Contents · 2020-05-13 · - Leaders, SACK your management for ineffective project reporting 50...

Deloitte GCC Powers of Construction 2013 | Meeting the challenges of delivering mega projects | 3

Contents

4 Foreword - The view

8 Qatar share their plans for Qatar 2022

14 KSA:- The road ahead

20 Five tips for the successful re-launch of real estate and hospitality projects in the GCC

22 Successfully delivering mega projects through a JV

26 How to choose a JV partner:- Critical success factors: A legal perspective

28 Capital efficiency in the GCC: - Keeping commitments while delivering more

32 The future of EPC

34 Nuclear:- How to successfully deliver major projects

38 Upstream downstream:- Facing the oil challenge

42 Project assurance:- Effective project commercial management - Leaders, SACK your management for ineffectiveproject reporting

50 Supply chain: - Issues on assembly in new markets- A chain reaction

56 The future is five dimensional

4 | Deloitte GCC Powers of Construction 2013 | Meeting the challenges of delivering mega projects

In the ever complex and dynamic industry ofconstruction, it is imperative that communicationamongst our peers informs us on what decisions we all make on a daily basis. Herein you will find a collectionof views from across our Middle East team drawn fromour experiences and lessons learnt, together with ourpredictions for 2013 and beyond. This is the fourthpublication and the only one of its kind amongst theFinancial Services industry in the Middle East. With 2013forecasted to be a year of optimism and opportunity, alleyes are back on regional governments and how theypropose to manage their spending. In a region wherethere is an acute deficit in terms of infrastructure, theingredients for capital projects could not be better.

Shifting the focusRegional economies are facing different priorities frompolitical stability to economic sustainability and theirtreasury functions are under increasing pressure to savecosts and increase revenue, whilst at the same timepushing an infrastructure agenda that doesn’tnecessarily ‘pay back’. With everyone focused on thespending, it is now more relevant than before tobalance the focus on costs.

Take this equation: -1 + 1 = 2… Look closer, the answer isn’t correct!Mathematically it should read as zero, so why does itread as two? Let us explain. Public and privateorganizations across the Middle East are increasinglytaking a closer look at their bottom line. It will come asno surprise that most of them have faced a dynamicshift in their financial outlook over the past four years,forcing a change in mindset on cost or revenue, but notalways both factors at the same time. Sustainabilitycomes from understanding the balance between costand revenue. For example, by using the equation above,and by saving one and making one, it will lead to a netincrease of two, not zero! Whether a sole trader, small-

to medium-size enterprise (SME) or a large organization,the notion of ‘Survival Mathematics’ applies to all. Thereare well documented instances where organizationschase revenue, only to end the year not profitable. Inparallel, other organizations rapidly cut down costs, onlyto impact their ability to sell and lose revenue and, inturn, profit. The key to profitability is therefore thebalance of the aforementioned. This may appearobvious, however, there are a number of sectors thatcontinue to ignore the basics, only to fall foul ofreaching their full potential. One such sector or industryis Infrastructure and Capital Projects (I&CP).

Infrastructure and Capital ProjectsThe I&CP market is growing rapidly with governmentsannouncing projects across the Middle East region,utilizing trillions of petro-dollars over the coming years.Whether a private bidder or supplier of services or publicbody or institution, all will be acutely aware of the singlemost important factor in a project i.e. ‘getting thenumber right’, referred to herein as SurvivalMathematics. This accuracy can make the differencebetween a ‘marginal return’ and a ‘catastrophic loss’. Ifone assumes an internal rate of return for a privateorganization of c. 20% then by saving $1 off the costbase, it is similar to generating $5 of additional revenue.Therefore by saving $1 and making $1, it is the same asmaking $6, which suddenly gets everyone’s attention.Large I&CP programs often have thousands of cost lineitems, none more unpredictable and problematic than‘claims and variations’. This can cause misalignment anddispute for both developers and contractors; moreover,it is the single biggest source of savings or lossesthroughout a large I&CP. Getting the cost base right andapplying the right tools to calculate the balance of costand revenue is critical to survival and therefore themathematics discussed above becomes even morerelevant.

ForewordThe view

Jesdev Saggar

Andrew Jeffery


Growing intelligentlyFirstly, the simple truth is that organizations are alwaysseeking new ways to grow, which means getting theright balance between revenue and cost is key torecording real growth. For those individuals whomanage, oversee or advise on large complexinfrastructure projects, it is imperative that cost controland budget management are ‘true’, right through to theledger. It is also imperative that savings are as importantas revenue, and growth can be achieved by simplyfocusing on where the money goes, rather than where itcomes from. As way of example, government agenciesacross the GCC are embarking on significantinfrastructure projects worth many billions of dollars andare increasingly looking for better value for their money.Over the last 12 months, we have increasingly witnessedbetter procurement strategies being implemented byleading clients - including two-stage tendering withintensive mid–tender value engineering phases toharness the knowledge of the contractor to reduce costsand increase buildability but without reducing quality orfunctionality. ADAC’s new mid-field terminal is anexample we have been involved with that exemplifiesthis approach, but others exist. Increasingly we seeleading clients becoming more intelligent inprocurement, trying to secure “more for less” and fundother schemes with the savings secured. Contractorsand consultants alike need to refocus, rethink andreframe their own strategies if they are to becompetitive moving forward.

For those individuals who manage,oversee or advise on large complexinfrastructure projects, it is imperativethat cost control and budgetmanagement are ‘true’, right throughto the ledger


Secondly, Survival Mathematics is well understood bysole traders and SMEs, but as organizations grow, sodoes the delta between the top and bottom line. In thecurrent marketplace, whether operating in a public orprivate manner, the art of surviving is more than just‘making budget’ or ‘target returns’ but running asustainable enterprise for the long term, founded on acompelling value proposition and balanced by a strongcash flow.

Learning from the pastAncient mathematical transcripts of the Indian andArabic civilizations provide an excellent backdrop to theunderstanding and application of the number ‘zero’ andjust how powerful it was back then and still is today. It isthis number that denotes fear in its state of absolutionand continues to act as a symbol of financial disarray.Today we still see remnants of the misapplication of‘zero’ and moreover the fundamentals of SurvivalMathematics being ignored.

We talked last year about the five lessons of Reflect,Review, Refocus, Re-invest and Rebound. Many willshare the view that we are already near point five andeconomies like the UAE, KSA, Oman and Qatar are onthe upward trend of investment in infrastructureprojects. However, we must not forget countries likeSyria, Libya and Kurdistan who are at a much earlierpoint on the scale. This is, after all, the GCC and not onecountry, one culture and one economy but a collectiveof dynamic, growth focused businesses rooted deep inindividual history and bound by a common belief.

Determining the futureWith significant investment in major infrastructureprograms increasing over the coming years across theGCC, contractors, consultants and clients alike need torethink the way they engage each other if they are totruly realize the benefits each can bring to the process.Clients’ increasing need for transparency, predictability

This is, after all, the GCC and not onecountry, one culture and one economybut a collective of dynamic, growthfocused businesses rooted deep inindividual history and bound by acommon belief


and sustainability of what they spend providescontractors an opportunity to reflect on how the canmeet this by better operational performance, improvedprocurement, schedule management and cost reporting.By leveraging best in class internal controls, contractorstoo can deliver ‘more for less’ whilst still retainingexisting or improved profitability. Additionally byengaging more intelligently with clients, contractorsshould look at more innovative ways of sharing savings,risks and opportunities to the benefit of all.

For consultants, an ‘output’ rather than ‘input’ focus will be essential with clients rightly demanding deliveredsolutions, not just a confusing variety of options forthem to review and select. Those who will be mostsuccessful will be those with specific industry insights,knowledge and experience and who know the client’sbusiness as well as the client does and can support themto make the right decisions.

In summary, we see no let-up in the pace of change orthe growth of the GCC construction market and believeat the heart of future success will be more intelligentprocurement, more robust project controls, datacollection, review and management to allow all partiesto make ‘quality decisions’ based on ‘qualityinformation’ at the right time. The articles within thisedition speak in detail about our experiences, insightsand lessons learnt gathered from working with theGCC’s leading construction companies and employers.

Our analysis on the economic data for the GCC as wellas a GCC SWOT analysis should also provide you with auseful source of data for delivering your strategy andbusiness plans. We hope you enjoy the perspectives onthe 2013 GCC construction industry.

Jesdev Saggar Managing DirectorInfrastructure & Capital ProjectsDeloitte Corporate Finance Limited

Andrew Jeffery DirectorInfrastructure & Capital ProjectsDeloitte Corporate Finance Limited

Those who will be most successful will be those with specific industryinsights, knowledge and experienceand who know the client’s business aswell as the client does and can supportthem to make the right decisions


In December 2010 FIFA’s President Joseph S. Blatterannounced Qatar as the host country for the 2022 FIFAWorld Cup™.

No sooner had the decision been announced than theentire nation of Qatar took to the streets overcome withpride and joy. In the capital Doha, Qataris andexpatriates alike flooded on to the streets creating acity-wide party atmosphere in celebration.

Since then, Qatar has been resolutely working onturning the dream into a reality. Just two years on fromthe announcement, we talk to engineer Yasir Al Jamal,Technical Director Qatar 2022 Supreme Committee, onthe progress made to date, plans for the future andwhat the world can expect from Qatar 2022.

1. What are the key factors you feel arenecessary for a successful development?I believe that there are three major contributors to a development’s overall success.

• Firstly, having a very clear vision and understanding of what is to be achieved.- This is to be described in terms of an overall vision as well as the specific aims that are to be achievedduring the development cycle itself.- Without this, clear direction with suppliers cannot be achieved.

• Secondly, having a development team with a breadthof core capabilities which can be used to direct eachaspect of the development program, be it technical,commercial or program related. - This team role is to ensure that the implementationof the development’s vision is executed in the mosteffective manner.

• Finally, a major ingredient to a development’s successhas to be achieving a strong relationship with theexternal service providers, be these architects, projectmanagers, contractors or suppliers- All of these parties must understand the vision weare striving to achieve and be able to work togetherto achieve a positive outcome.

2. What challenges do you think the contractorand developer market in Qatar will face overthe next five years?One of the most exciting and significant challengesQatar’s construction industry currently faces is thecertainty of a fixed deadline for establishing all that isrequired to deliver a successful FIFA World Cup™ in2022.

Qatar share theirplans forQatar 2022

Andrew Jeffery

Yasir Al Jamal


This immovable deadline has become the focal point fordevelopment of not just sporting facilities, but all theassociated infrastructure and services required forsuccess.

The key challenge the contractor and developer marketcurrently faces is the realization that in order for theexperience of this major tournament to be amazing, thedelivery up to that point will also need to be amazing.This is in terms of achieving degrees of scale, forwardplanning, embracing new technologies not seen inQatar before.

There will be major hurdles to overcome to ensure thatsufficient sources of material and services are availableat the right time and with the right quality and cost.However, I am confident that the preparation work thathas been instigated and that will continue will supportachievement of this.

3. Qatar has placed significant reliance onexternal PMCs and PMOs to deliver theseprograms – what challenges do you see in their delivery?As part of the achievement of our National Vision,we have naturally sought to utilize the expertise that exists in Qatar and amongst our neighboringcountries as a starting point, and we have some very successful projects delivered by respectedorganizations within the country and region to call upon.

However, much of what we are striving to achieve in Qatar is highly specialized in nature and with anunprecedented scale.

We have naturally sought, therefore, to also procurethe services of international organizations that canbring their experience of delivering such large-scaleand technically challenging projects, or bring a recordof delivering successful sporting events, such asLondon 2012.

The challenge will be taking the best aspects of theinternational approach and adapting them to localmarket needs.

Within the Qatar 2022 Supreme Committee, we haveensured that adequate numbers of key personnelwithin PMC the Programme Management Consultant(PMC) and the PMO Programme Management Office(PMO) teams have working experience in the MiddleEast and that local businesses are also represented orestablished as part of the requirements forappointment.

4. How do you think Qatar is affected orprotected by/from the regional andinternational construction industry, in terms of costs and manpower?I believe that the conditions faced by Qatar over the coming few years will be unlike the last majorregional boom period in 2004 to 2008.

We are still in a global slowdown, which means thatthere is greater availability of many materials andfinished products in international markets.

We have naturally sought, therefore, to procure the services also ofinternational organizations that canbring their experience of deliveringsuch large-scale and technicallychallenging projects or bring a recordof delivering successful sportingevents, such as London 2012


In terms of locally procured materials and specificissues related to raw material that Qatar does nothave in abundance, there will be pressure on supplyas we reach a construction peak.

Therefore, we need to support national initiativesthat will ensure we plan effectively for the smoothprocurement of material for all major programs andthese are now well advanced in terms of beingestablished.

With manpower availability, the country will be incompetition for resources from the home locationsof workers and Qatar will work hard to achieve anumber of aspects to become an increasinglyattractive location for those workers.

5. When will RFPs come out in the market – howwill the intended plans be rolled out to themarket?For the Qatar 2022 Supreme Committee program,we have already been in the market for a number ofconsultant services including program managementconsultant, design consultants, and projectmanagers, with a number of awards made andtenders currently in progress or due to commence.

These have usually been advertised in local andregional publications, and we will continue to do this for our key consultant appointments.

For contractor and sub-contractor appointments, we envisage a tendering process that will runcontinuously from 2014 to 2018 with each stadiaand precinct development releasing the packagesthat will be required.

These plans will be shared in greater detail duringstakeholder engagement events and through ourprequalification activities.

6. Will lump sum fixed price still be the preferredprocurement methodology or do you see morerisk sharing?Qatar has a strong tradition in the use of lump sumfixed price contracting and there are many benefits tothis approach, namely the commercial planning canbe more effectively controlled.

