW CONSTRUCTION WEEK @CWMIDDLEEAST 38 CONSTRUCTION WEEK MAY 2020 WANT TO UPDATE YOUR PROJECT'S PROGRESS, OR HAVE IT INCLUDED HERE? Email the editor: ashley.williams@itp.com FOLLOW CONSTRUCTION WEEK @CWMIDDLEEAST Located at Dubai's Science Park, Deyaar's rst design-and- build project is progressing ahead of schedule and will be delivered by December 2020. During an exclusive site visit to the project’s site, Ababneh told Construction Week that Deyaar had appointed design and engineering rm Kling Consult to supervise Bella Rose's design in April 2018. The project comprises 478 units, and its main contract was awarded to Condor Building Contracting in September 2018. DEYAAR'S BELLA ROSE Location Dubai, UAE Visited March 2020 One of the largest brown eld projects in the region, Alba's Line 6 expansion project was completed at the end of 2019 and is among the fastest expansion projects to be ever commissioned in the aluminium industry after just 23 months. Line 6 is one of the longest reduction lines in the world comprising 424 reduction cells built over an area of 1,400m2 – will add 540,000 metric tonnes per annum to the company’s total production capacity. ALBA Location Bahrain Visited March 2020 Dubai-based contractor ASGC Construction LLC, as the main contractor, is tasked with the Dubai Mall Boulevard Expansion project, which includes the conversion of multiple levels of the existing car parking to a double-height retail mall. Both, overall construction and MEP works at the project are 65% complete, with ASGC now moving ahead with t-out and nishing works, which includes the nal phase and external façade. ASGC is aiming to complete the project by September 2020. DUBAI MALL EXPANSION Location Dubai Visited April 2020PROJECTS WWW.CONSTRUCTIONWEEKONLINE.COMMAY 2020 CONSTRUCTION WEEK 39 Located within the master-planned mixed-use community Mohammed Bin Rashid City, along the 3.2km Dubai Water Canal, is Dubai-based real estate developer, Sobha Group’s $4bn (AED14.7bn) Sobha Hartland development - the group’s agship project in the Middle East. In October 2019, overall infrastructure work across Sobha Hartland was 90%. 30% of the 74.3ha master plan is enveloped in green spaces. Sobha Group employs 4,000 workers across its Hartland development, who recorded 27 million lost-time injury-free hours at the master community at the time of the site visit. SOBHA HARTLAND Location Dubai, UAE Visited November 2019 Located within the Jumeriah Golf Estates, Beaver Gulf's rst real estate development project - Zafran - is a $75m 40,413m2 residential development comprising 178.4m2 two-bedroom houses, as well as three-bedroom houses covering an area of 207.4m2 and 217.6m2. The project has crossed the 30% on site completion and is expected to be handed over on 20 October, 2020, coinciding with the start of the Expo 2020 Dubai. ZAFRAN Location Dubai, UAE Visited December 2019 Located in Downtown Dubai, the 75-storey tower will comprise 946 units, including studios, one-bedroom apartments, and two-bedroom lofts and duplexes. Construction of the tower has been ongoing for 30 months, with the building being topped out in April 2019. Work on SLS Dubai Hotel & Residences is being carried out by Mapa & Gunal Construction, Aedas is involved as the architect, and the interiors are being led by Bishop Design SLS Location Dubai, UAE Visited January 2020 Located off the shores of Muharraq, the kingdom’s historic former capital, Diyar Al Muharraq is a 12.2km2 waterfront development comprising a mix of residences, hotels, beaches and a shopping mall. Work on the project started in 2007 which will be divided into four to ve phases. Several contractors have been appointed for certain projects across the project, including Almoayyed Contracting Group, who are working on the Souq Al Baraha market. DIYAR AL MUHARRAQ Location Muharraq, Bahrain Visited February 2020Next >