OP-ED

THE RISING THREAT OF INFLATION

Julian Haslam-Jones, General Manager at Driver Trett, a Global Construction Consultancy company, gives us the run down on the rising threat of inflation and the effects on the construction industry

Julian Haslam-Jones, General Manager, Driver Trett

It has been well documented in the past months that the extraordinary stimulus measures to assist the global economy in recovering from the pandemic are fuelling price rises in many economies. Inflation refers to a rise in the average level of prices sustained over time, which also corresponds to a fall in the internal (domestic) purchasing power of money. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy.

The historic trend in advanced economies is that inflation has been declining as shown in the below graph. CURRENT GLOBAL MARKET As the Financial Times has recently reported the December meeting of the Federal Reserve’s most important economic committee was routine. Policymakers agreed that the economy could cope with rising levels of spending “without any strong general upward pressure on prices”. Although prices of a few raw materials were rising sharply, “finished goods have not been subject to pervasive upward cost pressures”. Generalised inflation, the committee concluded, was not a serious concern.

However, it is over-stimulation of the world economies which is changing this view. Karen Ward, chief European market strategist at JPMorgan Asset Management stated recently “We’ve always assumed that the structural supply side enhancements such as technology and globalisation are so great that we could never overwhelm them with demand, but it still must be the case that you can overwhelm supply with demand and ultimately generate inflation”.

Alongside a recovery of energy prices to pre-Covid levels, there has been a shortage of products such as wood

The 30 year demise of inflation across advanced economies

Annual % change in conusmer prices

Inflation in OECD economies Decade averages

14

12

10

8

6

4

2

products and many metals for example. These have been the adjoining causes of higher inflation, however financial markets worry that the real cause has been the pandemic-related fiscal and monetary stimulus which has led to a much faster economic recovery than was thought possible at the end of 2020.

How is this affecting the Construction Industry? It has been reported that prices of construction materials from steel and wood to concrete and copper have begun to rise sharply in recent weeks as the economic rebound both in Europe and elsewhere — including the US and China — triggers a building boom.

According to the FIEC, bitumen prices have risen 15 percent in only three months, cement prices were up 10 percent in a single month and wood prices were up over 20 percent.

This is one of the reasons why the FIEC wrote to the European Commission stating, “This phenomenon is jeopardising the construction sector’s contribution to economic recovery and is threatening the potential impact of European recovery programmes.”

Is the risk of inflation present in the UAE Construction Market? Having spent a very busy week meeting leading developers, operators and contractors in the UAE market, based on the feedback from conversations on this topic the answer is a resounding “yes”. The measures implemented to prevent COVID-19 have resulted in the supply of materials into the country being more complex and taking longer. Further, mobilizing labour especially from outside the country is more challenging due to people not wanting to travel and the length of time it takes to mobilise people into a position where they are able to start work. This has resulted in an increase in costs of the materials and labour, which is impacting the value of constructing many projects.

How does the Contract deal with inflation? In many construction projects in this region, due to the lump sum nature of the contract price, the risk of any increase in the price of materials or labour is generally taken by the Contractor.

Give the current warning signs detailed above, that inflation is coming, the parties in construction contracts may have to revisit the management of this risk and consider who is best placed to manage this risk.

One solution could be a fluctuation provision. Such clauses in construction contracts allow the contract sum to be adjusted to take account of changes to the price of labour, materials and other costs on the construction project.

Calculating the increased cost may be achieved by using an index based formula, or by using a published list of market prices for various items. There are fluctuation provisions in standard forms such as JCT, NEC and FIDIC.

It is vital to consider when drafting a fluctuations clause whether and how the fluctuations provisions shall apply in the event that there is a delay in completing the works. By way of example, the contractor should not ordinarily be entitled to benefit from its breach and be paid more as a result of any fluctuations provisions where it is in delay but the parties should consider whether inflationary costs are factored into the amount of liquidated damages which the employer would be entitled to in the event of delay to completion.