For contractor and sub-contractorappointments, we envisage a tenderingprocess that will run continuously from2014 to 2018 with each stadia andprecinct development releasing thepackages that will be required


Having said this, there are opportunities to introducealternative forms of contract where appropriate,particularly where risks to contractors are difficult toprice or where the scope of service needs to remain very flexible.

These are options that must be reviewed on a case bycase basis.

7. Will you be applying any new contractadministration systems to streamline theprocess of administering such large-scaleprojects in a relatively short period of time?Within the Qatar 2022 Supreme Committee program,we are evaluating the use of best practice systemsand technologies for use in tendering andadministration.

We are also investing significantly in newtechnologies for document management, which willbe used well into the post games legacy period.

With each, we need to be sure that the governanceand control requirements laid down by Qatar arecomplied with, and that accessibility to all potentialvendors remains without barriers.

There are some very good opportunities forincreasing visibility of procurements and in speedingup our evaluation procedures through the use ofsuch systems and we will be developing these further.

Personal reflections:

1. How do you balance your professional andpersonal life and the pressure that comes with being a leader in this exciting program?I find the best way to manage the pressures youmention is by firstly enjoying my work and seeing the results that it can bring.

I think that if you can achieve this result, the pressurebecomes more of a challenge to be achieved.

I do try to keep some time separate from workthough, as it is very important to retain a balance in one’s life.

With each, we need to be sure that thegovernance and control requirementslaid down by Qatar are complied with,and that accessibility to all potentialvendors remains without barriers


2. What are the advantages of being in Qatar for you?There are tremendous advantages of being in Qataras I see them.

We have the spotlight of the world increasingly uponus and that is allowing us to work with some of thebest teams our industry has ever created.

The development opportunities for the people thatwill work on programs over the coming years will beenormous and the benefits will provide a lastinglegacy for the nation.

What more exciting program can there be in theworld right now?

3. What would you personally like to see in Qatarthat isn’t there right now?I would like to see us attract even more of the topinternational football teams using our facilities fortraining here in Qatar and to build on the experienceof the teams that have already visited.

Both the teams and ourselves benefit from the tiesthat are created and the opportunities to learn fromboth perceptions of the player and the tournamentprovider.

It is clear that the next few years will be critical forthe delivery of many aspects of the infrastructurerequired for the completion of the FIFA World Cup™sporting facilities. Whilst the stadia will be very visiblelandmarks, it is the successful delivery the complexinfrastructure that will be the lead determinant.

It is clear that key to the 2022 FIFA World Cup™overall success will be the continuing commitmentand dedication of the Qatar 2022 SupremeCommittee leadership team, its stakeholders,contractors and suppliers.

By working together, an expectant nation is ready toburst onto the world sporting stage in style.

Andrew JefferyDirectorInfrastructure & Capital ProjectsDeloitte Corporate Finance Limited

Interviews

Yasir Al JamalTechnical DirectorQatar 2022 Supreme Committee

It is clear that key to the 2022 FIFAWorld Cup™ overall success will bethe continuing commitment anddedication of the Qatar 2022 SupremeCommittee leadership team, itsstakeholders, contractors and suppliers


Saudi Arabia’s construction industry is expected tocontinue its growth in the next few years with the valueof projects planned and under way estimated at over$732 billion (MEED 28/02/2013) covering transportinfrastructure, utilities infrastructure, education,healthcare and other sectors. Fueled by Saudi Arabia’sstrong demographic growth, high oil prices and agovernment-backed capital investment program, KSAlooks to continue its dominance in the region as thebiggest construction market for some time to come.This continues to give a major boost to the privatesectors, offsetting some of the remaining globaleconomic gloom.

As there is no limit of ownership and investments forforeign entities, the economy is rising steadily upward. Current construction volume forecasts predict that morethan $136 billion worth of projects will be awarded inSaudi Arabia in 2013, making the Kingdom the numberone opportunity in the Middle East region forcontractors, consultants and vendors.

Strengths and opportunities Among the GCC countries, Saudi Arabia is the largest. It has a land mass and a large and growing localpopulation of 27 million (70% of GCC), which isexpected to be double in size by 2050, which meanssolid domestic demand on goods, services andinfrastructure and homes.

With 29.6% of the Saudi population under 15 years ofage, the Saudi government plan is attempting to re-define its education system (as a part of the KingAbdullah Project for the Development of GeneralEducation). By 2015, the government hopes to havebuilt and / or renovated over 4,000 schools, 50 newtechnical colleges, 50 higher institutes of technology forwomen and four teacher training colleges, in order toincrease the schooling capacity to over five million anduniversity capacity to 1.7 million.

To achieve this, the government is developing six neweconomic cities across the country all requiring extensivenew infrastructure. The need for new roads, bridges,housings and other structures is significant and willprovide opportunities for GCC contractors andconsultants to participate in their delivery.Healthcare continues to be another top governmentpriority with an upgrade to the healthcare facilitiesacross the entire country including new hospitals, socialcenters, housing for the disabled and criminalrehabilitation centers.

Accordingly, a strong and competitive businessenvironment will increasingly make KSA appealing toinvestors once risk appetite returns to global markets.Additionally, increasing opportunities will draw incontractors who were historically focused on marketssuch as UAE and Europe. The significant volume and sizeof projects will drive the increasing presence ofmultinational firms all eager to take advantage of theabundant opportunities the Saudi market will present. Amajor barrier, however, will be the scale and depth ofthe investment needed to operate effectively and thelack of locally based expertise that will adversely affectboth multinational and local contractors alike.

This is why we will continue to see joint venturesbetween experienced Saudi contractors and regionaland international contractors as this will create thecapability and capacity required to build these projectsat the pace required.

Weaknesses, threats, challenges andopportunities Any risk which results in the shut down or slow down of production at an oil facility may lead to the disruptionof oil output, which in turn could cause the overalleconomy to be impacted given the reliance on this sector.

KSA: The road ahead

Basel El Malki

Thus, if such a situation were to arise, the ongoingconstruction projects would be directly affected. Next,the government’s ability to conduct infrastructurespending would be limited and it would be very difficultfor government to allocate funds for developmentconstruction projects. Sometimes, government adoptspolicies to constrain the scope of spending by theprivate sector and thus, large construction projects inthe private sector will be discouraged.

Another major weakness of this sector is the reliance onexpatriate labor, reflecting a shortage of marketableskills among locals, which manifests itself in highunemployment levels among Saudis. In an attempt tostrengthen the "Saudization" scheme and to enforce theNitaqat program (that rewards companies for hiring aspecific number of Saudi nationals and penalizes themfor missing their national-hiring targets), in the lastquarter of 2012 the Ministry of Labor called for thecollecting of a yearly financial fee of USD 640 in favor of the Human Resources Development Fund for eachforeign employee exceeding the average of theprescribed number of Saudi citizens working in thecompany. This will result in an additional payroll costburden on all contractors operating in KSA and willaffect the bottom line of all ongoing projects.

However, the biggest challenge by far that faces thegovernment is how to implement all these capitalinvestments projects efficiently and in a controlled and coordinated manner whilst controlling inflationarypressures.

Growth opportunitiesThe growth of Saudi Arabia’s construction sector is veryrapid. The projects which are already under way orplanned are worth in the region of $732 billion. We expect the Saudi economy to grow between 4%and 4.4% in 2013. Between 2010 and 2014, the SaudiArabian government plans to invest $385 billion indeveloping its social and economic structure under the9th Development Plan; 7% of this budget is allocated tohousing services, 7.7% to communication and

The 9th Development Plan for KSA set out a plan to invest $385 billion in social and economic infrastructurebetween 2010 and 2014



transportation, 19% to social and healthcare, 15.7% toeconomic resources and 50.6% to human resources.The plan will include the construction of one millionhouses by the end of 2014, 117 hospitals and 750primary care health facilities. which are expected to beopen by 2015. Vocational schools and colleges are alsoexpected to be included in this plan. Road projectscurrently under construction have been estimated at $2billion, rail projects at $27 billion and a further $613million has been set aside for the development /expansion of nine ports including Jeddah Islamic Port.

Opportunity – The new mortgage lawThe Saudi real estate market is the second largesteconomic sector after oil. This sector’s growth isforecasted to average 5% in the next couple of years.Steady population growth will continue to put pressureon existing infrastructure, housing and services. Theprivate sector will remain highly dependent on foreignworkers due to local skills shortages.

To address the shortage of residential houses, in mid-2012 the government took steps to implement a newmortgage law. This mortgage law regulates real estatefinance and developments and allows banks to financeprojects, which in turn we predict will boost the realestate sector once the new legislation is in full force.

It will also benefit the construction sector, raw materials,real estate companies and financial institutions, and willprovide political and social stability.

In addition, the new mortgage law will help lenders tominimize their risks, which will help to broaden thelending capability. Importantly, therefore, it will also helpSaudi nationals access cheaper controlled and reliablelong-term finance to build their homes.

The opportunities from the new mortgage law areconsiderable and wide ranging, demonstrated by thefact that half of the massive stimulus package of $131billion announced by King Abdullah in mid-2011 wasfocused on housing - a key issue for a population that isgrowing at 2% per annum and expected to reachnearly 30 million by 2013!

Further, Saudi Electricity Company announced that it hasbudgeted $16 billion for infrastructure projects in orderto accommodate the big growth in electricity demandfor housing projects. The company has providedelectricity to 420,000 new housing units alone in 2012and is expecting to provide its services to another430,000 units in 2013.

Money is also flowing in from the private sector forhousing. An example of this is a group of GCC investorswho recently injected over $53 million into housingprojects in Jeddah (Middle East newspaper, Jan 27th2013), demonstrating the private sector’s growinginterest in this market.

The Saudi real estate market is thesecond largest economic sector after oil


Rank Project name

Project owner

Sector Revised budget ($m)

Project status

Main contractcompletion

1 King AbdullahEconomic city

Emaar Construction 93,000 Execution Q4 2030

2 Nuclear PowerReactor

King Abdullah Cityfor Atomic andRenewable Energy

Power 70,000 Study Q4 2032

3 Saudi HousingProject

Ministry of Housing Construction 68,000 Main contract Q1 2018

4 Sudair IndustrialCity

Saudi IndustrialProperty Authority(Modon)

Construction 40,000 Execution Q4 2029

5 Jizan EconomicCity

MMC Corporation;Saudi Binladin Group

Construction 27,000 Execution Q4 2036

6 Kingdom City Kingdom Holding Construction 26,000 Execution Q4 2017

7 Jubail NewPetrochemicalComplex

Sadara ChemicalCompany

Petrochemical 20,000 Execution Q4 2016

8 Haramain High-Speed RailNetwork

Saudi RailwayOrganization

Transport 13,743 Execution Q1 2016

9 KhozamDevelopment inJeddah

KhozamDevelopmentCompany

Construction 13,331 Design Q2 2019

10 RenewableEnergy Projects

King Abdullah Cityfor Atomic andRenewable Energy

Power 13,300 Study Q2 2017

Much analysis has taken place on the size and extent of the construction industry and its potential over the next fewyears. According to MEED, the top 10 projects that are underway or under study in KSA are as follows:

Source: MEED Projects; Data compiled, January 2013


MEED also forecasts that more than $136 billion worth of projects will be awarded in Saudi Arabia in 2013,distributed to various sectors as follows:

Construction

Transport

Power

Industrial

Gas

Water

Oil

Chemical

70,535M3400M

65M

80M

200M

500M

26,126M

21,414M

5,083M

5,000M

3,765M

3,550M

3,500M

16,000M0 32,000M 48,000M 64,000M 80,000M

Market forecast by sector ($m)

Budget value Award value

Top 10 Hydrocarbon – related Saudi projects set to be completed by 2013-end

Rank Project Sector Project ($m) Completion

1 SATORP – Jubail Refinery and PetrochemicalComplex

Oil and Gas 14,000 December 2013

2 Saudi Kayan – Jubail Petrochemicals Complex Petrochemicals 12,500 H2 2013

3 SRAK – Kidan Gas Field Development Oil and Gas 8,000 Q4 2013

4 Sipchem – Sipchem Phase 3 – Jubail Polyolefins Complex

Petrochemicals 7,000 Q 3 2013

5 SAAC – Jubail Acrylic Acid Plant Petrochemicals 2,000 Q1 2013

6 SATORP – Jubail Refinery and Petchem Complex – Conversion Unit

Oil and Gas 1,700 Q2 2013

7 Samref – Refinery Revamp Oil and Gas 1,500 2013

8 SATORP – Jubail Refinery and PetrochemicalComplex – Interconnection, Gas Flaring andElectrical Systems Package


9 SATORP – Jubail Refinery and PetrochemicalComplex – Distillate and Hydrotreater Package


10 SAMCO – Acrylic Acid Plant Petrochemicals 1,100 Q1 2013




Top 10 Non-Oil – related Saudi projects set to be completed by 2013-end

Rank Project Sector Project ($m) Completion

1 Emaar Middle East – Jeddah Hills Real Estate 11,200 2013

2 MAC – Ras Al Zour Aluminum Complex –Aluminum Smelter

Industry 5,000 Q12013

3 SSJA – Jazan Aluminum Smelter Industry 3,500 Q4 2013

4 Saudi Ministry of Interior – Saudi Arabia Security Border – Phase 2

Infrastructure 2,600 2013

5 Jazan Economic City – Jazan Power Plant Power and Water 2,500 Q2 2013

6 MAC – Ras Al Zour Aluminum Complex– Rolling Mill

Industry 2,500 Q4 2013

7 SEC – PP11 Power and Water 2,100 Mar 2013

8 SEC – Al Qurayyah Power Plant II Power and Water 1,850 Feb 2013

9 Ajmakan Development Real Estate 1,600 Q4 2013

10 Emaar Middle East – Jeddah Gate Real Estate 1,600 Q4 2013

Conclusions: Preparing to win…We believe this is the right time for all players to takeadvantage of the expected growth and opportunities inthe next five years by learning from past challenges andmistakes, moving ahead and planning for future success- otherwise they will be left behind. The time to graspthe opportunity is right now.

