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Deloitte GCC Powers of Construction 2020 10Th Edition | Deloitte GCC Powers of Construction 2020

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Deloitte GCC Powers of Construction 2020 10Th Edition | Deloitte GCC Powers of Construction 2020 10th Edition A new normal for a new decade Deloitte GCC Powers of Construction 2020 10th Edition | Deloitte GCC Powers of Construction 2020 We have become accustomed to living in a time of constant change, with the Fourth Industrial Revolution having completely transformed the way business is being done across countries. Yet no one could have predicted the impact that the coronavirus (COVID-19) could have had in such a short amount of time. In a matter of a few short months, entire countries have been on full or partial lockdowns, closed off borders, stopped all non-essential businesses, entire industries have been severely impacted, including air travel, tourism, trade, and food and beverage with some stating that recovery would take years to reach pre-coronavirus times. Yet as many businesses deal with the “respond” phase of the COVID-19 crisis, others have reached the “recover” phase, and some are even looking to enter the “thrive” phase. It will be interesting to see the impact of COVID-19 in the next few weeks, months and years on these sectors. This thought leadership publication has been written to reflect the situation at the time of publishing, with the caveat that times are fast-changing and unprecedented, which could render the information provided in this report inaccurate or no longer applicable. 02 10th Edition | Deloitte GCC Powers of Construction 2020 Foreword We are pleased to present our 10th annual establish mechanisms and procedures contracts, with the goal of attaining edition of the Deloitte GCC Powers of to prioritise cash disbursements and standardized Construction contracts that Construction publication, and what changes understand the contractual implications. fairly balance the risk and reward between we have witnessed in these 10 years. Our the employer and the contractor, and, as a publication aims to analyze current trends As the regional Construction industry moves result, reduce the extent of cost overruns and provides insights into the marketplace. into the Recover phase, it is essential to adopt which benefits the developers and the This edition draws on data and opinions a strategic view. Here, the focus should be contractors and eliminates unnecessary from external sources, as well as leveraging on the effective execution of projects and overspend which is otherwise called waste. Deloitte Middle East expertise. payments to contractors being made in a timely manner to ensure the much-needed Going forward, the importance of tech to the Like all sectors across the world, liquidity to complete the projects under sector has never been greater. Not only does Construction has not been immune to the execution. An equal focus should be placed tech – such as drones, robotic Construction impact of the global COVID-19 pandemic. on resolving any long-overdue unapproved processes and AI - deliver advantages in Already, pre-COVID-19, the Construction claims and variations, which continue to terms of driving cost optimization, but it can industry in the region was facing several disrupt cash flow and project progress which also help to minimize other risks associated challenges including low margins, increased ultimately impacts the overall cost of the with any second wave of COVID-19 or future competition, significant delays in projects asset being built. pandemics. as well as a significant volume of change orders and lower awards in projects despite Amid the pandemic, future projections have Longer term, in addition to working towards significant plans in the GCC to invest in been revised, with recent industry forecasts building long-term enhancements to cash infrastructure and capital projects, all leading indicating that approximately US$83 billion flow management and contractual terms and to significant pressure on liquidity. With the worth of contracts could potentially be conditions, Construction companies should additional challenges posed by COVID-19, awarded this year across the region, a be seeking to establish a better foundation contractors’ liquidity circumstances have reduction from the original project award for the future through creating a new level been exacerbated as most organizations forecast of US$127bn. However, if the current of engagement and collaboration with turned to cash preservation measures, which rate of project awards were to continue to employers for the overall benefit of the wider resulted in further delays of payments to the end of the year, then estimates indicate economy. contractors and their supply chain. that approximately US$61 billion worth of contracts could be signed, representing a fall We hope that this 2020 edition of the Deloitte The Construction industry’s response to of 52% on the original forecast project award GCC Powers of Construction provides you