Using FIDIC as an example, the Red, Yellow and Pink Books allow the cost under the contract to be adjusted for any rise or fall in the cost of labour, goods and other inputs into the works. However, for this clause to apply, the parties need to complete the table of adjustment data/schedules of cost indexation in the contract. If this is not completed then fluctuations are deemed not to apply.

FIDIC deals with the issue of fluctuations when the contractor is in delay by providing that any adjustments to prices after the date for completion are made using either: 1. The indices or prices applicable 49 days before the date for completion; or 2. The current index or price.

In any of the FIDIC contracts, where currencies need to be converted from a foreign currency to the local currency relevant to the contract, the parties need to bear in mind that there will be some element of price risk. The parties can state the exchange rate in the appendix to tender/contract data and then that rate is applied to the costs under the contract. If in practice the exchange rate then moves up or down, one party will gain and one will lose out depending on which way it moves (if the parties do not include the exchange rates at the outset, then the rate current at the base date determined by the central bank of the relevant country is deemed to apply to the contract). The parties could make changes to the standard terms to apportion or allocate this fluctuation risk if required.

EJADAH

FM COMPANY OF THE YEAR

“Ejadah bagged the most coveted FM Company of the Year Award from CBNME’s highly prestigious event— Innovation in Facilities Management Awards. In this challenging year, we all have been impelled to up our game. We have seen this year as an opportunity for growth and advancement in the FM industry. To be rewarded with the most coveted FM Company of the Year Award as a recognition of our hard work and dedication is such an honour. It is a corroboration that Ejadah is living up to its name!”

– Tarek Nizameddin

ADEEB GROUP

FM CONSULTANT OF THE YEAR

“It was a pleasant moment for Adeeb Group to receive the Award of FM Consultant of the Year as we deserve the title to own since we have had a presence in the market for nearly 30 years and have expertise in solutions for all the FM technical requirements. Our Senior FM Team keep delivering the consultancies to all our clients as our continuous process apart from service deliveries and have achieved high-level cost efficiency and have improved the life cycle existence of the buildings. The award is indeed an honour for our performance and dedicated efforts that we have given to our community’s sustainable

development.” – Eng. Ansari, CEO, Adeeb Group

EMRILL

HSE INTIATIVE OF THE YEAR

“Safety is at the core of everything Emrill does, and ‘Safer Together with Emrill’ enabled us to bring every Emrill employee together with the common shared goal of ensuring everything we do is with the safety of our people, our clients and the UAE’s residents and visitors in mind. We understand knowledge is critical to Emrill being able to deliver world-class services safely, so we’re commited to giving every employee access to a credible source of information and the tools they need not just to work safely but also to apply that knowledge to their lives outside work. Under the umbrella of the ‘Safer Together with emrill’ initiative, we launched a Front Line Supervisor training module, Emrill’s Eployee Assistance Programme that gave employees access to mental health support from healthcare professionals, and ‘Happier Together with Emrill’ to further support employees’ emotional wellbeing. These combined efforts and initiatives enabled us to achieve over 18 million safe manhours during the pandemic.”

- Faisulla Sharif, IMS Manager

ENGIE SOLUTIONS MIDDLE EAST

TECHNOLOGY & INNOVATION IN FM

“We are honoured to be recognised for our technology-driven solutions and innovations. We at ENGIE Solutions are challenging the Middle East market by introducing unique solutions to optimise energy use, reduce client costs across their portfolio, and free up resources. This year, we’ve been recognised for our implementation of artificial intelligence and augmented reality (AR) to help our technicians monitor and control plant rooms entirely. This is a novel solution that is as much about speed and reliability as it is about saving costs for our clients. Furthermore, we are using AR to exponentially develop and assist our clients in maintaining the building’s life cycle in an advanced way. And last but not least, we have introduced advanced space management services using AR 3D modelling and communication Facilities Management Information Systems (FMIS).”