Our significant market and sector presence andrecommendations on what industry participants can doto plan for success, as auditors, Zakat and tax advisorsand consultants, will assist and enable our clients tomake the best decisions in understanding the marketand planning for success in the Kingdom.

We urge industry participants (owners, contractors,developers) to prepare and focus on the keys to success. A key to success is diversification, whether by geographical presence or contract types; suchdiversification will help contractors minimize any risksthat might result from unforeseen economic or political crisis.

Industry participants should also strengthen theirgovernance on contracts, maintain accurate informationand estimates at all times from the initial businessmodels, feasibility studies and design through

commissioning and operation. They should also ensureproper commercial management, embrace and invest innew technology that enables them to become proactiverather than reactive and ensures the delivery of projectsmore efficiently. In addition, they should monitor and bealert to all risks associated to projects from technical andcommercial risks to legal risks throughout the project life.

Another key to success is by thoroughly studying therequested specifications, contractual provisions anddeadlines and considering the impact of any challenges,whether in the design or at the execution stage, prior toentering any tender, putting more focus on quality andnot only price. Industry participants that possess strongbusiness sense and the ability to respond to the marketwith a mindset to maximize potential returns whilecontrolling cost will definitely have the upper hand.

Basel El MalkiDirectorKSA construction audit specialistDeloitte Middle East

EndnotesSources: Meed Projects, Zawya Projects Monitor, Middle East NewsPaper, Economist Intelligence Unit, Saudi Electricity Company,Minstry of Labor, CIA world of fact book and US-Saudi ArabianBusiness Council.


Hamed Farzadi


Following the global financial crisis and the Dubai Worldrestructuring, which caused shockwaves throughout theregion, a large number of real estate and hospitalityprojects were stalled due to funding constraints, inaddition to loss of confidence in the region by thestakeholders concerned.

Over the past 12 months, a notable recovery in the GCCproperty market has led to renewed support fromlenders and shareholders in re-starting construction ofnear complete projects.

In order to successfully complete and launch suchdevelopments, other than the construction element,there are a number of important matters that should becarefully considered by corporates and theirmanagement team. Set out below are our top five tipsfor ensuring a successful re-launch.

1. Value for money – A proposal to fund the remainingconstruction costs of the development is usuallysubmitted to one or a combination of lenders,sponsors or the government. As part of this proposal,it is important to critically anaylze the current andcompletion value of the projects so that at the veryleast it can be demonstrated that for every dollar ofnew money spent, the overall value return is greater -i.e. a project is worth a lot more when it is completedand operational than in its incomplete state. This way,lenders and sponsors who may be advancing the newmonies are able to consider a credible business casewhich they are able to fully support.

2. Be in control of your costs – All too often costs fordevelopment projects are underestimated and goover budget, which at times may be due tocontractors initially underbidding to win the contract.

Stakeholders are too familiar with prolonged delaysleading to claims, variations and litigations, and attimes if a amicable settlement cannot be reachedamongst the parties, it can lead to costly arbitrationproceedings. As part of the costs to complete analysisof any given development, in order to ascertain the‘true’ liability of any given project, a detailedassessment of each contract should be undertaken by expert cost consultants. As part of this exercise, itis critical for the project’s team and engineers to befully linked in with the finance function to assess anyclaims and non-agreed variations and also understandthe history of each contract and relationship withsuppliers. For completion, the project should also bereviewed as a whole to cater for any out of scopeelements, and if appropriate a contingency provisionshould also be factored in when submitting a fundingrequest to lenders/sponsors.

3. A proper business plan – Looking beyond theconstruction phase of a development project issometimes neglected, leading to its failure.Management should act early in formulating abusiness plan that is well thought through, with inputfrom the right business units. The business plan needsto be conservative and achievable, as lots of thingscould and always tend to go wrong. For an operatinghotel, the primary focus of a business plan should befor it to be robust and sensible whilst having a properset of processes and systems in the business tosupport it. The business plan of a hotel should bebenchmarked to comparable hotels in the market andalso to forecasts of any incoming hotel operator. Thefinal business plan is one which has the buy-in of themanagement team as well as lenders/sponsors whomay be relying on it to anticipate return on theiroriginal lending/investment.

Five tips for the successful re-launch of real estate and hospitality projects in the GCC

David Stark


4. Capable management to deliver – Often businessesfail and/or enter a restructuring process with theirlenders as the business plan was over optimistic withcovenants breached early and its terms not met.Delivery of the business plan and having the correctmanagement team in place is key to the success ofany business. Circumstances change that are not inthe direct control of management and hence a long-term business plan must be constantly reviewed andupdated for actual events, whilst keeping thestakeholders informed. Management should be ableto adequately measure performance against the planthrough suitable financial reporting and KPIs that canbe reviewed on a timely basis. If delivery of a businessplan is ever deemed doubtful, management shouldact early and inform the key stakeholders immediatelyso that preventive measures could be put in placewhere appropriate.

5. Operationally sound – There have been many re-launches of real estate and hospitality developmentsin the GCC, purely because of inadequate planning.Planning is critical in selecting the right hotel operatorand real estate agent, who between them have theideal local and international bandwidth, and alsowhose objectives for the project are aligned to those of the sponsors. As well as brand and experience,selection of a hotel operator and real estate agentshould also be focused on the team they will appointto the project, hence CVs should be reviewed andinterviews conducted in advance of appointment. Theright strategy for the overall development should also

be pursued – for instance, do you sell all units to thepublic or do you propose a rental pool model forcertain units in the real estate portfolio, which willalso boost F&B revenue for the adjacent hotel? Withthe hotel, when do you launch given seasonality inthe GCC? Is it best to do a soft opening before thewinter season and full launch late?

David StarkManaging DirectorInfrastructure & Capital ProjectsDeloitte Corporate Finance Limited

Hamed FarzadiAssistant DirectorInfrastructure & Capital ProjectsDeloitte Corporate Finance Limited

Management should be able toadequately measure performanceagainst the plan through suitablefinancial reporting and KPIs that canbe reviewed on a timely basis


The past couple of years can be characterized as bidintensive, with tenders being sent out and constructioncompanies spending vast amounts of money andresources responding to these substantial tenders. Mostof these bids for tenders require time investing inbuilding a relationship and analyzing the risk associatedwith a new JV partner in order to meet the experiencepre-qualification requirements given the size of theprojects being tendered.

With the following headlines in the industry it is clearthat only successful and strong JVs will be able to qualifyfor and deliver the scale of mega infrastructure andstrategic projects in the region:

“Projects planned and underway across the Gulf regionnow total more than $2,000bn, up 12 percent on theyear-earlier period, according to Citi's MENAConstruction Projects Tracker.”1

“Major contract awards for the Doha Metro project areimminent, in accordance with the original timeframe,says Qatar Rail senior programme director: metro AdrianShaw”

“Oman infra spend could reach USD78 billion”2

“Around USD121.3billion is being spent in road andbridge projects in the GCC”2

“$8.1bn highway projects in Qatar, says Ashghal -Contractors that have secured work on the scheme sofar include the UAE’s Al-Jaber Group, CCC/Teyseer, a JVof Turkey’s Yuksel and the local Midmac Contracting andChina’s Sinohydro and a JV between local Qatari Diarand Saudi Binladin Group.”

“The New Doha Port at Mesaieed has taken anotherstep towards completion, with the joint venture ofAthens-based Consolidated Contractors Company (CCC)and local partner Teyseer Contracting being selected forthe QR1.06bn ($291m) contract for a containerterminal. Etihad Rail has recently announced a numberof contract awards for stage one of the rail network.The civil and track works contract has been awarded to

a consortium of Italy’s Saipem, Tecnimont and UAE-based Dodsal Engineering and Construction. The projectmanagement consultant has gone to a joint venture ofParsons-Aecom. PCM Strescon Ventures is providing therailway sleepers.”

“The joint venture between Arabian ConstructionCompany Saudi Arabia and Drake & Scull ConstructionSaudi Arabia (DSC KSA), a wholly owned subsidiary ofDrake & Scull International (DSI) PJSC, has been awardeda SR2.7bn ($720m) contract to build phase three of theJabal Omar development in Mecca.”

"Tourism Development and Investment Company (TDIC),yesterday awarded Dh 2.4 billion contract for theconstruction of the Louvre Abu Dhabi, to Arabtec-ledjoint venture with Constructora San Jose SA and OgerAbu Dhabi LLC following a competitive tenderingprocess.”

“In May 2012, the joint venture of CCC, TAV andArabtec was awarded the $3.2 billion contract of theMidfield Terminal of the Abu Dhabi InternationalAirport.”

“The Haramain High Speed Rail Project has an estimatedvalue of US $4 billion. The project is split into three mainpackages: civil works (Phase 1 Package 1); stations(Phase 1 Package 2) and infrastructure (phase 2). Al Rajhiconsortium won the civil works contract and has begunwork. A JV of Foster & Partners and BuroHappold wonthe station design and build contract.”

These projects are extremely complex and difficult, andrequire an inordinate amount of integration oftechnology, manpower and extremely strong projectmanagement to keep everyone focused and committedto the project. Contingencies are an integral and vitalpart of managing these mega projects given the sheerscope, scale, timing and sometimes uncertainty of theprojects and this is where the JV partners need tounderstand the risks and share the same risk appetiteand philosophy to managing and responding to theserisks.

Successfully delivering mega projectsthrough a JV

Mark Andrews

Cynthia Corby


We asked Mark Andrews, Managing Director of Murrayand Roberts Middle East, a company with extensiveexperience working in JV partnerships in the GCC, toshare with us the key reasons Murray and Robertsconsiders entering into JVs. Mark listed the followingareas as the key reasons for deciding whether to bid fora contract as a JV:1. Pre-qualification criteria for the project – this canrange from combining resources and capability tobeing job specific or even resource specific;

2. Sharing risk – this involves aligning the corporateviews on risk appetite and risk thresholds for each JVpartner;

3. Gaining supply chain leverage if the JV partner’sresources provide this input.

According to Mark, due consideration and diligence onyour chosen JV partner would involve an assessment ofthe JV partner’s reputation and track record for deliveryof the type of projects being tendered. Financialstrength of the JV partner is key. The culture andmanagement style and project team relationships needto be assessed to ensure that these would be aligned.Previous JV experience is important ad should beappraised to ensure the JV partner is familiar with thedynamics and governance of a JV management team.

Mark’s view on critical success factors for the JV projectwould require:1. Alignment of the objectives, margin aspirations, riskcontingencies and pricing risks;

2. Governance of the JV through agreement on the toplevel project team and JV Board composition;

3. Agreement on execution strategy, especially whensecuring in-house resources; agreement is requiredaround use of in-house supply chains, key rates andcharging structures for in-house resources;

4. Transparency of key processes and procedures for theproject team to apply together with authoritymatrixes;

5. Understanding of each JV partner’s corporatemandates and managing compliance of these withinthe realms of the JV.

We also interviewed Andrew J Beaney, ManagingDirector – Qatar and Interserve Engineering &Construction, Interserve International, for his perspectiveon key considerations when looking at entering into ajoint venture, given this is a new area for Interserve inthe region. We asked Andrew the following questions:

Why would you consider entering into a JV ratherthan doing a project on your own? There are a number of reasons why you would considera JV rather than participating alone:1. The company profile does not fully meet the skillsrequired to meet the project scope – there is a skillgap of say between 25% to 75% of the projectscope.

2. The company has not completed a project of similarsize and therefore needs a JV partner to give sufficientconfidence to the employer or for simple marketentry.

3. The project is in a new market or county and thecompany does not carry any local know-how, trackrecord or ‘wasta’.

4. The company is operating at capacity and needs tosupplement resources from a JV partner.

5. The company does not carry the financial resources to bid and needs to share bid costs or indeed deliverycosts and associated working capital with a JVpartner.

6. The project risks are better mitigated with a JVpartner (recognizing the potential for joint and several liability).

These projects are extremely complexand difficult, and require an inordinateamount of integration of technology,manpower and extremely strongproject management to keep everyonefocused and committed to the project


What are the criteria you consider when selectinga JV partner and how do you assess these?Firstly, you would seek out a company that would fulfilthe objectives mentioned above. Once this is satisfiedthen the following criteria would be considered:1. Financial stability – although the JV could have step-inrights for the resources if needed.

2. Cultural fit with Interserve – it is important that the JVpartners’ philosophies to managing the employer andthe contract are aligned to avoid conflicts.

3. A meeting of minds with the senior members of eachside of the partnership.

4. Track record and credentials – we would normallylook at some examples of completed work.

5. Client testimonials – we would ask clients andsubcontractors what they thought of the potential JVpartner based on dealings with them in the past.

6. Staff churn rate – we would want to check that thosewe engage with have worked for the organization forsome time to ensure stability of senior JV memberswho would deliver the project.

7. Meet other key members of the team to assesscompetence and decide who is going to provide theproject director and project management team.

What do you believe are the critical successfactors for a JV to deliver a successful project?1. An equitable JV – each party must share in the riskand reward commensurate with the JV proportionalshare of profit, the IP and resource input.

2. The skills and capabilities of the JV must becomplimentary – there is no point in both being goodcivil engineering firms if you are building an officetower for example.

3. Cultural alignment – both must share similar values inhealth, safety, quality, working environment and clientservice.

4. Leadership – the JV board directors must share acommon vision and have the leadership skills to directtheir JV team.

What do you think some of the pitfalls are, andhow can you avoid these?The key pitfalls can be described as follows:1. A weak project director resulting in poor projectperformance.- Both parties must interview, select and agree on theproject director. A clear job description must beagreed. This is a difficult role with severalstakeholders to report to: each JV partner, theemployer and the employers representatives.

