A need for stability

A Panel Discussion, featuring specialised District Cooling contractors, addresses complex contract conditions and the significant gap in the closeout phase of projects, among other long-standing issues. Excerpts…

Moderator:

George Berbari, CEO, DC PRO Engineering

Panellists:

Sekhar Reddy, Managing Director, Lexzander

Prakasha Rudrappa, Vice President of Engineering, AG Engineering

A R Suresh Kumar, General Manager - Projects & Corporate Business Development, Voltas

(A R Suresh Kumar was unable to attend owing to unavoidable circumstance and so sent a video presentation, which set the stage for the discussion. In his presentation, Kumar outlined the challenges the District Cooling industry faces. He highlighted the struggle of the industry in attracting and retaining highquality MEP contractors, vendors and consultants in the region. His presentation provided an overview of the industry’s challenges, including time constraints, deadlines, negotiation processes, supply chain management, regulatory compliance and adapting to changing specifications.)

Following the presentation, Berbari shared an overview of the current state of the contracts, particularly in the context of MEP projects. He also shared an observation that contracts are biased towards developers and unfair to contractors. Furthermore, he added that there is a lack of a standardised and fair form of contract that addresses the needs of both parties. “The contracting industry needs to develop a more equitable standard form of contract that considers the requirements of developers and contractors,” Berbari said. “Moreover, the negotiation process for contracts is often lengthy and time-consuming, leading to delays in starting the projects. Additionally, there is a concern about slippage and approval processes, such as in the case of District Cooling projects.”

Commenting on Berbari’s statement regarding the need for a more balanced and efficient approach to contracts in the industry, where the interests of developers and contractors are considered and addressed, Reddy pointed out the difficulties faced by contractors and emphasised the importance of effective collaboration and communication within project teams. He also mentioned the success of District Cooling plants in the market since 2004 but expressed concerns about the downside, including learning curves and overall project delivery. He said, “A project management approach, where all stakeholders, including the project manager, architect, contractor and key vendors, collaborate and align their efforts, is crucial for a project’s success.” Reddy also shared a positive experience with a project that exceeded expectations due to thorough planning and coordination. However, he acknowledged that such flexibility may not be available for all projects and reiterated the need for a project management approach.

Weighing in, Rudrappa discussed the length of the contract period, which currently averages around 13-14 months, and underlined the significance of extending it up to 18 months. He also shared a similar perspective on the issues surrounding contracts and pointed out the complexities involved.

Rudrappa expressed a preference for a conditional contract or changes in the existing contract structure. Furthermore, he elaborated on the challenges and liabilities associated with delays and noted the lack of contract grading or evaluation to ensure fairness. He highlighted that if the current scenario is not addressed and resolved, only a few contractors will remain in the industry. Berbari jumped in at this juncture to say that he agreed with Rudrappa. He noted that competition is diminishing in the market , particularly in Saudi Arabia, where a District Cooling provider had difficulty finding enough consultants and contractors. “This suggests that the number of players in the industry has reached a critically low level,” he said.

Taking the cue from Rudrappa, Reddy pointed out the importance of risk assessment, hiring accountability metrics, and credit ratings for parties involved in specialised projects. He also highlighted the need to reduce complex and damaging contract conditions, promote trust and transparency, and engage in collaborative discussions among the contractor, project manager and client’s representative. Reddy further pointed out a significant gap in the closeout phase of projects, where the delivered product often falls short of expected standards.

Rudrappa said that contractors also face challenges in reading and understanding extensive specifications within a limited timeframe of 3-4 weeks. He suggested that the ideal timeframe for reviewing specifications should be expanded to a minimum of six weeks to ensure thorough coverage and compliance with project requirements. Adequate time is required to properly review and address the specifications in order to meet the project’s needs, he said. The Panel Discussion concluded with the following messages:

• Proactive measures are necessary to address the challenges faced by MEP contractors in the contracting industry, and to foster a healthier and more efficient environment.

• The issues identified, such as lack of time for design and coordination, lengthy contract negotiation processes, limited availability of skilled contractors, dependence on specialised supply chains and complex contract terms are obstacles to the success of a project.

• To overcome these challenges, the industry should consider several measures, including developing a fair and standardised form of contract, extending contract durations, implementing fair price escalation clauses, clarifying provisions for performance-based bidding and delay liabilities, promoting project partnership and transparency, and streamlining specifications and submission processes over 14 billion euros of investment and made remarkable advancements in solar power generation. Grinnell also discussed Dubai’s progress in the District Cooling sector over the past five years, emphasising that District Cooling accounted for 24% of the market share in 2022. He said the RSB’s District Cooling regulations aim to enhance the efficiency of District Cooling systems, reduce energy consumption and encourage the utilisation of sustainable power sources, such as solar energy. “The goal is to achieve sustainable and environmentally responsible cooling in Dubai, with a service-centered sector that provides value for money to customers and attractive investment opportunities,” he added.

• It is important for all stakeholders to work together towards common goals to drive growth, innovation and sustainability in the MEP contracting industry.

Grinnell also discussed the various regulatory documents issued in recent times, which cover different aspects of the cooling sector. He noted that these regulations have provided clarity for customers and improved investor confidence. However, he acknowledged that there have been challenges, such as complaints regarding late payment charges.

While the regulations have demonstrated positive outcomes, including significant improvements in the energy performance of the sector, Grinnell highlighted that they have also identified areas that require further improvement and potential modifications to the regulations. He added that excess capacity in Dubai’s cooling infrastructure would be addressed, and penalties and fines would be implemented to ensure market integrity. “The goal is to maintain a growing and efficient cooling market that offers environmentally responsible cooling options for customers,” he said.

For his part, Dominic McPolin,

Advisor, Office of The Minister, Bahrain Ministry of Works, provided an overview of the District Cooling sector in Bahrain, highlighting the recent changes and developments in the sustainability and energy sector. He mentioned that the government of Bahrain has taken several initiatives in this regard. McPolin said: “The government has established the Ministry of Sustainability, which oversees and promotes sustainable practices across all industries. The Sustainable Energy Authority has been disbanded and integrated into the Electricity and Water Authority, specifically within the Minister’s office. Furthermore, a new Directorate of District Cooling has been created, and there has been a rebranding of the oil & gas industry, focusing on renewable energy and other related areas.”

Expanding on the changes and developments in Bahrain, McPolin highlighted the efforts of the Ministry of Oil and Environment to reconcile the realities of the oil-based economy with the need to address environmental concerns and to transition towards a post-oil economy. He said, “The government recognises the significance of District Cooling and its integration into the national energy strategy.”

McPolin further explained the different approaches to implementing District Cooling in Bahrain. “One is a top-down approach involving government regulations and financial interventions to promote and support District Cooling projects,” he said. “A bottom-up approach focuses on engaging businesses and consumers to encourage their participation and adoption of District Cooling systems.”

McPolin also provided insights into