- Bart Holsters, General Manager – UAE

EFS FACILITIES SERVICES GROUP

EDUCATION INIITIATIVE OF THE YEAR

“As we continue to strive to create new and innovative methods of upskilling our workforce, this award encourages us to continue this journey as part of our People First approach. Our group vision to transform the FM industry is taking shape with every initiative that impacts the lives of those involved in the FM ecosystem. The SEED program was designed to empower all EFS ground Supervisors by selecting participants to take part in a four-month-long blended learning program. The blended learning path is divided into CLASSROOM LEARNING - 20% of the time with Lecture learning format on key topics on modules that require class intervention and face to face interaction with the instructor. 30% is represented by ONLINE LEARNING created as a Self-paced concept in the style of “anytime anywhere” learning modules, including case studies, videos and research papers. ON-THE-JOB LEARNING represents 50% of the SEED program and includes Simulation and Practical Demonstrations, Group Discussions, Team Building Activities, Live work. We are thrilled to see our SEED program recognized by the industry leaders, and we hope to continue to create new paths of industry standards.”

IMDAAD

SANITATION AND WASTE MANAGEMENT COMPANY OF THE YEAR

“Imdaad is proud to be recognized for our industry-leading capabilities, consistent growth, and commitment to delivering outstanding services through innovative and sustainable waste management solutions. By winning the ‘Sanitation and Waste Management Company of the Year’ award for the second year in a row, we have once again demonstrated our commercial strength and continued service excellence. This award also acknowledges our superior operational efficiency, innovative thinking, and ability to launch new services to fulfill the evolving needs of our clients. Imdaad’s sustained success is a tribute to our dedicated employees and customers, and a promise to continue serving our clients with high standards of quality and safety.”

- Jamal Abdulla Lootah, Group CEO, Imdaad.

TAREK NIZAMEDDIN, EJADAH

PERSONALITY OF THE YEAR

“I am very honoured to win this award and I would like to thank CBNME for this recognition. This award was won on behalf of the whole Ejadah family as all the achievements would not have been possible without the support of the whole team, and I dedicate this award to them. Thank you again for this very remarkable award. It is a call to do more and achieve more.” – Tarek Nizameddin

AG FACILITIES & CONTRACTING

SUSTAINABLE INITIATIVE OF THE YEAR

“We are honoured to win the Sustainable Initiative of the Year at the 2021 Innovation in Facilities Management Awards. Sustainability is at the core of our business’ agenda and the Ghaf Tree Project is an innovative, transformation project that will play a vital role in combating climate change in the country for generations to come. We are proud to be part of leaving such a significant legacy for the future. This win is a testament to our commitment towards ensuring a sustainable future for the communities in which we operate. As we move into a post-COVID-19 environment, climate change is at the top of the agenda for governments and policy makers across the globe – but the responsibility for action does not just sit solely at policy or government level, it is an essential obligation for both businesses and individuals alike. Only together, can we shape a better world for tomorrow.”

- Mohamed Adil Haneef, Chief Operating Officer

MOHAMAD ABOU LABAN, DEYAAR FM

CEO OF THE YEAR

“I want to extend my sincere gratitude to Innovation in the FM Awards and to the Jury for considering me worthy of this award. It is an even greater honour to be placed in such distinguished ranks as those of the past honourees, most of whom are industry leaders. This award particularly recognizes the work that my team and I have put in over the last year and resembles a token of all our efforts. I would like to thank the team at Deyaar FM and my family for their trust and belief in me. Our work is far from over, but what we have accomplished together has made a difference to our Partners and Clients.” As H.H. Sheikh Mohammed Bin Rashid rightly said, “The race for excellence has no finish line”. So, let us continue this journey with more dedication than ever.”