2. One side feels they are putting more effort into theproject than their share of the profit.- At the outset during the bid stage, each party mustagree what resources and input to the project it willperform and agree the share of profit. If somethingchanges then the parties need to agree how tocompensate each other.

3. One side of the JV does not fulfil its obligationssatisfactorily making the other side suffer.- This is a difficult area but a true JV should feel fullyintegrated and operate as one team – blame shouldnot be apportioned and the team should progressthe project to the best of their abilities. A strongproject director will ensure this happens.

If these grounds rules andconsiderations are addressed upfrontand properly resolved at the outset thismakes for a good and solid foundationin which to operate a successful JV


4. A risk event occurs and one side of the JV feels it’sthe other side’s fault.- As above – a team-building partnering workshop atthe beginning of the project needs to glue the teamtogether so that they manage a single project riskregister. Events should not be linked to either partyin a joint and several relationship.

5. The project team creates a “them and us” culture.- Give the project team a different identity – holdteam-building workshops regularly. Call the JVsomething different to the parent organizations andlet the JV employ the project team rather than theJV partners where practically possible.

All in all, a number of very critical considerations forcompanies to consider when partnering in a JV wherethe risks on these mega projects are substantial. If thesegrounds rules and considerations are addressed upfrontand properly resolved at the outset this makes for agood and solid foundation in which to operate asuccessful JV as we have seen in several large scale JVsand consortiums in the region. So with more of thesearrangements to come, we also asked SNR Denton togive us a legal perspective on successfully partnering in aJV. Please refer to their article overleaf.

There is certainly no substitute for investing sufficienttime and effort in completing the above diligence whenselecting a JV partner – and once selected, it is a longpartnership that will require a good governancestructure with clear processes and procedures to ensuregood communication to all stakeholders to facilitatetimely responses to risks and decisions. It is criticallyimportant that the JV Board set out and agree on theproject mobilisation and the formulation of the JV's 100day plan to get the project started in an orderly, focusedand cohesive manner, with JV partners jointly focusingon this extremely important task. Getting this right atthe start will set the scene for the remainder of theproject. We have seen issues arise in some JVs where a

simple difference in the methodology used to trackproject costs gave rise to huge differences in reportingactual projects costs and overall estimated project costs– it sounds very simple and obvious but all these pointsneed agreement and clarity.

Cynthia Corby PartnerMiddle East construction industry leaderDeloitte Middle East

Mark AndrewsManaging Director Murray and Roberts Middle East

Andrew J BeaneyManaging Director Qatar and Interserve Engineering & Construction,Interserve International

Endnotes1 Source: Arabianbusiness – Jan 20132 Construction weekly

Other sources: Meed, Arabian business, Construction Week Online, AMEinfo, Gulf Art Guide.

There is certainly no substitute forinvesting sufficient time and effort incompleting the above diligence whenselecting a JV partner


From construction through to big pharma, the jointventure (JV) is a common business model, in particular inthe Middle East where ownership restrictions arecommon and mega projects such as those expected aspart of the 2022 World Cup event in Doha are simplytoo big to be carried out by even the largest singleentity. Yet, despite this, appearance disputes at JV levelremain common and all too easily can becomeprotracted and expensive to resolve. It is no accidentthat lawyers like JV disputes.

Marry in haste and repent at leisure is an English proverbthat has stood the test of time. Applied to the JV, itsends an important message. The choice of your JVpartner is the most critical decision you will make whenforming the JV. Under no circumstances rush thatchoice, and ensure as much due diligence as possible iscarried out before you sign on the dotted line. History isa notoriously fickle ally here, and as the financial advicedisclaimer makes clear, past performance may not be agood guide as to what happens in the future.

Our experience has been that JV relationships foundedon strong personal relationships can and often doprovide the best base from which to build a successfulJV and see a JV project successfully through tocompletion. There is no getting away from the fact thatrelationships count and this is particularly the case in theMiddle East where informal networks are often just asimportant as the formal contractual relationships.

If it’s a new JV partner, then caution is the watchwordand we would strongly recommend extensive duediligence including references and, if possible, first-handaccounts of previous projects and dealings. It is aremarkable fact that references are often not asked forand clear previous poor performance ignored. Manyproblems can be completely avoided by time spent atthis stage of the JV formation process on such simplematters.

So you have your JV partner. What next?Most likely you will look to enter into a JV agreement ora shareholder agreement if the JV is to incorporate.These come in myriad forms, types length etc., and canoften be beguiling in their simplicity. Simple rules areoften the best to follow and this advice is directlyrelevant when looking at what should be included inyour JV agreement if you want to set it up to maximizethe chances of a successful outcome. So here are fivesimple rules to follow:

Rule number one: keep it simple. Do not overcomplicate the documentation; it will be impossible foryou to legislate in advance for all possible outcomes, sodo not try. You will simply end up creating a litigationlawyer’s paradise. You are creating a framework not adetailed manual.

Rule number two: be clear about who is doing what.Risk allocation should be clear and not fudged. Timeand time again disputes arise in JV situations whereboth parties think the other is to carry out or beresponsible for a certain task. This is a recipe for disasterand can easily be avoided. Better to have theconversation about where responsibility should goupfront than have it later in the courtroom.

Rule number three: are you all in it together? By this wemean sort out the joint or several nature of the liabilitiesof the parties to the JV. If there are three of you, is it athird each or some other arrangement? You might think this is such a fundamental point that it is neveroverlooked. You would be wrong.

Rule number four: sort out payment arrangements. It isa sad fact of life that payment disputes are common inJV situations and this is often due to no thought beinggiven as to how payments will operate, who will be paidwhat, and how the mechanics of the payment processwill actually work. Again some time spent upfront

How to choose a JV partner: Critical success factors: A legalperspective

David Risbridger


sorting these matters out and then expressing thesolution in clear easy to understand English can helpremove the prospect of disputes.

Rule number five: ‘dispute resolution’ are not “dirtywords”. In a region where arbitration is a common formof dispute resolution it is an interesting fact that not allJV agreements include arbitration or alternative disputeresolution (ADR) systems. Given the nature of JVagreements and the disputes they generate, they areoften well suited to arbitration-based dispute resolutiontechniques in particular, since arbitration is generallyprivate and the language can be agreed in advance.

JVs are commercial enterprises in the sense theyrepresent a true coming together of parties for a jointundertaking. As such, to borrow a description fromCharles Dickens, they have the potential to offer thebest of times and the worst of times, often in a waywhich is somewhat unpredictable. From a lawyer’sperspective, the disputes we see in such arrangements

are often some of the most disruptive and emotionallycharged. In that sense and to return to the startingtheme, they should not be entered into in haste andrepented at leisure.

David RisbridgerPartnerSNR Denton

JVs are commercial enterprises in thesense they represent a true comingtogether of parties for a jointundertaking


With single project portfolio values greater than USD100 billion, these figures are greater than the GDP of a small country and would be the envy of marketcapitalization of many international corporations. Thefact remains that the values that have been committedto – in the past 12 months alone – by government,quasi-government and private sector entities in the Gulf Cooperation Council countries are astonishing.

But whilst spending on some capital projects within theGCC continues to shock, only two words can ensure itssustainability. Capital. Efficiency.

Extracting maximum value from each project or portfolionot only improves a company’s Internal rate of return(IRR) or Return on investment (ROI) – it could also meanthe difference between delivering 130 schools insteadof 100, five bridges instead of three. It could meaninstalling rail networks that reach more communities,delivering critical lifesaving infrastructure sooner ratherthan later. The importance of these capital projects andportfolios cannot, and should not, be underestimated.Because of their wide-ranging influence, they shouldhave the complete commitment of the project ownersand governments - even consultants and contractors -to maximize their value and ensure their success.

What distinguishes the GCC region from other regions is the source of funds, which is predominantlygovernment-related and driven from oil and gas-basedeconomies. Many projects do not therefore take intoconsideration financing and interest when assessinghow capital efficient they can be, which could drivebetter business practice and capital project delivery.Many companies elsewhere in the world responsible for delivering capital projects continually considershareholder value, driven by the need to be capitalefficient because of the availability (or lack thereof) ofproject funding. The GCC is not different because of any reduced capital requirements for its projects; it isdifferent primarily in that there is a perception thatcapital is readily accessible!

As world dependency on energy and resourcescontinues to grow, what will drive capital efficiency inthe Middle East for years to come is not likely to beanything borne out of necessity but by choice. What isclear is that the same capital efficient mentalityemployed elsewhere around the world, if applied to thisregion, could reap immense efficiencies and savings.

What all of the entities that are delivering capitalprojects in the region have in common - in addition tohaving captured the attention of global businesses withtheir jaw-dropping capital expenditure figures – is theneed to deal with the challenges resultant from verycompressed timetables. For some, it may be a limited-year concession agreement during which they need tobegin oil refining operations. For others, it may be a rushto provide essential infrastructure for a vast populationthat has both social and political implications. Thereinlies the critical paradigm – in their rush to deliver theselarge capital projects to achieve a wide range of critical

Capital efficiency in the GCC: Keeping commitments whiledelivering more

But whilst spending on some capitalprojects within the GCC continues toshock, only two words can ensure itssustainability. Capital. Efficiency.

Jesdev Saggar


objectives, are project overseers truly maximizing valueor are they leaking away billions in cash that could beused for other projects?

With billions of dollars in the balance striving to achievethe optimum balance between cost, time and quality,project owners realize now is the critical time to shifttowards achieving all three in the most efficient waypossible.

To be or not to be (capital efficient)?Rushing to deliver projects may eliminate the most cost-effective procurement strategy, whether it be toprogress with project design to a more advanced levelto allow for more accurate tendering, or to limit privatesector involvement through longer-term focusedtendering (such as Public Private Partnerships) which can add up to 12 months to the procurement process.Can we select the appropriate procurement strategy,balancing time and funding requirements and creatingprivate sector opportunities that will diversify theeconomy? Or shall we simply progress with the front-end design, reducing overlap of design, constructionand procurement activities, to focus more on drivingexpenditure into the region’s local economies? Thequestion to answer is: do we have the ability and toolsto identify, quantify and maintain value throughoutdelivery? Simple math would indicate that achievingeven a few percentage points of efficiency willundoubtedly result in billions of dollars in savings. Theanswer of course is yes, but some immediate measureswill have to be considered and taken before we can fullytake advantage of the concept of capital efficiency.

Can we select the appropriateprocurement strategy, balancing timeand funding requirements and creatingprivate sector opportunities that willdiversify the economy?


1. Recognize the difference between strategic versuscommercial projects.

2. Defining value - Is it performance against a budget,quality delivery or some other wider external benefit?What is value?

3. Do we have the data to truly be efficient? Isinformation gathered and stored in a complete andconsistent manner to allow reliable analysis to informquality decision-making?

4. Effective and confident decision-making - Aredecisions being made on the basis of reliable ‘quality’information or incomplete inferior information?

5. Commitment to overcoming technological challenges -Is the organization able to interrogate and flexiblyanalyze data in often rigid Enterprise ResourcePlanning (ERP) systems that have been developed overmany years and designed with controls and softwarein mind to structure discipline?

6. Overcoming a business culture legacy - Is yourorganization focused at maximizing potential orcontinuing the status quo in business outcomes?

7. Creating and embedding ‘challenge’ to achieve value -Is your organization refocused and delivering betterbusiness ‘outcome’ whilst at the same time optimizinginputs?

8. Understand the capital efficiency implications on theentire life cycle - Are you looking at the whole life of aproject and thereby optimizing the CAPEX and OPEXbalance or do you see these as mutually exclusive?

Embracing capital efficiencyThe values attributed to capital projects in the MiddleEast are nothing short of staggering and demonstratehow capital-intensive industries in the GCC are and willremain, for quite some time. Throughout the GCCregion, organizations have not been able to groweffectively and organically, due to the immense pressureto deliver increasingly large and growing capitalprograms. Technical, commercial, financial andcorporate support functions operate in silos – not bydesign, but because historically they have operated inthis manner and they are now attempting to instillcontrols across this silo structure to deal with thechallenges of rapidly increasing growth.

While anyone in executive management will agree thatcapital efficiency analyses need to occur at both theproject and portfolio level (across projects), the actualplanning and management of large capital projects iscomplex in itself, with many variables and uncertaintiesthat need to be identified, assessed, analyzed, quantifiedand estimated. To truly be capitally efficient requires acomplete commitment by the organization toconsistently collect and consider the right inputs –accurate data and metrics, appropriately from the rightphase (e.g. planned costs during early design,forecasted costs during execution, commercial andmarket data) to provide the right answers and to alloweffective decision-making to be an output.

Time and again in the region, we have seen an erosionof capital project and shareholder value during theexecution of these major projects. In its most simplisticform, focusing on capital efficiency and value can drivealignment across myriad departments and functions inorganizations – when questioned as to why this isneeded, the justification for change across these samedepartments and functions becomes easy onceeveryone recognizes the answer is ‘it will save us lots of money’. Effectively assessing capital value andplanning capital creates clarity across the organizationand supports decision criteria for the long-term benefitof the organization. It will more than likely provideorganizations with the best possible chances ofachieving their future objectives as they had planned:success.

Jesdev SaggarManaging DirectorInfrastructure & Capital ProjectsDeloitte Corporate Finance Limited


To truly be capitally efficient requires a complete commitment by theorganization to consistently collect and consider the right inputs


As investment in the construction sector continues togrow in the GCC, the region has become a major driverof global change in the construction industry. Driven bycontinued global dependence on energy, and coupledwith substantial needs in the region for world-classinfrastructure and industry, this massive constructionspend will create increasing demands on both projectowners and contractors. EPC projects in the GCC willtherefore undoubtedly continue to increase in size andcomplexity, and project owners are now enhancing theirown capabilities to execute their rapidly growing andexpensive portfolios in a capital-efficient manner.

