Changes in project finance in Saudi Arabia cause a shift in attitude towards spending and a new type of client emerges
The landscape of the construction market in Saudi Arabia is changing rapidly and contractors need to be fitter, more agile and more resilient to adapt to new market conditions, said Nasser al-Shawaf, director and board member of administration of Al-Bawani Holding Company, based in Riyadh.
Al-Shawaf explains that the changes in the market were sparked by the announcement of the kingdom’s ambitious Vision 2030, which led to an overhaul of financing strategies to finance both infrastructure development and a generation of megaprojects. and gigaprojects, such as the future $ 500 billion city of Neom. , the Red Sea Project, the Amaala and Qiddiya Entertainment City Project.
âTo realize this vision, many changes had to be made, especially to reduce dependence on oil revenues and government spending,â says Al-Shawaf. “So to transform the economy, the government had to push for different sources of revenue.”
The diversification program makes greater use of private sector financing through privatizations and public-private partnerships. But the change in project funding has resulted in a huge shift in attitude towards spending, and a new kind of client is emerging.
âSo in reality the market has gone from a very traditional and relatively simple form of contracts and spending to very sophisticated and very demanding clients,â says Al-Shawaf.
âThere are very strict conditions and you have to be a lot more aware of what you are getting into,â he says. âYou need a lot more business expertise in-house. Risk management now occupies a central place. ”
To meet the demands of this new generation of customers, there is an increasing pressure on stakeholders to deliver projects more efficiently, so it is essential for industry players to address the root causes of cost overruns and of deadlines.
HKA’s integrated research program, CRUX – which examines the causes of disputes and claims on construction and engineering projects – found that of the 78 Saudi projects studied, an average of 86.3% of overtime was was claimed over the original contract term, and the average reported cost was $ 88.4 million.
Haroon Niazi, Partner and Middle East Manager at International Dispute Prevention and Resolution Company HKA, says the most common causes of disputes and complaints are changes made to the scope of the project by the client or the contractor, late publication of design information, site access, late approvals and contract interpretation issues.
Obviously, if these problems can be solved, huge savings can be made.
Catherine Joshi, Technical Director of HKA, says that to see improved efficiency it is essential to introduce robust project protocols at an early stage.
âIt starts at the very beginning of the design phase,â explains Joshi, âwith a clearly defined scope of work for designers and contractors.â
She says protocols should include methods of communication as well as handling of design information.
âEven though in large projects there will be changes, if the scope is clearly defined from the start, you have a point of reference to come back to,â says Joshi.
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