The lack of funds has left many firms working in the UAE out of pocket, but cash starting to flow again may cause its own problems...
The continuing saga of payment in the Dubai construction industry was recently brought back to the forefront with the shattering article - “My Dubai hell: David Marks breaks the silence on payment problems” - published in Building on 28 August.
The story of long outstanding debts that crippled the Marks Barfield business is not restricted to Dubai. The particular difficulties Marks and many others in the same boat face most certainly are.
The crunch on demand in the industry and credit crisis left many developers with no option but to terminate contracts. That left them stranded with partially completed projects and short of cash. With that backdrop, developers either didn't have the will or means to pay their consultants and contractors.
However, some at the top of the supply chain are now beginning to get paid, albeit after long and drawn out negotiations with developers and then accepting a significantly reduced settlement.
Far from setting sail into the sunset, this often triggers another series of disputes and arguments, with the supply chain below all scrambling for their payments.
Those vendors who operate at the beginning of the development process and provide specialist expertise and services to get projects up and running are those with most to lose when fewer new developments are coming on stream.
What next?The consultants and contractors first in line will be thrilled to have finally received settlement and much needed cash. Hopefully, they've even managed to retain those valuable relationships with the developers. Now they are faced with clearing their debts and paying down their supply chains.
Of course, the supply chains are relieved. A final settlement has been reached between the developer and the contractor and consultant. Having completed their services some time ago they're finally looking forward to payment in full under their pay-when-paid contracts.
Not so quickHowever, the contractors and consultants will inevitably be looking to pass that reduced settlement down the line. A reduced settlement is only likely to be successful in the following scenarios:
- The terms of the contract dictate that a reduced settlement shall be payable or
- If there is no contract provision, then the supply chain should have been made aware of the negotiations, been involved and ultimately agreed to accept a reduced settlement.
So what happens if there's no contract provision and no agreement to a reduced settlement? In reality, the prime contractors and consultants will consider many issues such as:
- How likely are they to use certain members of the supply chain again, whether in the short or long term?
- If they pay a reduced amount, how likely is the vendor to pursue for the outstanding sum?
- Is it time and cost effective for the vendor to pursue the outstanding sum under the dispute provisions in their contracts? This will depend on the routes available and also law governing the contracts.
EthicsIrrespective of where you stand in the supply chain, resolving commercial issues at the conclusion of terminated contracts requires consideration of many peripheral issues outside of the contract itself.
Patience, strategy and ultimately an ethical approach should be the cornerstones in decision making. Trust is the key to long and successful business relationships.
Stephen Fidler is a chartered surveyor in Dubai and an independent consultant at Exacta Consulting