What does all this mean to the project owner? If aproject’s success is defined by meeting its cost and timeconstraints, then large capital projects are notoriouslyunsuccessful, with cost increases and late deliverybecoming all too common. Project owners are lookingfor ways to change this trend and deliver large projectsof a high quality on time and on budget.

What this means is, project owners are looking to“overhaul” their current project management anddelivery structures. This could include a revamp on key areas of a project’s lifecycle, such as:• How projects are selected and endorsed, includingmaking use of a comprehensive business case thatconsiders all of the project’s requirements, frominception through to commissioning and operation.

• Setting up projects for success by providing platformsto identify, define, combine, unify and coordinate theprocesses, activities and stakeholders required todeliver a project.

• Selecting contracting strategies that suit the availabledetail of project scope and specification, and providethe contractors with appropriate incentives toperform. This can also be expanded to reconsider“draconian” contract clauses that unfairly allocate riskto contractors. This may see a shift away from thetraditional lump sum turn key contracts favored forEPC projects, towards cost-plus contracts withincentives for the contractor to achieve the requiredperformance on the project.

• Investing in systems to assist in tracking and managingthe contract’s status and performance baselinesthroughout the lifecycle of the project. In a futurescenario, owner operators may make use of a costand resource loaded schedule that is updated on aweekly (or even daily) basis by the contractor –ensuring that the owner has access to “live” projectperformance information.

If done properly, these “repairs” will result in clearexecutive strategy, high levels of transparency,collaborative and integrated working practices, and the efficient use of capital and resources – all working in unison to avoid some of the common pitfallsexperienced in the industry.

The future of EPC

Malcolm Landman


What about EPC contractors? Contractors are likewiseseeking ways to grow their businesses whilesafeguarding their interests from technical, commercialand legal perspectives. As project owners are becomingmore sophisticated in their management of projects,contractors are rethinking their approach. A new cultureof transparency and capital efficiency will mandate new requirements of contractors that are entrusted todeliver these large capital projects. With the order booksfilling up and a healthy outlook for the GCC region,contractors may be required to adapt their way of doingbusiness to keep up with the change and provide theoperational and financial efficiency to match these newrequirements. This may include:• Full transparency regarding contractors’ margins,which may prevent larger contractors from ‘buyingwork’ at low margins to maintain operationalcapability.

• Updating the systems and processes used whenaccounting for project costs, to provide the required levels of transparency for working in a cost-plusenvironment. This could have a major impact on how indirect costs (shared across multiple projects) are recorded, and result in a shift from a historical“operations-centric” approach to project delivery, to a “project-centric” approach.

• Additional investment in training and development ofhuman resource capability and skills, to ensure therequired skills are available and consistent across allprojects.

The EPC landscape is changing and now is the time forowners and contractors to understand what the futurewill hold as we head towards an embedded culture ofcapital efficiency, transparency and accountability.

Malcolm LandmanAssistant Director Infrastructure & Capital ProjectsDeloitte Corporate Finance Limited

A new culture of transparency andcapital efficiency will mandate newrequirements of contractors that areentrusted to deliver these large capitalprojects


IntroductionFrom the outset the granting of permission to build theArab world’s first nuclear power stations in the UAE hasnot been without its critics and skeptics. Situated in theremoteness of the Western Region, the planned powerstations will in the future generate up to 25% of theenergy needed by the Emirate of Abu Dhabi.

Approval for this work was given by the UAE FederalAuthority for Nuclear Regulation (FANR), theindependent nuclear regulator, and the EnvironmentAgency Abu Dhabi (EAD) in December 2010. What hasresulted is one of the biggest civil engineering projectsin the GCC. Fueling this massive capital investment is a compellingeconomic equation that most GCC countries know onlytoo well. On average a barrel of oil costs $5 to produceand takes around three barrels to produce this onebarrel. Traditionally GCC countries have used oil topower their own industries, discounted with heavydomestic market subsidies. With oil now selling on theinternational markets at a 12 month average ofapproximately $95 a barrel, leading GCC countries arelooking to lucrative export markets and turning toalternative, non-hydro carbon energy technology to fueldomestic demand. The real challenge is with many ofthe same countries being the highest consumers ofenergy per capital, the use of solar, wind, thermal andother alternatives are not enough – nuclear energyoffers to fill the energy gap.

The creation of Emirates Nuclear EngineeringCorporation (ENEC) was the first visible proof to theconstruction industry that the talk of decades was finallygoing to be realized. After the regulatory go ahead,prime contractor consortia from across the world bid forthe contract to design, build, operate and transfer(DBOT) the facilities on behalf of the federalgovernment. Construction started in mid-2012.

Getting major projects rightBased on our experience of highly complex projects suchas these there are three critical success factors thatwhen implemented comprehensively deliver better

project outcomes. They are:1. Setting a project up for success – The 100-day Plan 2. Supply chain optimization – Leveraging knowledgeand ‘know-how’

3. Intelligent project controls – Dynamic systems thatallow effective, forward looking decision making

Setting a project up for success is maximized with theimmediate implementation of a well thought-out,intelligent plan. Typically a 100-day plan, detailing thedaily activities, key stakeholder inter-relationships thatwhen executed in a fully integrated manner set theproject on the ‘road to success’ right from thebeginning. Too often we all witness early stage workthat is unplanned, uncoordinated and poorly executed,putting the project on a poor footing from the outset –a legacy that needs to be quickly recovered from. Toooften project initiation is not well thought through andnot given the priority it demands. Instead ‘organizedchaos’ often exists with the projects’ ‘rush to start’construction activities.

For successful delivery of highly complex, major projects‘preparation, preparation and preparation’ should be asole focus of the client and delivery teams beforeconstruction activity commences. Unfortunately theregion has a variable track record of setting projects upfor success with progress at any cost often higher onthe agenda than planning. So what can be done….?

A typical trait we see in successful projects is theadoption from the outset of a ‘first 100-day plan’approach which sets out in detail the resources andmanpower needed to effectively establish the project: -the best location of the site compound / offices, earlyliaison with the utility providers, key permissions,permits, approvals required etc.. Unlike normal projectstart-up, the 100-day plan identifies the key activitiesand important decisions needed from the projectstakeholder, e.g. request for information required,procurement of long-lead items, third partyappointments and the like, and all within predefinedtimescales. It is micro-management at its very best toensure everything happens in a logical and predictableway.

Nuclear:How to successfully deliver major projects

Andrew Jeffery


Within the plan, advance logistic planning is especiallyimportant on highly complex projects (access / egress /traffic flows) to minimize traffic movements, understandmaterial delivery sequencing to maximize production.Linked to this is proactive and effective safety planning,which should focus on risk mitigation, practicalities ofdesign development, methods of working, training andinduction and risk assessments to embed a ‘safety first’culture on projects from the outset. It is vital thereforethat a 100-day plan is in place at the program’s outsetand not brought in to catch up by month three!

“Failure to plan is failure to execute effectively resultingin a higher project risk environment”.

The use of an integrated 100-day plan at the outsetmitigates many of these risks, as well as focusing thedelivery team on the early resolution of key factors, bothnow and in the future, which will determine the successof the project.

Supply chain optimization - Having established and setthe project up correctly, another trait of successful majorinfrastructure programs, such as ENEC’s, is stronghorizontally and vertically aligned supply chains, toensure the right subcontractors / suppliers / partners areselected to ensure quick information flow to all neededparties, at the right time, to allow effective and timelydecision-making. Effective supply chain assembly allowsthe successful integration of inputs across themultiplicity of construction activities to allow the myriadlayers of labor, plant, material, subcontractors andsuppliers to work together and deliver to a ‘commonplan’ and thereby maximize successful outputs.

For example, the effective coordination of MEP ductingroutes on structural drawings needs to be planned inadvance and communicated in a controlled way to allneedful suppliers and subcontractors to minimizeclashes and to allow the works to be carried out in asefficient sequences as possible - for the best price, leasttime plus guaranteeing quality. Unlike manufacturing,e.g. car production, major construction programs arebespoke, carried out in often challenging climatic

conditions using a variety of components, technology,resources and manpower brought together for one timeon one bespoke structure, phase or project.

Good supply chain assembly and management thereforeallows rapid three-way feedback, up, down and acrossthe program’s supply chain on the time, cost and qualityimplications of variations that can better inform clientand team decision-making.

We see leading contractors within the major projectsindustry devoting significant internal resources andattention to supply chain management: prequalifying,assessing, vetting and retaining only thosesubcontractors / suppliers who have in their ‘DNA’ thenecessary attention to detail, planning and co-operationto work seamlessly within the wider project deliverycontext. When this happens correctly constructionactivities occur like a finely choreographed ballet withelements happening correctly, just in time with little ifany defects or delays. To achieve this degree ofconsistent delivery leading contractors will rely on robustprocesses and procedures to remove chance and risk inexecution – allowing all members of the supply chain toinput and resolve challenges and difficulties beforeanything jeopardizes the project and leads to claimsetc...

Correspondingly where the focus on supply chain is poor, the opposite happens. Contractors withoutrobust project control systems in place witness poorlycoordinated and ill-prepared subcontractors, erratic /unplanned deliveries, installation and defects. Hereworks become ‘staccato’, pinch points occur in

We see leading contractors within themajor projects industry devotingsignificant internal resources andattention to supply chain management


construction activities manifesting in time delays, costescalation and quality under threat, in order to maintainand improve progress. Patent defects can often becomea clear visible sign of this stress but more worryingly forclients is a legacy of hidden, latent defects that may takeyears to identify and resolve.

In response to the failures mentioned we areincreasingly seeing leading clients requiring third partyassurance services to validate time, cost and qualityoutputs from contractors as safeguards against the verypublic exposure they might face if the project fails -especially government projects that are prone to timeand cost over-runs due to higher levels of scopechanges.

Intelligent project controls is our final critical successfactor. In that we mean an integrated, IT (enterprise)based management information and decision-makingfunction. Despite the complexity of major projectsincreasing exponentially, it is surprising that thedevelopment of truly integrated contract andcommercial management systems lag and differ sosignificantly across major contracting and clientorganizations. With effective project decision-makingwholly dependent on accurate and timely information,problems on major schemes can often be traced todecisions made on incorrect or incomplete information. To maximize success, clients and contractors need to

adopt the following mantra in the set-up and operationof their contracts project and cost management systemson major programs:

Quality project information = Quality Decision making

Whilst there are numerous document managementsystems available commercially for use on projects, mostare limited to filing and retrieving. What highly complex,fast-moving projects need is a much more dynamic,integrated cost and financial system that can, amongstother things, report project commercial information in‘real time’ with integrated links to purchasing,procurement and buying data, allowing multi-field entryin the system by the various functional contributors astheir activities are undertaken, providing rollingforecasts of current costs to complete, cost impacts ofcontract change, risk modeling, payments and all viaeasily understandable dashboard reports.

Whilst some systems exist that address theseinteractions, our experience is that most have beendeveloped bespoke by clients to answer their ownneeds. One leading international bank, for example,uses one such platform for its global capital projectsportfolio that allows its CFO to understand at the clickof a button the financial and contractual position of anyone of his projects 24/7. To do this, a dynamic andintegrated, often web-based platform is required thatallows information stored within separate databases to‘talk’ to each other, allowing continuously updatedproject data, across projects and locations.

With leading clients, we are increasingly seeing thesebeing linked to their corporate finance systems to drivereal business performance improvement to enhanceshareholder value.

When this happens correctlyconstruction activities occur like afinely choreographed ballet

The most efficient systems actively link the programWork Breakdown Structure (WBS) to the contract costbuild-up, which in turn would provide interactive data to the material procurement team – who for instancemay be procuring long-lead items way ahead of anysubcontractor procurement or site activities. The abilityof such systems to combine activities and outputs of thevarying functional parties and to log current, real-timecommercial and schedule performance is clearlysignificant over traditional, historic reporting and astrong competitive advantage in increasingly marginalmarkets.

In contractual terms, the system can be structured tomap the obligations and duties under the contract, forexample the agreement of variations (VO’s), byproviding secure login-in portals to all decision-makingmembers of the delivery team (contractors, consultantsand clients) that allows electronic information reviewand subsequent approval, thereby reducing the risk ofthings being missed. Already many of the commerciallyavailable systems on the market include email and SMSalerts to users to inform them when they are needed tomake decisions. Overall, therefore, we see growinginterest in major programs looking to utilize thistechnology that provides ‘1VT’ or one version of thetruth history of the performance of all parties. Clearlythis remote flexibility is especially advantageous whenproject stakeholders are spread across the globe.

Accordingly, it is clear in our experience that the betterthe project information mapping is, the more dynamicthe IT systems are to exchange and interpret data, andthe deeper the quality of information is. Added to better project initiation planning and supply chainmanagement, the enhanced information and control

provides a more robust environment for decision-makersto make more informed and timely decisions to optimizesuccessful project outcomes.

Andrew Jeffery DirectorInfrastructure & Capital ProjectsDeloitte Corporate Finance limited

Project initiation planning and supplychain management, the enhancedinformation and control provides amore robust environment for decision-makers



BackgroundOil and gas companies are increasingly facing growingrisks and uncertainties in today's global marketplace.These risks range from volatile commodity prices,increased health, safety and environmental pressures,and changing regulations to construction delays or costoverruns on large construction projects – are allcommonly seen in today’s industry.

Since the late 1990s, the industry has undergonesignificant structural changes that have squeezed itsprofitability requirements, challenged its ability toprovide stable product volumes to the end market, andto adapt to current and future environmental needs.Mergers, acquisitions, and joint ventures characterizethe industry today and have changed its ownershipprofile, altering concentration patterns both regionallyand nationally. The change of business model, from thatof an integrated structure to that of a stand-alone profitcenter, has focused attention on earning competitiveprofit rates at each stage in the production chain.

