Construction Project Analysis Index
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1. INTRODUCTION: The project titled ‘The Agora Mall’ in Dubai is taken up for the construction project analysis. The project initiated in 2006 at the prime boom time taken up the ground works by early 2007 but ultimately got suspended in 2012 due to prolonged financial and other related issues which are covered in detail in the following sections. The present stage of the project is at basement level that too under partial completion and awaiting financial assistance from a leading bank in Dubai with whom the Employer has a financial tie up. The project been promoted by Ahmed Ramadhan Juma (ARJ) group having head office in Dubai, United Arab Emirates and according to the company website was found in 1964 headed by the Chairman and comprise of board members from the family and the core management team comprise of financial managers and engineers with the total work force around 1000 personnel covering the various trades operated by the organisation.
The above mentioned project falls under the real estate division of the organisation developing retail, commercial & residential properties in Dubai’s prime areas such as Silicon oasis, Dubai marina and Jumeriah where the topic project is located. The project was the brain child of the founder and the Chairman of the ARJ group in the year 2006 who passed away in 2010 during its construction period and was taken up by his two sons who were the then board of directors promoted as Chairman and Managing Director respectively. The presenter of this project analysis was an employee of the Local Consultant at the capacity of Quantity surveyor till 2009 and was still in touch with the ex-colleagues to know about the status of the projects which were handled as Quantity surveyor.
Not much of information can be gathered neither in the newsletter or construction magazine due to stringent government policy in publishing the economy of the country and can find only few of the well known mega projects been portrayed as delayed leaving the rest under general statistical coverage. Further in due respect to the concerned organisation’s policy in safeguarding their privacy matters, no back up documents related to stoppage can be provided leaving only few references cited about the project for information. 2. ECONOMIC BACKGROUND: Though the employer had many ongoing commercial and residential developments at the period, this was the first major commercial development in the retail sector which had already set as a rising trend in Dubai’s economic development. The location of the project happen to be the biggest advantage as being the prime residential area comprising westerners and cash rich locals.
The location also had other economic advantage of having only a handful of boutique shops and singled out Mercato Mall to cater the vast and potential population living around that area. The project was targeted as a lucrative high end shopping mall and expected to set a bench mark to retail arcades. The project once completed is expected to house the world leading brands under one roof added with ample car parking facility and its vantage location in Jumeriah was expected achieve high economic value. The project was expected to receive 50% funding from financial institution and the rest by the organisation leaving on other partnership. The management team of the organisation was confident on the economic returns through leasing the space to leading brands which at that time found to be highly viable on the growth progress achieved in Dubai especially in tourism and retail trade.
3. PROJECT BACKGROUND: The management team was the authority of the project and was responsible in appointing the agencies at various stages of the project whilst managing the financial and marketing aspects. Further has deputed one of the senior engineers from the organisation as Project Manager to administer the project on day to day basis. In early 2006, F+A a leading Architectural consultant firm from United States of America was appointed as principal designer for the project limited to conceptual design stage. The principal designer planned the building in the 19,300 Sq.m parcel of land based on the topographic details and provided the architectural part of the project with two basements for parking, Ground and Mezzanine floor for the retails and the terrace dedicated to accommodate service equipments under 80,000 Sq.m of total built up area.
In January 2007, M/s Access Engineering Consultancy (AEC) who had previous track record with ARJ was appointed as the Local Consultant for the project to develop the detailed design and to supervise the project. The local consultant appointed M/s Ian Benham Associates (IBA) as their specialist electromechanical sub consultant for the project and the entire design drawings been completed and submitted to Dubai Authorities for approval by May 2008 and obtained design approval by October 2008. In February 2007, even before commencement of detailed design, the management team appointed M/s Modern Executive Systems Contracting LLC (MESC) an established and reputed contractor for enabling works who is basically an existing contractor for the Employer in many of their projects and also a close relative at family level while the head of the organisation is the Director in charge of planning permissions in Dubai Municipality and its worth to note down that even the head of AEC is the Deputy Director in the same department . The appointed contractor has taken up the enabling works and subsequently awarded the pile foundation for the main building all at a cost of AED. 25,872,689 and the whole works were completed by June 2008 while maintaining the dewatering system under a sub contract.