COVID-19 went through the three distinct prediction1. Such a scenario would continue with in depth insights on how the industry phases of Respond, Recover and Thrive. to add pressure across the industry, with can come together in this ‘new normal’ to In the early Respond phase, the industry’s further potential repercussions felt across create a future in which everyone thrives and natural focus turned to ways to effectively the supply chain. waste is eliminated and capital projects are and safely execute projects at the pace built at a cost that is both reasonable and and scale required to minimize social and As stakeholders grapple with the ‘new economically viable. economic damage and to contain costs while normal’ that COVID-19 has presented, they focusing on cash preservation. This called for also face an opportunity to rethink the Cynthia Corby – Partner and Regional an emphasis on cash flow visibility by project way they used to work and discover new Construction Industry Leader, Deloitte and at an organisational level and scenario opportunities to change the status quo Middle East planning, quantifying the impact of COVID-19 collectively. This should be addressed in on project costs and cash flows, and applying the Thrive phase. High on the agenda will short-term measures to reduce costs and be creating enhancements to Construction 1. MEED (Middle East business intelligence) Coronavirus Executive Brief (17 June 2020) 03 10th Edition | Deloitte GCC Powers of Construction 2020 Contents 06 10 13 17 The GCC Projects Middle East Real Estate Construction industry Financing contractors market outlook performance survey: the Chief through crisis and beyond Executives’ view in the pre & post COVID-19 business environment 19 22 25 28 Renegotiating Unlocking Shaping the future Digital Capital Projects: Construction Contracts Project liquidity reducing the risk of for COVID-19 cost overruns by taking back control of data and transforming project reporting 31 33 37 40 Waste is suffocating the Reducing the cost of capital How to be clever about Constructing the future Construction industry projects smart design of Saudi Arabia 04 10th Edition | Deloitte GCC Powers of Construction 2020 43 46 49 52 China’s Belt and Road Adaptability: the key The next steps for VAT and the Construction Initiative and the to truly sustainable, the Kingdom of Industry: Deconstructing Middle East: aspiring future-proof cities Saudi Arabia and the key VAT issues towards a win-win impact of the Public partnership Investment Fund 05 10th Edition | Deloitte GCC Powers of Construction 2020 The GCC projects market outlook 06 10th Edition | Deloitte GCC Powers of Construction 2020 The GCC Construction industry has Total MENA Contract Awards, April 2015-20 ($m) weathered a number of storms through the years. The events and aftermath of 9/11, the 18,000 real estate crash of 2008/09, and the halving 16,000 of oil prices in 2014 all had a dramatic 14,000 impact on the market and its fundamental 12,000 dynamics. 10,000 8,000 Yet, arguably nothing has come close to the 6,000 recent double whammy of the COVID-19 4,000 pandemic and collapsing oil prices. 2,000 Combined, the two sudden events threaten 0 to completely alter the market’s outlook and create a whole set of new challenges for 2015 2016 2017 2018 2019 2020 project companies to overcome. Source: MEED Proects The latest data speaks for itself. In April, the first full month of the coronavirus impact, just $4.1bn worth of contracts were awarded in the GCC, close to 40% Known GCC projects delayed, suspended or cancelled due to COVID-19 lower than the $6.2bn worth of contracts in the same month last year, according to 350 45,000 the MEED Projects tracking service (www. 300 40,000 meedprojects.com). The wider MENA region 250 35,000 as a whole, recorded a slightly steeper 25,000 200 decline of 42% year-on-year as clients held 20,000 150 off on awarding new deals in the face of 15,000 such uncertainty. 100 10,000 50 5,000 Similarly, there has been a sharp rise in 0 0 projects either under execution or planned that are being put on hold or even cancelled Bahrain Kuwait Oman Qatar Saudi Arabia UAE as a result of deteriorating conditions. More Number of proects impacted Value of proects impacted ($m) than 550 projects, worth over $60bn, are Source: MEED Proects known to have been suspended or delayed since 1 March in the GCC alone as clients take stock of the situation. These figures include close to 15% of all Known GCC projects delayed, suspended or cancelled due to COVID-19 by sector active water projects, totaling $9bn, and more than 11% of all transport projects, 250 30,000 5.0 worth more than $23bn. Conversely, some 11.7 25,000 200 sectors appear more immune to short-term delays and postponements; only 2.5% of oil 20,000 150 7.4 schemes have been impacted, for instance. 15,000 100 14.4 Saudi Arabia has been the worst hit GCC 10,000 2.5 50 4.5 4.5 state with just under 300 projects put on 3.8 5,000 hold, followed by the UAE with 115 pending 0 0 projects.
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