Here's the news item from WAM.
Two major points.
- Work has not stopped. AA: The Reuters story mentioned a slow down in work, not a stoppage.
- RTA also reiterates its contractual commitments to the flow of payments in accordance with the progress of work made in the project. AA: It's unclear what precisely this means. Does it mean payments are being made in accordance with progress? But if this is the case why are the Japanese firms slowing down? And why are they involved in negotiations with the project owner? Is it over the work change orders? Those who know their regional history will remember that contractors in Saudi had a big problem with payment for change orders in the 1980's. Redec being a prime example, though at the time the Saudi Government claimed that the the change orders were not properly documented. Of course, at that time the Saudi Government also was having cashflow problems. It's an often observed phenomenon that payments on contracts get scrutinized very very carefully and often rejected for technical reasons when cashflow is tight. That way one technically isn't in default on the payment. And of course the door is then open to negotiate, which often leads to negotiations on price.
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5 comments:
Ahh. Stoppage and slow down, the old chestnuts.
Without prejudice and without detailed knowledge of the contractual arrangements between RTA and the contractors I can only assume that the contract would certainlyt determine stoppage to be a reason for termination but not nonpayment or delayed payment. Those conditions would probably give rise to an extension of time being granted and/ or loss & expense claims. (Hint: contracts here in the Middle East tend to be somewhat biased in the owner's favour). Once signed up, a contractor is under the obligation to finish the job. If there are disputes about money(it happens)then these will be resolved after substantial completion.
Noone wants to terminate a contract except owners who are really pissed off with the contractor. So, in order to keep the door open and keep the contract 'alive' the contractor will slow down, often to a crawl, which technically means he is making progress even if there is one lonely guy sweeping the floor. In this beautiful chicken / egg situation the owner will pay for the (miniscule) progress and technically comply with his contractual obligations....
I have heard of jobs that over-ran by ten years over simimlar reasons.
My advice: Don't ditch your car yet and rush to buy a NOL card.
As regards change orders: it would be totally irresponsible to assume that no changes will occur during a contract period, thus change order procedures should be part of every contract.
I assume RTA and the contractors' consortium to have them. I also assume that the contract administrator (project manager or the consultant, whoever it may be) is a heavyhitting old pro who would keep his paperwork in order and not fail on this account (no worries, there are always many other accounts on which to fail..).
It's actually very simple: everything that is not in the contract documents (drawings, specifications, contractual provisions etc. - whatever has been signed or stamped or inititalled)is a change and you need to deal with it, by means of setting a 'rate' or percentage etc.. You record this change and who or what instigated or requested it. If it comes from the consultants or contractors the owner has to either accept it or reject it. If he accepts he has to pick up the tab, and the same holds true of course for any changes he may have requested or instructed, or more likely shouted down the telephone line. If at the receiving end of a client's change request you better record it and follow the procedure to make sure it becomes and addendum to the contract or, technically, it won't exist and you are f***d. So, yes, I'm sorry but you don't deserve to get paid if you don't have the paper to back you up. No paper, no case.
Wasn't it you who pointed out how in this part of the world the spoken word is often more important than the written one? Unfortunately many consultants and contractors, heck - any business really, operate on this premise and basic housekeeping like recording minutes of meetings etc. is woeful...
Thanks.
A good primer/backgrounder on construction contracts.
Any thoughts on the amount of the past dues?
They've got to be so large that the pain outweighs the disruption to the relationship with the client.
Even at 10 or 20% of the total contract rather substantial sums.
No, I have no idea of the amounts involved but it's a safe bet they are substantial and long overdue (for sure >6 months, maybe a year).
[I don't think however that they are hugely out of pocket. If you are a prudent contactor you start with an advance payment and bill for actual work done (which would include a percentage of your profit margin) so you should be able to maintain near positive cashflow throughout. In this region you might as well forget claiming the retention monies after completion. You simply have insufficient leverage at that point anymore. You could say a clever contractor 'front-loads' his dues.]
Coming back to the point about client / provider relationship: A breakdown of this relationship in this particular case would be less of a problem for the contractor than for the client. There are very few consortia of highly specialized contractors able to do work like this. Remember the humongeous yellow gantry cranes used to instal the sections of the concrete parcour? Not many contractors have them. In this country there are only two entities (read: clients) who planned / plan metro and /or railwway systems: Dubai and Abu Dhabi. Dubai won't easily find any other contractor to finish the job and supply the necessary equipment without paying a huge premium (upfront - which they couldn't).
The contractors have a good hand otherwise I don't think they'd have gone public - especially considering they are polite Far Eastern people.
Abu Dhabi has not much choice in contractors whenever they decide to tender their metro and the federal railway.
Other countries in the region know that Dubai is skint and although it may drag them down as well I would think there is a also great deal of schadenfreude involved in seeing Dubai's dirty laundry being vented in the media.
From here on Dubai's boom and bust will be a regional becnhmark of financial imprudence, bad governance and even worse PR...
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