There was no competitive tendering for the enabling and piling works but the prices were verified with market prices and validated by the management team. The local consultant submitted a detailed budgetary report to ARJ based on 2008 market pricing with a value around AED 450 million for the main building works and recommended competitive tendering citing complex and large project. In May 2008, under the approval of the management team, AEC floated the main tender package comprising of civil works as main contractor scope and rest as specialist nominated contractor scope for subsequent tendering. Of the seventeen invited, seven responded and only six of them submitted including MESC. The lowest and highest tender bid was AED 453M and AED 539M respectively while MESC was placed at fifth position with a value of AED 490M. In mid July 2008, AEC submitted the tender report to the management recommending L1 for further discussion and leaving option to discuss with MESC on the grounds of being an existing contractor and also on the family and political link (ARJ-MESC-AEC) Numerous discussions conducted by the management team and finally agreed with MESC at AED 450M with modification to many conditions to the benefit of both parties but the commencement delayed due to pending planning permit from the authority.
In September 2008, the financial turbulence started and before the end of the year many of the ongoing projects were stopped fearing market indecisiveness. The Employer opted to withhold the project for positive signs but allowed to continue the dewatering system to protect the shoring and completed piling works. 4. FINANCIAL IMPACT ON THE PROJECTAND COST CONTROL APPROACH: In 2009, the slump in the prices of the property and stoppage of projects across the country forced the suppliers to trash down the price to clear the material surplus and to avoid exorbitant losses and as result a phenomenal drop in price of around 20% noticed and speculations for further reduction by around 15% were hitting the minds of the Employers.
The management team held discussions with AEC and MESC to reduce the project cost as the possibility of financing the project diminished greatly on account of the financial impact and stated that the viability of the project will be much dependent on the bank funding. Emirates National Bank of Dubai (formerly known as National bank of Dubai (NBD)) one of the leading banks in Dubai has agreed to finance the project under stringent payback period and directed to reduce the project cost by more than 50%. With Employer insistence to maintain the size of the project and being designed completely and even foundation piles were in position, AEC advised to modify the high end specification for the finishes and services without compromising the quality.
Under the approval of the management team, AEC conducted a cost modification exercise mainly focussing on the provisional sum items. Except the entrance lobby, all the floor finishes been modified to matching vitrified ceramic tiles and total elimination of wall cladding all specified with Italian marble and superior granite and other natural stones. Highly decorative false ceiling modified to standard false ceiling and removal of ornamental metal decorative panels in walls and hand rails. The employer’s MEP division who will be the prospective nominated contractor for MEP works took the value engineering part and also modified the manufacturer sources from USA and Europe to Saudi Arabia, Malaysia and China. MESC on their part lowered their rates in all the civil works based on the reduced material cost and the resultant project cost been brought around AED 282M a reduction of around 37% to the agreed contract sum.
The main cost contributors were steel and concrete which has drastically reduced to 50% and 30% respectively. In February 2010, the project started under the bank consent while cost escalation in the form of extended dewatering and provision of additional shoring to the excavated site has incurred additional AED 6.50M to the project cost. The progress though found to be successful for six months but found to slow down due to payment delay from the bank. From November 2010 to June 2011 the contractor refused to make any progress citing non payment, the period where the effect of crisis has paralysed the cash flow in the market as all the banks in the country stopped financing the construction projects.
After great efforts by the Management team, the bank agreed to continue the finance for the project but did not agree to pay for the ideal period between Nov’10 and June’11. MESC accused the Employer for the delay and referred the obligations as per the contract terms and refused to accept the bank terms and rejected the same as non contractual. An understanding reached between both parties at high level and the project continued for further six months but to stop again by MESC on project completion date citing non performance of the Employer and expressed their inability to continue the works and issued formal suspension notice. 5. ECONOMIC, SOCIAL AND POLITICAL FACTORS ON THE PROJECT: On February 2012, the project reached critical stage as the site became potentially dangerous of earth slide due to stoppage of dewatering works due to non payment by the main contractor.
