COVER STORY CASHFLOW

To resolve this, Reddy says, the engineering side of the industry needs to play a neutral role in sorting out issues between clients and contractors and between contractors and subcontractors. Everyone involved must also be willing to work together and trust each other, he says. He also points out that the payment process is a struggle, with everyone taking their positions and delays occurring, and one of the ways out for the industry is to learn from past mistakes and resolve issues as quickly as possible.

construction projects are more realistic and made after extensive studies.”

Lack of trust, undercutting, complacency

Loggerenberg says the MEP industry needs to come together to address another set of issues, prime among them being undercutting. He believes that unlike legal or medical professions, there is always someone who will try to undercut the other in the MEP industry. He adds that the MEP industry no longer considers terms such as value, capability or proven track record, as clients now prioritise the lowest price, “We see the impact of this in several projects, which are now facing problems in terms of poor construction quality and design issues,” he says.

Joining the discussion, Khlat says that the issue is not new in the industry, and consultants are often put under pressure to lower their prices. This, in turn, he says, can limit their ability to innovate. “To produce ingenious solutions, there is a certain investment required, and now, due to the lack of sufficient funds, consultants tend to replicate what they have been doing for so long,” he says. Cost consultants, he says, need to be gauged for building performance rather than simply designing the building without any responsibility for its actual performance or expenditure. “Considerations, such as installation, maintenance, operation and the building’s lifecycle are all crucial factors that should be considered, and they far outweigh any small cost savings that might be achieved by lowering consultant fees by one per cent,” he says. Often times, he says, consultants are forced to rush their designs, and contractors are left with greater responsibility for redesigning, refining and providing alternatives, which can impact the building’s performance. “Consultants should be held accountable for the performance of the building, rather than leaving contractors to bear the burden of accountability,” he says.

Reddy also shares a similar perspective that the lack of trust among stakeholders in the MEP industry is hampering progress and causing issues, including consultants undercutting each other’s jobs. He says that the industry has not learnt from past lessons, and all stakeholders must take responsibility for the current mess. “There is too much focus on paper titles and throwing correspondence back and forth, which leads to delays and a lack of progress,” he says. And clients, engineers, consultants, contractors, vendors and sub-contractors are all involved in this chain effect.”

Reddy says the construction and MEP industries in the UAE still need to put on an improved showing when it comes to tackling issues related to Indoor Air Quality and energy management. By way of pointing some instances, Reddy says many buildings in Dubai’s JLT and Business Bay areas face issues relating to Indoor Air Quality and energy management that need to be resolved immediately. He notes that with the market going international, investors may lose confidence in the local industry, if things do not improve. “It is crucial to deliver quality work within the specified time and budget, or else confidence will be lost, and the industry’s reputation will suffer,” he says. He highlights that maintaining industry standards is crucial, especially with private investors entering the market. “The industry must exhibit competence and seriousness in upholding standards,” he says. “While government efforts have set minimum standards and procedures, they must also be effectively implemented.”

Improving MEP payment processes

So, what can be done to address cashflow and the numerous issues and sub-issues that concern MEP stakeholders? Do tools like AI and blockchain, and escrow accounts hold the key? Khlat says that even though various tools, such as AI and blockchain, can assist with payment processes in the MEP industry, the underlying problem lies with the lack of sufficient regulation and protection. He adds that as a provider of MEP equipment, FJ Group uses internal communication to determine good paymasters and set payment terms, accordingly. “However, this approach does not address the root of the issue,

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While tools like blockchain ledgers exist, Khlat says, they only solve the problem if there is a genuine desire and effort to implement a solution. He adds that developers must take the initiative to protect minor players, who are the most vulnerable to payment delays, and points out that one solution is to create a coalition among suppliers to rate contractors based on their payment performance. He also says that this approach can be challenging due to its legalities, “but informal communication and identification of good paymasters among industry players are still prevalent, highlighting the importance of honouring payment commitments in the industry”.