- Mohamad Abou Laban, CEO, Deyaar Facilities Management

STUART HARRISON, EMRILL

VISIONARY LEADER OF THE YEAR

“I’m honoured to be named Visionary Leader of the Year, but this award really goes to every Emrill employee whose hard work, dedication, willingness to adapt and capabilty to embrace new technologies has made this achievement possible. I’m proud of how the region’s facilities management sector has responded to the COVID-19 pandemic, and I’m especially proud of all of my colleagues. Every day, Emrill has been safely and effectively operating on the frontlines, providing the UAE’s residents and visitors with a safe environment that reduces the risks of cross-contamination and infection. While Emrill’s leadership team and I launched a robust business continuity and COVID-19 response plan at the outset of the pandemic, the excellent people I work with ensured the successful execution of this plan, which enabled us to continue offering worldclass services without interruption. Therefore, this award is really for every Emrill employee, and I would like to take this opportunity to thank them for doing such a fantastic job.”

- Stuart Harrison, CEO

ARKAN

SECURITY COMPANY OF THE YEAR

“ARKAN were delighted to be awarded the prestigious award of Security Company of the Year at the CBNME Innovation in Facilities Management Awards ceremony. To be recognised by our industry peers and professionals is an excellent achievement and we were very honoured and proud to receive such recognition. None of us could have imagined the impact that a global pandemic would have on our industry, staff and customers. Despite these challenges, we were able to adapt and evolve introducing innovative and new service lines, products, processes, and procedures for all our customers at the height of the pandemic. Our staff were the real heroes and we had to ensure that they remained safe and secure whilst deployed on the front line. We ensured they were provided with all the PPE required whilst on duty and also ensured that they were fully supported with medical assistance and support when required. We engaged early with both SEHA and DHA and were able to provide their COVID-19 vaccination as quickly as possible. This proved to be a great success!” To summarise, the last year tested our people, processes, leadership, and commitment. The ARKAN team rose to these challenges, and we are extremely proud the have been recognised and rewarded for our collective efforts. A fantastic achievement by all involved!”

THOMAS PENNY, BK GULF FM

YOUNG FM MANAGER OF THE YEAR

“I am truly proud to have won this award. I am grateful to BKG FM management for their on-going daily support and encouragement as well as the company’s approach on mentoring and promoting young FM professionals. I share this honour with the dedicated team members who supported BKG FM to attain its success, continued performance and customer satisfaction during the past year. Receiving this award has really motivated me and I am excited for my future in the FM industry and the opportunities that may present themselves.”

- Thomas Penny

THOMAS JOSEPH, EMRILL

FM MANAGER OF THE YEAR

“I’m delighted to receive this award. It’s such an honour to be recognised among the other great facilities managers in the region. The past twelve months have been unlike any year before, and the pandemic has brought a unique set of challenges and evolving market requirements. I am proud to work for a company that has not only offered frontline services to clients but has also prioritised the health, wellbeing and development of its people. It has taken a great deal of dedication, commitment and out-of-the-box thinking to consistently meet the expectations of Emrill’s clients, and I could not have achieved this award without the support of Emrill’s leadership team and my colleagues. I have been empowered to share my ideas for continuous improvement initiatives and, as a result, have launched several innovations across my contracts, which have benefitted Emrill and its clients. I’m excited to see what we can achieve together in the coming twelve months.”

- Thomas C Joseph, Senior Facilities Manager

SERVEU FM & EMIRATES POST GROUP

CLIENT - CONTRACTOR PARTNERSHIP AWARD

VERTECO

SUPPLIER OF THE YEAR

ENGIE SOLUTIONS MIDDLE EAST

ENGINEERING SERVICE OF THE YEAR

“Winning the ‘Engineering Service of the Year’ award reflects our commitment to providing impressive performance improvements and energy savings for our clients. Reducing our clients’ life-cycle costs has naturally grown into ENGIE Solutions’ DNA. We have engineered a state-of-the-art predictive AI platform which seamlessly integrates with our Augmented Reality (AR) and Digital Twin pilots to provide better insights and operational performance. ENGIE Solutions has been leading the carbon neutral transition by delivering bespoke engineering services to 200+ prestigious projects and will continue to challenge conventional frequency-based standards and building control systems using digitally driven solutions.”

