Bidding Difficulties Appear for Gulf Cooperation Council Countries as Project Capital Expenditure Ceiling Looms

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Researched by Industrial Info Resources (Sugar Land, Texas)--As Gulf Cooperation Council (GCC) countries look to maintain the increasing pace of oil production to support the drive for infrastructure development, Dubai-based consulting firm Contax sees several hitches in the project bidding process in the region.

In Saudi Arabia's construction industry, contractor award dates for projects have been pushed back at a time when the industry was peaking. There has been a sudden increase in overall costs, and the lack of timely availability in long lead items combined with labor availability and costs have made bidding difficult. In this environment, clients have been forced to call for rebids and even major projects have raised tepid interest from three or less contractors, Contax reports in the latest issue of The Flare newsletter.

Countries in the region have a range of motivations for calling for rebids. In Kuwait, decrees require interest from two or more contractors for government projects and a draft law will require projects to be approved by the national assembly.

Bids only from local companies or the participation of local companies is another element affecting contracting, along with the fact that clients' financial terms are often hard to meet. The United Arab Emirates rebids as bids come in over budget, and Qatar, with Saudi Arabia, has problems reaching lump sum prices with contractors. In these conditions, the GCC continues to push ahead with growth plans, looking to local contractors who in turn combine with other local contractors for bids.

On analyzing project postponements and cancellations, the Contax research team has hypothesized that the GCC could be nearing a capital expenditure and workload ceiling, reporting that more than 60% of planned energy-related and infrastructure projects were postponed from 2007 to 2008 and 2009. An analysis conducted in the fourth quarter of 2007 showed planned project capital spending for 2008 increasing by more than 170% year over year. In fact, the 2008 capital expenditure level has decreased 25%. In the past six months, the GCC's workload has been projected to peak in the fourth quarter of 2009, and projected activity at the peak has increased dramatically. But the Contax team says that with the lower levels of project workload and contractor capacity constraints, it is unlikely that the market will cope with the 100% increase in project workload.

Contax expects a slowdown in new project announcements and an increase in postponements between 2008 and 2010 and believes that the key for companies to emerge as future market leaders is the qualification, targeting and capture of the right opportunities during this period. For related news, see June 16, 2008, article - Middle East Projects Fight Against Inflation, Supply Chain Construction and Schedule Creep.

Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.