Khlat says the problem with payment processes in the MEP industry is not solely related to the lack of tools. It is a systemic issue that requires collaboration and cooperation from all stakeholders to ensure fair and timely payments, he adds.

In Berbari’s view, AI tools are slowly but surely making their way into the payments and blockchain industries. He says automated payment systems, powered by AI or blockchain, could streamline operations and improve efficiency. He notes that these could heavily benefit large-scale energy systems, like District Cooling schemes. However, there is a problem here, he says. Many of these systems are plagued by a fragmented approach, with several organisations trying to develop their own solutions, often without adequate support or instrumentation in place, and many buildings have faulty instrumentation, which can impede the functioning of AI. He adds that despite the potential benefits of AI, there is a lack of practical steps taken in this direction, with many organisations giving lip service rather than implementing changes. To elaborate, he points to the case of District Cooling utilities, which could save up to AED 200-300 million, annually, through AI applications. “Despite the potential for significant cost savings and improved profitability in the District Cooling industry through AI, there is a lack of interest in investing,” he says. “Moreover, the complacency of people and organisations in the industry needs to be dealt with, and a more proactive approach is required to promote environmental friendliness and reduced costs.”

Adding to the discussion, Reddy says that a handful of contractors are already using these tools. However, it is unlikely that everyone can afford this, nor do they have the energy to do it, he says. He points out that with meagre earnings, not all MEP contractors are in a position to update themselves or implement these tools, which are becoming increasingly important in the current world. “While some contractors have already adopted these systems, medium- to low-end contractors, who are a major support for the industry, may need help to keep up,” he says. “However, budgets can be tight, and not all companies can afford specialised workforces for such tools. It is crucial to make better use of specialised tools for the benefit of the client, project and system. Experience is essential but becomes meaningless, if expertise is not utilised effectively.”

Extending the discussion around improving the MEP payment process to escrow accounts, Khlat says that establishing an escrow account is one of the solutions that can be implemented to protect various suppliers. He adds that it has the added benefit of protecting the investors who have put money into a specific project by securing their investment. “It is good to consider this approach, and the responsibility of setting up and managing an escrow account lies with the developer,” he says. The developer, he says, must ensure that the payment process is transparent and that all the stakeholders are paid on time. “A proactive approach from the developer in providing payment will also improve the developer’s reputation and ensure better service quality, once the project is handed over,” Khlat says. “At the same time, it is important to understand that there are instances where a building has been taken over by a developer, who still owes 15-20% of the total value to the contractors, who are yet to be paid due to various reasons. It is necessary to have a fair mindset towards all stakeholders.”

Berbari says using escrow to resolve payment disputes is not the most efficient solution. Instead, he says, it would be more beneficial to have a fast-track legal system that can quickly and effectively deal with payment disputes to complete projects on time and with minimal delay. “Developers must also understand the urgency of paying on time, as delayed payments can result in significant losses, and they should be willing to pay proper engineering fees to consultants, as low fees can be detrimental to the quality of the project,” he says.

Berbari underlines how the government can facilitate this cultural change, by creating more balanced contracts and by establishing standard fees for consultants and contractors. Moreover, he believes that it will help ensure that everyone involved in a project is fairly compensated for their work, and that there is no undue bias towards one party. “Ultimately, the culture of cooperation and collaboration will result in faster project delivery, better return on investment and more efficient use of capital, so that the expertise gained in building these projects can be exported and utilised worldwide,” he says.

Reddy agrees that clients, engineers, contractors and sub-contractors should work collaboratively to make the payment process efficient, instead of solely relying on the client or the main contractor to ensure timely payment. He adds that sub-contractors must also take responsibility to speed up the process effectively, and it is essential to ensure that the project fund is utilised appropriately, as the client invests in a project for future returns. “If the project is not delivered on time or payment is delayed, it can cause significant