Companies are increasingly under pressure to earnbetter than market rates of return for investors to fund needed investment in expansion, technologicalimprovements, possible business restructuring, and to meet increasingly environmental regulations.Additionally the search for new fields is getting harderand oil and extraction more costly.

Continued major investment is the only viableoptionToday, most countries and oil majors are not onlyinvesting in existing facilities but increasingly exploringoutbound investments both in upstream anddownstream O&G sectors to secure their future energyneeds and interests while conserving their own naturalresources. For instance, the African, Central and SouthAsian sub-continents are seen as potential investmentopportunities with sizeable estimated reserves availablefor extraction.

The howThe construction of an oil refinery is a complex processand requires a great amount of feasibility work andplanning prior to its commencement involving a varietyof senior management, operators, contracting andservice companies as well as vendor. All must befocused on operational optimizing of oil and gasprojects and in so doing maximizing profitability whilstmanaging the risks associated with their contracts.Whether offshore or onshore platforms, floatingproduction vessels, or other O&G facilities, risk concernsare getting more attention as pricing becomes evermore competitive.

Many contractors are uncertain about the unfamiliarcontracts used in different countries, costs of local laborforces and risks involved in using local vendors. Risks aregreater for projects in West Africa and South Asia,where concerns include local political uncertainties aswell as labor, material handling and other field logistics.

It is hence very critical that the preparatory work duringthe FEED stage is conducted in detail to understandamongst other things - the main equipment needed toproduce the desired refined product outputs, thecapacity of the host country in terms of supply chain,and to develop strategies to mitigate and manage anyresultant gaps.

So what characteristics should be reviewed whenassessing and measuring the economicperformance of a petroleum refinery?1. The production process is highly capital intensive andtechnological improvements are necessary on aperiodic basis through investments in the basicrefining process infrastructure. As a result, any eventthat may affect the availability or allocation of capitalinvestment can have significant impact on the projectand the investor. Costs of special equipment,overhead expenses, project delays and the like cancost the operator huge losses in production revenuesas well cost overruns.

Upstream downstream:Facing the oil challenge

Thomas John


2. Next is the variable cost of the crude oil itself, asdetermined in the global market. While labor andother variable costs are relatively small fractions oftotal costs, a disproportionate amount of attention isgiven to minimizing them in the interests ofenhancing profit margins. Clients should ‘stress test’all their feasibility models to allow for ranges of pricevolatility.

3. Equally, the sales price of the refined product arevolatile so effective feasibility reviews must stress testacross a range of end market sales.

4. Lastly, regulatory costs, both capital and operational,required to meet mandated environmental standardson both refined products and refinery sites, increasecosts significantly and are highly dependent ongeography.

The look-outs1. Most contracts for engineering, procurement andconstruction (EPC) of O&G facilities are complexcommercial agreements, however most incorporatechange and variations mechanisms. Accordinglydesign deficiencies, scope changes and delays in thefield conditions, technological developments willquickly jeopardize capex allowances and impact onopex matters.

2. Equally a contractor may fail to recognize when achange occurs, and the operator may not accept thatan adjustment to the contract is warranted, againincreasing the capex.

3. EPC contractors and their vendors may not correctlyinform the operator or project owner that changeshave occurred or fail to comply with certaincontractual clauses and may fail to keep a recordnecessary to demonstrate that these changes didindeed occur and had an effect on time and costs. As well as of increasing the capex, delays and claimsinvariably accrue.

4. Finally we often notice the failure to provide specificcost codes to capture labor, material and equipmentcosts associated with the changes. While many EPCcontractors and vendors have cost systems to capturethe obvious direct costs of changes, most do not

capture indirect costs and these may be substantial.For example, engineering hours are rarely tied back tofield change events, which may result in enormousengineering hour overruns being incurred.

The relationship between quality, schedule andcostProject performance is impacted by the relationshipbetween schedule (time), cost and quality. If a projectrequires high quality (as is the case with oil refineries),the project schedule and project cost become variable –i.e. high quality with time constraints (schedule driven)results in higher cost (reduced cost efficiency).

In a recent engagement with a major O&G client, therewas a requirement for their project to progress quicklydue to schedule constraints. However, Deloitte notedthat this resulted in reduced cost efficiency, which led tothe need to protect the projects budget by improvingthe project's cost performance through theimplementation of enhanced cost controls to assist theclient in stay within the costs and budgets of theproject. Specifically, Deloitte assisted the Client in thefollowing areas:· Consistent cost forecasting by the project team, toassist the client in understanding possible cost overrunsbefore they happen· Change control system whereby any issues that couldhave a possible cost impact where shared with theprojects commercial / cost control team, to assist themin tracking possible changes to the project's cost

The construction of an oil refinery is acomplex process and requires a greatamount of feasibility work andplanning prior to its commencement

Recommending a system whereby the contractor takesgreater ownership in the forecasting, and workscohesively with the client, to keep the client informed(greater teamwork). This last point was done throughworkshops whereby the contractor was given a platformto comment on and improve the existing cost processesimplemented by the client.

Given that the current tough economic environment islikely to remain for some time, most contractors willundoubtedly look to exploit changes in the above as away to recover additional time and cost as a result ofschemes either changing during the process or delayeddue to design gaps / inefficiency not rectified within thefeasibility development.

In summary, the only fully safe mitigation in the deliveryof highly complex oil & gas projects delivered inchallenging geographies is to devote more time to pre-feed activities, stress test feasibility models to reflect thevolatility of the major data and ensure design shortcutsdo not happen. Thomas John Manager Infrastructure & Capital ProjectsDeloitte Corporate Finance limited

Scheduledriven

No scheduleconstraints

High quality Long duration

High cost performance (Lower cost)

Improved costperformance

Oil refineryproject

Low costperformance

High costperformance

“Conventional” project

High qualityShort durationLow cost performance(Increased cost)

If a project requires high quality, theproject schedule and project costbecome variable


IntroductionAlmost every month a multi-million dollar project getsawarded to one of the big contracting companies in theGCC, but how often do these projects get completedwithin budget?

Most of the developers have fit for purpose projectmanagement policies and procedures. However, theabsence of a robust project assurance framework andan integrated project management platform, which areessential to consistently monitor project cost, limits theeffectiveness of these measures.

In our observation, many departments involved in thedelivery of projects seemingly operate in silos andtherefore do not truly support end-to-end delivery thatis expected of both their own boards and that of theregion’s leading developers. Systems and commercialpractices related to project management vary betweendepartments and projects and limit the visibility ofcontractors’ progress and areas of ‘value leakage’.

From our experience of working with the region’s topclients, the following major commercial pain points areseen only too frequently. Accordingly, we discuss thesesymptoms together with our easy top tips to mitigateThese:

Control budgetThe lack of a detailed and comprehensive controlbudget based on a standardized Work BreakdownStructure (WBS) and cost breakdown structure necessaryto capture cost data invariably leads to inadequateprogress monitoring, cost control and inaccurateprojections of estimated cost at completion. Moreover,the contingency amount allocated in the budget for

unforeseen conditions / events is often a fixedpercentage of the total project cost and usually turnsout to be insufficient for covering the risks associatedwith the project.

Mitigation tips:1. Fully aligned WBS and cost breakdown structure.2. Detailed control budget that reflects a comprehensiveclassification of project scope.

3. Allocation of contingency based on risk assessmentand industry norms.

4. An integrated project controls system.5. Robust cost management reporting system.

PaymentsProblems often occur when the payment process issubjective and inconsistent, i.e. is not based onpredefined milestones or inspection points to allow forproper assessment of contractors’ payment applications.This usually results either in underpayment tocontractors, which may impact the progress of worksand trigger claims and disputes, or in overpayment,which may impact the Client’s cash flow and financialposition.

Mitigation tips:1. Accurate ascertained payments of completed works.2. No payment for material off site and / or defectivework.

3. Consistent approach of back charging contractors.4. Accurate assessment of final account and projectionof estimated cost at completion.

5. An integrated project controls system.

Project assurance:Effective project commercialmanagement

Randa Al Sayegh


Scope changesDue to the often enormous number of scope changesduring the execution of the projects in the region andthe lack of integrated project systems, contractors areusually unable to reliably capture, track, manage andaccurately assess their impact on cost, which leads toinaccurate progress measurement and cost forecasting.

Mitigation tips:1. Project design is sufficiently complete prior tocommencement of construction works.

2. Design freeze during construction phase.3. Early and effective impact assessment of scopechanges on time and cost.

4. Robust change control management system.

Almost every month a multi-milliondollar project gets awarded to one ofthe big contracting companies in theGCC, but how often do these projectsget completed within budget?


VariationsThe accumulation and often late assessment ofvariations due to shortage of capacity in the commercialteam and late approval process usually results ininaccurate progress measurement and cost forecasting,late payments to contractors for the work performed,and delayed close-out of accounts.

Mitigation tips:1. Early assessment of additions / omissions againstcontractual entitlements.

2. Robust change control management system.3. Early warning flags.

Prolongation claimsThe lack of a reliable and complete audit trail to assess /resolve claims and the lack of proper assessment byindependent third party subject matter experts oftenresults in contractors entitlements to significantamounts of additional time and cost which delay theproject, exceed the baseline budgets and negativelyimpact on profitability and reputation.

Mitigation tips:1. Early engagement with contractor to negotiatecontractual entitlement.

2. Accurate and contemporaneous records need to be maintained.

3. Early involvement of 3rd experts on complex claims. 4. Early warning flags.

Cost reportingProblems often exist in cost reporting where there is aninability to integrate, track, roll up and drill down cost,schedule and performance data from lower elements upto the project level. This is invariably due to the lack of astandardized WBS to be followed in reporting, whichresults in poor visibility and control, inconsistent analysis/ comparisons and cost reconciliations.

Moreover, despite the availability of many powerful ‘off-the-shelf’ cost management tools in the market, costreporting is still a manual process that is subject to datamanipulation, erroneous and late reporting.

Mitigation tips:1. Set up of an integrated project controls systemproperly at outset of the project.

2. Well-structured and automated cost managementreporting system.

3. Early warning flags.

Effective project assurance framework forefficient delivery of the capital programIn summary, to achieve effective and robust operationalstandards in line with best industry/leading practice, allcontractors and employers should have access to thefollowing information and business knowledge at anytime during the project execution:• ‘Where’ will the organization be spending the money;

Despite the availability of manypowerful ‘off-the-shelf’ costmanagement tools in the market, costreporting is still a manual process thatis subject to data manipulation,erroneous and late reporting


• ‘When’ will the organization be spending the money;and

• Early warnings to allow for ‘informed and timely’corrective action.

Our in-depth project experience working for many ofthe region’s leading c lients tell us that this can beachieved by implementing the following methodologiesduring project execution:• Standardized and comprehensive WBS and costbreakdown structure

• Detailed control budget• Integrated project schedule • Standardized and consistent approach to Earned Valuecalculations

• Validation of contractors’ progress by inspectionpoints / milestones

• Timely impact assessment of scope changes on costbaseline

• Robust risk identification, quantification and mitigationprocess

• Automated cost data capturing, processing andreporting

• Robust document control systems

If any of these points are absent then failures invariablyoccur resulting in misleading information that mightnegatively impact the Client in making informeddecisions and subsequently leading to project delays,cost overrun, negative impacts on profitability andreputational damage.

When these improvements are implemented collectively,capital project delivery capability can transition from afractured structure operating in silos to a model withintegrated project teams and information. This improvedinformation provided throughout the capital project lifecycle will allow the project team to focus on thecorporate strategy: working towards exceeding targetobjectives.

Randa Al Sayegh ManagerInfrastructure & Capital Projects Deloitte Corporate Finance limited

This improved information providedthroughout the capital project lifecycle will allow the project team tofocus on the corporate strategy:working towards exceeding targetobjectives


With ever increasing demands on your time, can you really afford for management to notrespect yours?

Time – Friend or foe? “Time is what we want most, but what we useworst,”says William Penn. In today’s fast paced, 24/7smartphone connected/glued to the hand world,effective time management, especially for champions ofindustry, is a challenge. Add to this the increasingattractiveness of social media such as Facebook, Twitter,and LinkedIn, and we find ourselves constantlyconnected and accessible whether we like it or not!Time and time again (pardon the pun) seniormanagement and directors share with us that theirbiggest challenge is keeping abreast of critical aspects oftheir business(es) and how they can filter through themounds of documents, emails, and reports they receiveto determine what requires their immediate attention.

The stats don’t lie: This does not come as a surprise when one looks at themost common demands on senior management’s timeduring the span of a day. According to a survey on emailstatistics, managers receive about 100 to 120 emailsand send 30 to 40 emails a day. The more senior one is,the more likely this number is to double as one getscopied on a lot of emails as well. What this means inpractical terms is that even if you spend just one minutereading or responding to these messages, it equates tomore than three hours of your time on a daily basis!

The chart shows what our discussions and generalstatistics show are the most common demands on thetime of our clients (comprising mostly of SeniorManagement and Directors) during a 60 hour workweek that includes traveling for board meetings. Aftermeetings, that take up almost 30% of their time, ourclients spend approximately 25% of their work weekreading/responding to emails and reviewing importantproject management reports (including boardcommittee meeting reports). If you combine meetings,

email/document reviews, and travel time, our clientsonly have 30% of their time to devote to the otherdemands of business. This creates a huge risk as theyare unable to review all the various project reports fortimely / corrective actions, thereby having to rely onmanagement to report what they feel is critical. Thisresults in key issues and problems slipping through thecracks, resulting in losses that cost millions to rectify.Imagine the benefits a 1% or 2% increase in this alonetime would do for the productivity of the businessthrough timely decision-making!

