Lopsided contracts, lack of legal backing: issues MEP contractors face

The problems faced by the MEP contractors in the industry in the GCC region are aplenty. It appears that the expertise that MEP contractors possess is remains unexploited to its full potential. M Vasanth Kumar, CEO of Qatar-headquartered Arabian MEP, highlights a few issues.

First on his list of issues is the lopsided nature of contracts and the absence of legal backing for MEP contractors. A common fear that all contractors share is that bigger the project, higher the risk exposure in terms of contractual obligations and payments, says Vasanth Kumar. The real challenge for a contractor winning the contract, he says, is how the contractor would manage a contract that generally is lopsided and may not offer the required financial and legal protection.

As MEP subcontractors are almost near the fag end of the contracting chain, the risks of the main contractor are inadvertently passed on to the subcontractors. “Even though the value of the MEP subcontract is only 20-25% of the total contract value, the main contractors hold MEP subcontractors 100% responsible for everything,” Vasanth Kumar says. “Due to the large number of stakeholders involved in a project, and considering everyone will have their own agenda, it is a well-known fact that hardly any project is completed on time and cost. They are several examples of projects finishing two to three years late for several reasons. This leads to contractual disputes, as clients generally impose the penalty clause to offset the extension of time compensation claim by the contractor. It is guaranteed that if the project is delayed, contractors will make loss.”

Vasanth Kumar says that the only way to ensure MEP contractors don’t suffer is by evaluating a project thoroughly and assessing if it is worth taking up.