- Bart Holsters, General Manager – UAE

SERVEU FACILITIES MANAGEMENT

CLEANING COMPANY OF THE YEAR

“A combination of key factors has contributed to us scoring major wins at Innovation in Facilities Management Awards 2021. Our achievements in the areas of service excellence, sustainability, customer satisfaction, and digitalization, to mention a few, have not only cemented our leadership, as evidenced by our over 900 active projects and at least 600 clients, but have also led to numerous honours. Our new awards are also the result of the commitment of our 6,000-strong workforce. To them, we dedicate these recognitions. Our latest feat will further inspire us to continuously provide FM solutions that are second to none.”

– Gary Reader, General Manager of ServeU

EMIRATES INTERNATIONAL FACILITY MANAGEMENT

FASTEST GROWING FM COMPANY OF THE YEAR

“Emirates International Facility Management LLC (EIFM) is a subsidiary of the Das Holding Group. Established in 1996 as one of the leading companies in UAE providing a comprehensive range of high-quality, cost-effective, and integrated facility management solutions to the UAE business community. Through using technology to the greatest extent possible in process and the diverse, well-trained team of technicians, and covering a wide variety of solution offerings, EIFM has developed a strong reputation in catering bespoke solutions tailored to improve the time and efficiency to meet client’s business needs. EIFM is ISO 9001:2015 Certified, and recently awarded the fastest growing FM company of the year through focusing on the 6 key success factors which are: leadership and strategic thinking, management team and operational skills, customer loyalty and new businesses, smart adoption of technologies, hiring growth, and commitment to employees’ training and Development.” - Altaf Hussain Bhat, the

General Manager of EIFM.

JAMAL ABDULLA LOOTAH, IMDAAD

INDUSTRY LEADER OF THE YEAR

“I am honored to be recognized as the ‘Industry Leader’ by the Innovation in FM Awards. It is gratifying that this recognition comes at a time when Imdaad continues to demonstrate industry-leading capabilities, sustained growth, and extraordinary resilience under challenging circumstances, thanks to our team’s commitment to keeping the momentum going, helping us maintain financial strength and easily adapt to new situations. I am grateful to our brilliant team and our clients for supporting me throughout my successful journey of humble contributions to the company and the industry. This recognition will serve as a huge source of encouragement in Imdaad’s journey ahead, as we prepare to embrace a future of endless opportunities and unmatched service excellence.”

- Jamal Abdulla Lootah, Group CEO, Imdaad.

EJADAH

EXCELLENCE IN CUSTOMER SERVICE

“We are very humbled and honoured to receive such great accolades at the Innovations in Facilities Management organized by CNBME. This award provides invaluable recognition to our team for their commitment and relentless support provided in this pandemic. It is a testament to all the efforts of the Customer Experience team and the consistent approach of creating excellent customer service for all the communities we serve. Being awarded in the segment of Excellence in Customer Service is a great motivation to continue cementing our position, as Ejadah is an organization that is defined by its core values - Trust and Safety for our valuable customers and its employees. Congratulations to all the winners and we look forward to next year’s event.”

- Tarek Nizameddin

FACILIO

SOFTWARE SOLUTIONS PROVIDER OF THE YEAR

“I would like to thank the Innovation in FM Awards 2021 jury and organizers, on behalf of the entire Facilio family, for their recognition of our contributions, with the Software Solutions Award. The industry is undergoing a dramatic transformation that will redefine the way-built spaces are utilized and managed in the future. At Facilio, we are committed to delivering the solutions that will empower a modern and better way to operate buildings, by harnessing the power of realtime data. The Middle East is making extraordinary progress and is setting the global benchmark when it comes to innovation in infrastructure, sustainability, and real estate operations. This dynamism is a constant inspiration for Facilio, to produce a world-class product, and refine our capabilities, to meet the needs of tomorrow’s world. My heartfelt thanks to all our customers, partners, and the dedicated and inspired team, here at Facilio. This award is a well-deserved recognition of their vision and drive to transition towards data-driven

operations.” – Prabhu Ramachandran, Founder & CEO, Facilio Inc