Effective project reporting – Just a fancy term oran essential necessity? As we advise our clients, the success of any project isdependent upon effective project managementachieved through a two-pronged approach: ProactivePlanning, and Efficient / Effective Project Reporting. Ourdiscussion today centers around effective projectreporting which, as you may have guessed already, in

Project assurance:Leaders, SACK your management forineffective project reporting

Travel and otherTravel and otherMeetingsEmailsWorking alone

Business mealsSocial MediaConference callsPhone calls

10

15

3

2

1

5

6

18

Average hours spent in a 60 hour week

Ghazanfar Shah


today’s fast paced, information overload world, revolvesaround creating an environment where time is valuedand respected.

Our advice to our clients is similar to the “2 minute” rulefor emails being used effectively around the world:create an environment whereby project reporting isarticulated in one-page reports that allow you to haveall the critical information for each project at yourfingertips. We have assisted numerous clients createone-page project reporting dashboard tailored to thenuances of their business and decision-makingprocesses. If it doesn’t make it to that one-pagedocument / template, it is either not relevant, or inmanagement’s mind it is not important enough to bebrought to your attention. This allows you tosubstantially reduce your time reading detailed projectreports and just focus on what the key KPIs, statusupdates, and action items are. More importantly, thisalso allows you to hold management accountable forwhat is reported and what isn’t, and for approvals theyseek at regular intervals. Detailed reports should onlyaccompany the one-page report as appendices toenable you to dive in deeper if, and when, certain KPIsdeviate from what management had reported earlier.Accountability, as you know, brings the best out of yourteam as the case study below demonstrates.

Case study: We were engaged by one of our clients to determine;1)why the majority of their projects / investments wereunsuccessful and, 2) why most major project issues werenot being reported to them. Our study, and subsequentresults, surprised them. All the issues impacting thesuccess of their projects /investments had been reportedto them but through detailed project reports, whichthey had failed to read / review due to constraints ontheir time. Furthermore, these issues could have beeneasily mitigated from the outset had they been reportedin an effective and timely manner, as opposed to beingoverlooked causing substantial losses requiringsubsequent mitigation. The fact that they could have

had an impact on the success of their projects /investments through effective project reportingmotivated our client to implement our suggestions oncurrent and future projects. The lesson learned, and themessage we delivered was simple: “SACK yourmanagement!”

SACK© your management: Now that I have your attention, let me be clear that thisdoesn’t mean that you need to fire your management.SACK is an acronym encapsulating a four-point solution

for efficient and effective project reporting that hasbeen developed by us specifically to assist our clientswork towards achieving success on their projects /investments:

1. S = “Stipulate”: Stipulate the requirements foreffective and efficient project reporting, including thefrequency of reporting. Make your managementrespect / value your time as a one-page dashboard canbe read easily on your phone, on your drive to work, oreven on the plane ride for a board meeting.

2. A = “Appoint”: If your management was capable ofcreating succinct invaluable reports, you probablywouldn’t be reading this article. This is where thebenefits of appointing experts, who can share theirexperiences and knowledge with you, is vital as it canmake the difference of saving millions of dollars thatmight be incurred if the issue is only identified at themore advanced stages of a project.

These issues could have been easilymitigated from the outset had theybeen reported in an effective andtimely manner


After all, a report is only as good as the informationused to compile it (the “Garbage In-Out” phenomenon)and an independent advisor can help you overcome thischallenge by assisting you and your managementvalidate the integrity and adequacy of project reportingfrom your project managers and consultants.

3. C = “Collaborate”: Collaborate with yourmanagement (and advisors) to work hand in hand indetermining the project KPIs, updates, and the formatyou would like to see the critical information beingpresented. For example, clarity on high level analysis ofrisk and opportunity dashboard. This is where your inputis most valuable as, let’s face it, you are the end user!

4. K = “Keep monitoring”: As with everything else,there is no value addition if there is no subsequentmonitoring. Keep monitoring the reports to see what isbeing reported, what was reported last time, what ismissing, and what needs to be done to improve thereporting and decision-making process. As we adviseour clients, there is no end-for-all template; in acontinuously evolving business environment and giventhe changing nature and scope of projects, you need tokeep monitoring to remain abreast of changes that willallow you to adapt your reporting mechanisms andprotocols to remain head and shoulders above yourcompetition.

Success means mastering your time:As mentioned earlier, successful project reporting needsto not only be efficient (page templates that are easierto create and subsequently digest) but also need to beeffective i.e. need to capture all relevant and importantinformation. This is the area where our clients find themost value by employing financial advisory firms likeours to assist them with dissecting their business andreporting procedures, identifying inefficiencies,determining relevant KPI’s, tracking of issues reportedlast time vis-à-vis updates, and creating effectivereporting protocols bespoke to their projects / industries.

Streamlined reporting allows for quicker reporting and iseasier / quicker to digest. It also frees up your valuabletime allowing you to focus and discuss the projects thatare not on track and require more attention. However,the time saved also means that you probably havesufficient time to cover all projects! For largeinfrastructure spend projects currently on-going and/orplanned for UAE, Qatar and Saudi Arabia, implementingeffective project reporting protocols can mean thedifference between success and failure. If you start right,you will finish strong!

To sum, Alan Laiken’s words on time management echotrue for effective project reporting: “Time = life;therefore, waste your time and waste of your life, ormaster your time and master your life.” So, master yourtime... SACK your management!

Ghazanfar ShahManagerInfrastructure & Capital ProjectsDeloitte Corporate Finance limited

Successful project reporting needs tonot only be efficient but also need to be effective


The Middle East has always been an attractive propositionfor foreign investors, gathering the attention of manywho have considered either establishing companies orentering into joint ventures with local companies tocapitalize on the region’s growth opportunities.

In recent times, two countries in the Middle East, ormore specifically in the GCC (Gulf Cooperation Council)region, have raised their profiles to investors by planningmulti-billion dollar spends in just about every sectorrelated to their built environment. These are Qatar andthe Kingdom of Saudi Arabia.

As is commonly known, Qatar won the rights to hostthe FIFA World Cup in 2022. This small energy-richcountry in the Gulf will see billions of dollars being spentin all sectors of its economy in the build-up to 2022,which will include:• Renovation of existing stadiums as well as building ofnew venues at a cost of $4 billion1

• A $25 billion rail and metro transport infrastructureplan, originally planned for completion in 2025, couldbe rescheduled to meet the deadline for the 2022World Cup1

• A $20 billion road investment program1

• 65,000 hotel rooms, required by FIFA to host the 2022World Cup1

• The new $11 billion Doha International Airport1

• The $7 billion Doha Port1 Etc.

The Kingdom of Saudi Arabia still stands as the largestconstruction market in the Middle East with multi-billiondollar projects by both the public and private sectorsunder way and many more in the planning stage. Thishas attracted considerable foreign direct and indirectinvestment by those wanting a share of these projects,valued at over trillions of dollars.

This begs the important question of what keyconsiderations companies and investors need to bemindful of to effectively manage their supply chains inthese growing markets. Furthermore, are they aware ofthe critical requirements relating to the supply chainmarket in these countries?

Deloitte has been actively involved in assisting keystakeholders (including government bodies) with thedelivery of the large/mega programs in the GCC region.For example, some of the services offered in the initialstages of program delivery included the setting up of thestrategic program management office function, toensure the effective strategic execution and operationalexcellence for the enterprise program delivery. As adirect result, we are seeing increased activity andinterest from companies and investors requesting ourguidance to assist them in better understanding andintelligently engaging with the domestic supply chainmarket that is critical to their survival and success. Beloware some of the key points/factors we always ask ourclients to help them get a better understanding of thefluid dynamics of supply chain management in thesegrowing economies:

1. Financial The current uncertainty and volatility in the globaleconomic environment has brought with it a newdimension to managing the supply chain, especially inthe growing markets of Qatar and KSA. The financialcomponents relevant to effectively understanding thesupply chain would include:• External factors: Suppliers based in their owncountries, with stations in new markets, encounterfinancial problems such as reduced cash flows,reduced working capital, lending covenants that mayno longer exist, reduced or limited access to creditand insolvency or bankruptcy. Customers withoutvisibility to significant supplier financial issues are likely to be impacted themselves.

Supply chain: Issues on assembly in new markets

Ketan Bhoola


• Internal factors: New markets require products andlabor on demand to meet production targets. Thisbrings with it a new or higher level of complexity. Costpremiums could result from elements such as location,limited supply options for parts and labor, and limitednegotiation leverage. These premiums can come inthe form of supplier mark-ups, high wages andretention bonuses for labor, inflation and switchingcosts between supplier products. Getting good, long-term supply contracts in place and managing theperformance of those supplier contracts remains achallenge if not handled proactively.

• Exchange rate volatility: Variables such as exchangerates, competition, and rising commodity prices allrepresent financial considerations in contracting forsupply. The ability to manage the nature of the supplychain means those who can effectively managecontracts and their inherent financial risks in bothupturn and downturn markets are more likely tosucceed. While Saudi Arabia and Qatar have their localcurrency peg to the dollar, proper risk management,exposure to and implications of hedging, futures oreven the cost of borrowing in the home market needsto be fully understood.

• Tax considerations: Most new markets may appear tobe attractive by offering significant tax reductionsand/or tax exceptions. However, a deeperunderstanding by the investor is still required so thathe/she is fully compliant with the applicable local lawsand regulations. No one understands this more thanthe Deloitte team, which has a dedicated Taxdepartment with a tax professional to analyzescenarios and the ability to provide pragmaticsolutions to these complex business issues. TheDeloitte International Tax Source (DITS), which is acomprehensive one-stop shop for international taxrates, information and analysis key to doing businessin a cross-border environment, and currently covers 65jurisdictions worldwide, does provide assistance andconsiderations for most new markets.

2. Regulatory New markets bring with them new challenges includingcontinuously evolving local regulations and changes inlocal laws. It is common that laws change morefrequently than expected in these “frontier” markets, asthey are sometimes known. Participants in more matureeconomies will need to keep abreast of these changesand ensure that they have adequate response plans inplace to ensure the necessary compliance. Timely andaccurate tax information can have an implication forcompanies wishing to optimize their multinationalstructures. These structures must be alert to theopportunities (and risks) afforded by the various holdingcompanies and are considered by many as an evolvingminefield if not understood and monitored closely.

3. Operational Unfamiliarity of market: At the best of times, obtainingsecure and reliable sources of supply can be fraughtwith operational challenges throughout the supplychain. In new markets, this can be even morechallenging due to unfamiliarity with the market, noexisting relationships or alliances, etc. The result: themost critical parts are not on hand at all times, resultingin the high opportunity cost of a downtime.

The current uncertainty and volatilityin the global economic environmenthas brought with it a new dimension to managing the supply chain,especially in the growing markets of Qatar and KSA


Vendor selection: In many cases, companies may havelimited supply choices in new markets. Among supplierswhere there are wider alternatives, companies would be forced to look at second or third choice vendorsbecause their preferred supplier cannot meet currentdemand. Such sourcing decisions are accompanied bygreater supply risk as these suppliers may be less viable,less reliable, and could potentially be lower performers.

The importance of entering into complex and creatingdeep relationships across the supply chain will mostlikely lead to stronger supply chains, higher pay-outs,and, long-term more promising business paths in thefuture. While most view this process of buildingrelationships to be daunting and time consuming, weadvise and will continue to assist our clients to use thisas a springboard for an efficient growth mechanism ofthe supply chain and ultimately resulting in establishingsecurity on key deliverables to secure the project'scritical path.

Transportation challenges: New markets may not havethe necessary infrastructure that an effective supplychain requires or companies/investors may be expecting.Transporting the supply of both products and labor to asite in a new market often involves several modes,airport and port facilities with many handoffs.Accordingly, we advise our clients on the many points offailure where delays can occur, caused by anything fromlogistical issues to environmental problems (e.g. weatherconditions).

4. Geopolitical riskIn today’s global environment, we can expect supplylines to often extend across a number of sovereign lines.As a result, actually getting supplies from the source tothe end user can require a journey that crosses multiplejurisdictions each with different regulations andapproaches to doing business. These various politicaland social environments can in turn drive changes inregulatory conditions, potentially altering the level andtiming of the supply chain. Transport and regulationssurrounding the movement of products internally shouldnot be taken for granted in these markets. Far too oftenwe see the impact of travel distance from the entrypoint (port or airport) to the end user taking longer thanexpected and often with complicated border / customsmechanisms.

5. Developing local alliancesWhat typify many new markets are the local on-goingalliances and relationships that exist. Being a newentrant requires an intelligent way of ‘making friends’ todissolve old ones and create new ones to their benefit.These alliances can take on many forms from assisting inthe formation of the local entity, forming joint venturesand/or strategic relationships.

6. Understanding local culture & practicesNew entrants need to be familiar with and sympatheticto local ways of doing things and see this as both a riskand an opportunity. From our experience, companiesthat employ a good level of locally experienced staff getearlier and better market tractions to those flown in toestablish operations. Understanding the local practices,regulations and cultural norms is essential to earliestintegration and leveraging of opportunities when theypresent themselves.

7. Managing risk and opportunityA significant issue is the understanding of risks in a newmarket and the exposure you will be under. Newmarkets typically have immature contractual / legislativesafeguards, with unlimited liability, being common.Far too often people sign up through ignorance and lackof consultation of people that know, understand andmost importantly work and are based in that market.

New entrants need to be familiar withand sympathetic to local ways of doingthings and see this as both a risk and an opportunity


8. Corporate and social responsibility issuesSome of these markets are facing greater pressure from international bodies for greater compliance andadherence to the UK BCA legislation, and the rights ofworkers employed in these markets. These factors needto be considered in the supply chain as the reputationrisks for non-adherence could have an impact.