AEC issued non performance notice to MESC citing the site criticality while MESC replied with contract termination notice citing Employer failure to honour payment and the absence of any agreed extension of time for the project. On March 2012, an attempt by the Employer to gain a Kuwaiti partner failed on the grounds that the condition to settle the present contractor and to engage a new contractor from the prospective partner end was thrashed by MESC by threatening to stop the other projects. By late March 2012, AEC conveyed emergency meeting to resolve the deadlock but only to know the following:
The Employer has agreed with the bank to deposit 25% of each bill value to enable the bank to release 100% to the contractor. However there was an unwritten agreement between both the top management that the share value will be provided by MESC to ARJ to facilitate the payment and agreed to take the 25% after completing the project. MESC did contribute that 25% from the receipt from other project with the Employer which is also funded by another bank. With the stoppage of payment by that bank on the financial crisis paralysed MESC in honouring their commitment.
With no positive agreement reached between the parties, Employer forced the Consultant to issue contract termination notice citing non performance but could not succeed as the Consultant cited the lapses of the Employer and the hidden agreement with the Contractor placing restriction in operating the terms and conditions of Contract. In June 2012, the Employer settled the agreement with the Consultant citing MESC controlling AEC in the background of the contract and appointed new consultant to pursue the issue contractually while the project is still no hold with any prospects of recovery to the project which has passed 22 months of construction period while attained only around 40% of the progress and according to MESC around AED9.0M was pending from the Employer. 6. ROLE OF CONSTRUCTION TECHNOLOGY & SUSTAINABILITY: The value engineering from structure could not be augmented for the reason that Management team insisted on retaining the prestressed slab system to reduce the construction time which by conventional method would have saved 15% of the structure cost.
On reality, the time factor did not activate on account of the payment delay which has even delayed the appointment of specialist prestressed sub contractor for the project which also contributed for the progress delay. Further on sustainability grounds, the roof slab of the building and the roof slab of the upper basement which extend beyond the ground floor where designed additionally to accommodate the green cover, a mandatory requirement by Dubai Municipality which under green building regulation stipulates to have 30% of the roof area to have green cover while all the possible ground area to be covered with green.
This again had a cost impact of around 2% of the structure which was indispensible. 7. CONCLUSION: The project was a remarkable one in terms of spatial planning, elevation views and project location but had many short comings right from the beginning and succumbed to financial crisis. The management team did not have vision on the project budget but were ambitious on the market development and the financial options available during the boom time. Further the selection of contractor and even the consultant were not obtained on competitive bidding while their reputation of the organisations were well established in the market as each entity had sizable projects under successful operation. Though the unilateral decision of the banks to stop financing the construction projects amidst the recession were a global phenomena, the restructured project value did not gain support from the bank mainly at the absence of proper viability backing report.
Apart from the financial issues, the social and political grounds dominated grossly on the project from the fact that the project operated under the hidden agreement between the Employer and MESC coupled with financial linkage from other projects played a detrimental role. The project which is still on hold with every possibility that Dubai Municipality will order to fill the excavation on the envisaged potential danger and cease the project due to prolonged stoppage which will go as an unwritten history of a project in Dubai construction industry. 8. APPENDIX: Location map, 3D Views and site photos Under separate file Project brochure from the Employer Setting out and floor plans Tender report with cost comparison based on original estimate – unsigned Project bill at total suspension reflecting the revised project cost – unsigned
1. Ahmed Ramadhan Juma Group : Employer of the project ‘The Agora Mall’ http://www.arjgroup.com/ 2. Modern Executive Systems Contracting LLC : Main Contractor for the project http://www.mesc.ae/en/ProjectDetails.aspx?pid=176