In summarySupply chain assembly and optimization is critical to the success of business in these new markets. Indeed,we may even go as far as saying that these countries’visions will only be achieved if the related supply chains are efficient and effective. Our advice to outsideinvestors/companies is by using the in-depth experienceDeloitte FAS has in these areas we can provide ‘realtime’, professional guidance on localized programs toaddress all issues related to their supply chains. In orderto achieve this, we stress that a deep understanding of local customs, culture, laws, regulations andinfrastructure is needed. The ability to understand andevaluate the supply chain in the context of the newmarket is vital to detecting and mitigating supply risksbefore there is an actual impact. In other words, in thecontext of global demand, a professional localized viewis needed to implement a successful supply chain in anew market.

Ketan BhoolaAssistant Director Infrastructure & Capital ProjectsDeloitte Corporate Finance limited

Endnotes1 GCP Global construction survey 2020

In the context of global demand, aprofessional localized view is needed toimplement a successful supply chain ina new market


IntroductionAs the Middle East construction industry ‘splutters’ backto life after close to four years of relative drought andchronic restructure, many within the industry are acutelyaware of the risks associated with a sharp uptake inconstruction output and the need to foster strongstrategic ties with the broader supply chain to maintainan acceptable measure of performance to supportsustainable growth.

Much of the Middle East construction industry has yet to reach a level of maturity that supports thedevelopment of a sustainable supply chain/s and hastherefore not experienced the full value that suchstrategic partnerships are able to deliver; more critically,the size and complexity of the region’s current capitalproject pipeline is arguably of a scale the world hasnever experienced and the question remains, is thisambition nothing more than a ‘desert mirage’?

Fortunately for the region, the conundrum ofdeveloping vast swaths of complex infrastructure withincritical timeframes and challenging budgets is an areawhere parts of the industry has excelled in recent years.Much has been written about the successes of capitalprograms such as BAA’s Heathrow Terminal 5 and theLondon 2012 Olympic & Paralympic Games, both ofwhich have become centerpiece examples of how,when done well, the power of an effectively managedsupply chain can redefine the boundaries of possibility.As a participant in both of these projects, I havefirsthand experience in the creation and management oftwo of the most recognized supply chains in the worldthat successfully integrated hundreds of businesses andtens of thousands of operatives around a set of welldefined objectives that insured collective success andimprovement for all who were involved and has firmlyestablished a legacy of excellence in delivery. With theupturn in construction activity across the region it is notsurprising that many within this peer group have foundtheir way to this part of the world. What’s frustrating,

however, is the lack of interest from employers / clientsto take advantage of the lessons learnt and apply themto the current industry challenges.

What follows is a high-level perspective on industrystandard supply chain management and is offered as a catalyst to encourage further enquiry and dialog: The discipline of supply chain management within themanufacturing industry is well established around theworld - more and more owners and contractors withinthe construction and infrastructure space are starting toreconcile the benefits of an effective supply chain thatfocuses on the strategic alignment of corporate goalsand objects that underpin the competitive advantage of the collective.

The main types of supply chain can be characterized as follows:• Transactional based - competitive bids• Transactional - long-term agreements• Alliances - loose knit, informal group• Partnering - long-term relationship based upon mutual objectives

• Integrated supply chains - suppliers work in clusterswithin a formal partnering arrangement

The industry standard supply chain management processgenerally maintains two principal focus areas, namelythe ‘procurement phase’ and the ‘manage and developphase’. Within the former, the principal entity primarilyworks towards establishing the following:

Procurement phaseDuring this phase, it is important to analyze the key or strategic areas of supply, understand what themarketplace can offer, and identify one or more supplypartners in each supply area. Typically, the supply chainleader/s would endeavour to collate comprehensivemarket data that sufficiently establishes definitionaround the following principles:

Supply chain: A chain reaction

Sheldon Morris


• How is the marketplace structured?• What is the supplier base?• What type of relationships could be supported?• Identify and incorporate business objectives into theprocurement process

• Match contract terms to business objectives

Manage and develop The objective of this phase is to manage and objectivelymeasure the performance of the integrated supplychain. Much of the activity is focused on drivingcontinuous improvement through the four channels: • Supplier development - Company to company- Long-term relationship- Clear business objectives- Measured & managed performance- Backroom and frontline functions included

• Team develop- Focused on project team- Short or long-term relationship- Project based objectives- Measured and managed performance- Generally frontline functions only

• Supplier evaluation areas- Price robust and value for money- Product is right for the purpose- Management systems, communications & people- Delivery so that what is required is delivered

• Tracking areas- Development of key performance indicators (KPIs)- KPIs measured against targets- Value improvement plans that plan to deliverimprovement against SMART targets- Reporting information - useful information that isn’tused to measure performance

Success factors of the integrated supply chaininclude:• Understand customer needs• Measure performance• Commercial framework - contract, pricing, andrisk/reward

• Incentives• Quick and cost effective access to dispute resolution• Managing change – establishing the understandingthat it requires people to change values and behaviors,leadership focused on results and continuousimprovement

• Leadership that is motivated to provide the bestresources and who are fully committed

• Shared goals that include cross companyunderstanding and communication

At Deloitte we pride ourselves on providing our clients with best-in-class supply chain solutions thatconsistently transform the fortunes of their businessesand those of their investors. We would welcome anexchange to share the extensive knowledge and know-how we have in this area.

Sheldon MorrisDirectorInfrastructure & Capital ProjectsDeloitte Corporate Finance Limited

At Deloitte we pride ourselves onproviding our clients with best-in-class supply chain solutions thatconsistently transform the fortunesof their businesses and those of theirinvestors


IntroductionUnless you have been living on a desert island, orperhaps you have been fortunate enough to have beentravelling around the world on a sabbatical for the pasttwo years, then you would no doubt have seen manyheadlines about Building Information Modeling or BIM.

To some the headline may have simply passed you by as you are involved with projects where BIM is beingconsidered or perhaps already being utilized. However,to many this development marks a sea change in thedesign, procurement and construction of projects andthese same people, no doubt, have severe concernswith respect to how BIM will affect them.

Irrespective of whether you are an experienced BIMpractitioner or a complete novice, BIM does pose certainchallenges and it will come as no surprise to some, that even people who think they are utilizing BIM areactually not.

What is BIM? Like many forms of construction innovation, the termBIM was first used in the United States of America (USA)by an American architect, Phil Bernstein. He later wenton to become the vice president of Autodesk, one ofthe companies who were at the vanguard of BIMsoftware development and implementation.

For many people within the construction industry, BIMsimply means 3D modeling. 3D modeling is not new,having been used by industries such as oil & gas for clash detection and MEP coordination for many years.BIM is much more than this; it is not an event, it is notsoftware and it is not a language. Put simply, BIM is thecollaboration and sharing of standardized informationacross the full lifecycle of a project. Yes it does utilize a 3D model but the 4th and 5th dimensions are derived by linking cost and schedule information.

Why is BIM important to me? In the post global financial crisis era, we are all undersignificant pressure to increase efficiency and reducecosts. For the construction industry, BIM offers thepotential to put two huge ticks in these boxes. Thispoint has not been lost on governments across theworld and it is perhaps no surprise that the US was oneof the first countries to embrace and implement BIM.

Some significant headlines include:a) The State of Ohio in the US has made the use of BIMmandatory on all projects with a value greater than $4 million or with an M&E content of greater than40% of the construction cost.

b) The chief Construction Adviser to the UnitedKingdom (UK) Government announced that BIM willbecome mandatory on all publicly procured projects.

c) In Singapore, statutory building approval applicationscan now be made on the basis of a BIM model.

The future is five dimensional

In the post global financial crisis era weare all under significant pressure toincrease efficiency and reduce costs

Zane Hedge


The UK BIM Task Group web site(www.bimtaskgroup.org) states that “…the UKGovernment has embarked with industry on a four yearprogramme for sector modernization with the keyobjective of reducing capital cost and the carbon burdenfrom the construction and operation of the builtenvironment by 20%. Central to these ambitions is theadoption of information rich BIM technologies,processes, and collaboration that will unlock new andmore efficient ways of working at all stages of theproject lifecycle…”.

It is therefore clear that countries such as the UK are fully committed to realizing the value which canpotentially be created by BIM.

What are the benefits? This value of BIM will accrue at the various stages of theconstruction process. During the design stage, there isthe potential for reduced errors through bettercoordination, which should in turn reduce the numberof drawing revisions, shorten design duration, reducedesign costs and improve communication.

During the construction stage, BIM can potentiallyreduce shop drawing time, and minimize componentconflicts or clashes during erection through bettercoordination and visualization. These improvedefficiencies should in turn lead to reductions inconstruction schedule duration, reduced constructioncosts and improved communication.

During the facilities management operational stage, BIMcan potentially reduce the paper chase at project closeout, automatically interface and feed the buildingmanagement systems, improve maintenance work order

time, and optimize system control and energy planning,which can in turn result in reduced operational costs.What are the challenges?

The challenges fall into three main categories: practical,financial and legal. One of the primary practicalconsiderations is that the whole team’s collaboration isrequired. One can see that in many parts of the worldcollaboration and sharing of information may be moredifficult to implement than others. There are alsopractical considerations related to implementing therevised approaches to procurement that will be requiredin order to accommodate BIM, especially when marketsare not sophisticated or suppliers are limited.

Financial considerations relate to issues such as the frontend loading of design costs, the potential for additionallayers of professional fees, and the investment that maybe required with respect to hardware, software andtraining of staff.

The legal considerations relate to design responsibility,data security, information ownership, design control,change management and intellectual property rights.

It is therefore clear that countries suchas the UK are fully committed torealizing the value which canpotentially be created by BIM


The U.S., as ever, is ahead of the game with theAmerican Institute of Architects (AIA) having introducedBIM protocols in 2008. As recently as 2011, majorstandards form publishers such as the Joint ContractsTribunal (JCT), the New Engineering Contract (NEC) andFédération Internationale des Ingénieurs Conseils (FIDIC)included no provision for BIM use.

FIDIC is arguably still very much behind the times whenit comes to collaboration. NEC still seems reluctant todraft any specific amendments to accommodate BIM. Thankfully the JCT 2011 public sector supplement doesmake reference to any agreed BIM protocol; perhapsnot unsurprisingly given the fact that it is widely used byUK local government departments.

What can I do?The challenges associated with BIM should not beunderestimated. By way of an example, the UK hasadopted a strategy of implementation based on BIMmaturity level. Maturity level 1 is now, and the target is

to reach maturity level 2 by 2016, i.e. some three yearsfrom now. It can therefore be seen that even in acountry where collaborative forms of procurement arenow commonplace, and the market itself is arguablyquite sophisticated, the government recognizes that itwill still take a considerable amount of time before theconstruction industry is ready to fully embrace BIM.

For BIM to be successful, it requires absolute consistencyof data. Therefore, one particular area that requiressignificant effort is the upgrading and standardization ofinformation such as specifications and equipment dataso that libraries of information, or industry classificationsystems, are consistent from project to project andbusiness to business. If one considers that one of themost commonly used existing classification systems hasbeen around since 1976, then the full magnitude of thistask can be appreciated.

What does this mean for the GCC region?BIM is already in use on some contracts within the UAE.This is without government intervention or indeed anyform of mandatory compliance. This must tell us thatsomeone can see the value that BIM will potentiallybring.

Believe it or not, there is a major international contractorwho is the first in the region to have its own in-houseteam of ex-pat BIM professionals. Contractors work onvery tight margins, so clearly a solid business case issitting behind this decision.

The government recognizes that it willstill take a considerable amount of timebefore the construction industry isready to fully embrace BIM


You may also be surprised to hear that you will soon beable to share information and knowledge, ask aquestion, find our more information, network or justsimply chat with other BIM users on the region’s firstdedicated BIM web site (www.thebimhub.com).Although this may sound slightly geeky to many, clearlysomeone can see that there will be demand for thissocial medium.

Perhaps in hindsight, none of this is a surprise. Some ofthe best international contractors operate within theregion bringing with them professionalism, innovation,commercial acumen and passion. With so many highprofile projects and opportunities around the corner,now is as good a time as any to make the BIMinvestment given the huge savings that could potentiallybe realized.

The region has impressed the world with its ambitionand pace of development, so to hear that BIM is beingembraced is refreshing and thought provoking. If everthere was a region where it can succeed, my moneywould be on the GCC. I just hope that we do not seeanyone trying to set a BIM related world record!

Zane HedgeDirector Infrastructure & Capital ProjectsDeloitte Corporate Finance Limited

The region has impressed the world with its ambition and pace of development, so to hear that BIM is being embraced is refreshing and thoughtprovoking


Our contacts

Cynthia CorbyPartner | Middle Eastconstruction industry leaderTel +971 4 376 [email protected]

Jesdev SaggarManaging Director |Infrastructure & CapitalProjectsTel +971 4 506 [email protected]

Malcolm LandmanAssistant Director |Infrastructure & CapitalProjectsTel +971 4 506 [email protected]

Andrew JefferyDirector | Infrastructure & Capital ProjectsTel +971 2 408 [email protected]

Basel El MalkiDirector | KSA constructionaudit specialistTel +966 3 887 [email protected]

David StarkManaging Director |Infrastructure & CapitalProjectsTel +971 4 506 [email protected]

Hamed FarzadiAssistant Director | Infrastructure & CapitalProjectsTel +971 4 506 [email protected]

Thomas JohnManager | Infrastructure & Capital Projects Tel +971 4 506 [email protected]

Randa Al SayeghManager | Infrastructure & Capital ProjectsTel +971 4 506 [email protected]

Ghazanfar ShahManager | Infrastructure & Capital Projects Tel +971 4 506 [email protected]

Ketan BhoolaAssistant Director |Infrastructure & CapitalProjectsTel +971 4 506 [email protected]

Sheldon MorrisDirector | Infrastructure & Capital ProjectsTel +974 4 434 [email protected]

Zane HedgeDirector | Infrastructure & Capital ProjectsTel +971 4 [email protected]


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