Controlling costs can mitigate risks, says MEP contractor

Gavin Appleby, managing director, EFECO, a subsidiary of Arabtec Holding, says that having control over costs and processes is paramount

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Gavin Appleby, managing director, EFECO.
Christophe Viseux
Gavin Appleby, managing director, EFECO.

When conversing with Gavin Appleby, managing director of EFECO (Emirates Falcon Electromechanical Company), one gets the impression of a person who knows the MEP market well. It also helps when the UAE-based MEP contracting company, which was founded in 2001, is the fully owned subsidiary of Arabtec Holding, a listed construction and engineering group on the Dubai Financial Market. Appleby says proudly: “A  significant advantage of being backed by Arabtec Holding is client reassurance, transparency and financial capacity. Being part of the group affords EFECO strength in numbers, which enables us to access resources, as well as provide strategic support for the business.”

Clearing a general myth in the market that EFECO is part of Arabtec Construction, Appleby says: “Arabtec Construction and EFECO are both subsidiaries of Arabtec Holding. Arabtec Construction is also one of our key clients.” Appleby adds that Arabtec Construction has the choice to award [contracts] to EFECO or to other contractors. Currently, Arabtec Constructions has quite a number of ongoing projects accross the UAE where EFECO is not the MEP contractor. He says: “Both EFECO shareholders and the management are supporting and encouraging us to grow operations outside of the group. We will always have a part to play in Arabtec. There is no doubt about that. But we are very much independent.”

Operations and footprint

EFECO currently has projects across the GCC. “We have a project underway in Fujairah. We also have a couple of projects in Saudi Arabia,  one in Jeddah and the other in the eastern province.” Appleby says that EFECO is quite vertically integrated as a business. He adds: “Our businesses are our projects. I keep reminding my team over time that we are here to support the projects.”

Related

Elaborating more on his team and the firm’s strengths: “We have an exceptional BIM team and engineering division within our group which is part of our strength in this whole resurgence of EFECO. We have more than 26 BIM operators who are working as EFECO employees.” Appleby adds that the firm has its own duct manufacturing facility that can produce more than 2,000m2 of ducts a day. “We are completely integrated with all the support and accessories for ductwork. We manufacture accessories, so we don’t need to buy them from outside.”

Appleby says that EFECO’s ductwork gives it complete control over the delivery of its projects. This means that the company does not have to rely on a third party for the supply of ducts. The company’s other strength is having its own prefabrication facility. Appleby reiterates: “I believe we are as vertically integrated as you can be in this market.”

Projects and planning

Listing down some of the key projects that the company are involved in at the moment, Appleby says: “We are completing the AMMROC airbase in Al Ain which is a significant project because of its national importance. There are several new projects underway in Downtown with Emaar.”

The Emaar Properties project that Appleby was referring to is the Opera District project. EFECO entered into a contract with TAV Tepe Akfen Construction for a $68m (AED250m) project for the MEP works of Tower A2 and A3 of Plot A in the Opera District. EFECO also entered into a contract with Al Naboodah Co for a $30m (AED113m) project for the MEP works of Creekside 18 Project at the Dubai Creek Harbour development, a joint venture of Emaar Properties and Dubai Holding.

“We have more than 6,000 villas under construction at the moment. We have a good opportunity in the villa business over the next 12 to 18 months. We seem to have done well to capture a large market share in this sector,” says Appleby. Additionally, Arabtec Construction was awarded with a $96m (AED353m) contract from Abu Dhabi National Media Council to build the UAE Pavilion at Expo 2020. Here, EFECO is involved in carrying out the MEP works. He adds gleefully: “The year 2018 looks very positive and we’ll continue to innovate and grow.”
 
Elucidating on what makes EFECO different from other contractors, Appleby says: “We believe that we have got very good risk management processes in place for identifying the right projects to undertake and also for identifying risks at an early stage. We have sound estimation processes that help us ensure what we are doing and what we are estimating in the market are in line with the market norms and is backed up by data.”

What Appleby was alluding to is that Arabtec, including its subsidiaries, implements a formalised 4-Gate Tender Approval process that aims at better controlling the risks related to its commercial and contractual commitments, and by extension to projects execution. This mandatory process allows the company to optimise the commercial costs of the organisation, to support a tender decision-making process based on objective risk information and to ensure that contractual commitments are in line with the organisation’s objectives and its defined risk appetite.
 
He continues: “When we talk to someone and if we commit to a price and project timeline, we can deliver the project because we have studied it. We are measuring everything on a project right from material, labour, time and cost, and this allow us to assess our projects at any time. In addition, we know that material wastage is something that is very prevalent in the market. We have got good prudent procedures in place now for controlling the materials. Through modularisation, which we are doing across many projects at the moment, there is precise control of material usage. We want to eliminate significant storage of materials onsite.”
 
Appleby reminds us that an MEP contract is not just about buying materials and throwing labour on the side. He says: “Everything needs a plan and that comes down to the very smallest and minute compilation of the project. Everything has to be measured and if you measure you know your outcome. What we have at EFECO at the moment is a very articulate team from project level through the directors who completely understand and live by its rules.”

Challenges and cost control

As is well known in the industry, cash flow is one of the biggest challenges in the market. Good cash flow management will ensure you always have money available for paying your expenses when they are due. It is known that even profitable businesses can fail if cash flow is not managed properly. However, Appleby says that there is something beyond cash flow that needs to be addressed. He says: “I believe beyond cash flow one of the biggest issues in the MEP market is actually cost control. One of the big problems is dealing with clients with financial issues. If you control your costs, you can mitigate the issue to a certain degree. My first priority in this business is the control of costs. If you move beyond control of costs, the other important thing that the market has really forgotten is about applying technical and engineering capabilities. If you think about it, an MEP business is an engineering business. Everything we do has an engineering component to it, and over the years, I have seen here that this seems to have been lost in the race of winning project contracts and that is something the sector needs to address.
“The other part I believe the sector needs to adopt is better integration. There has to be better integration into the complete supply chain of the project and that has not happened; this is why MEP contractors are suffering and feeling the pain. Integration can be done in many different ways. You can integrate at an early stage of a project or at the main contractor level. You can also integrate at a client level if you want; I think there needs to be more value given to what an MEP function can bring to a project.”
Appleby believes that there is a lot of price wars in the market at the moment, and also a number of new MEP players. “There are several new entrants in the market and I will be very blunt in saying that many of the new players do not understand the market. There is a very traditional base of contractors in this market and we all know who they are. There are a set of rules we all
work towards in regards to execution and
professionalism.”

MEP supply chain

The other issue that Appleby addresses is the MEP supply chain. Supply chain management enables firms to maintain visibility over their logistics to ensure availability of materials and delivery of products to customers. He says: “As MEP contractors, apart from our own labour, our number one partner is our supply chain, and the supply chain is very distressed at the moment due to lack of payments. One thing we are working hard with our supply chain is to ensure that we make timely payments. It’s difficult because of the cash flow constraints but if you are honest and communicate well with your supply chain you can move through this. 
“We don’t want to see any of our suppliers hurt and we are working hard to try and correct that but it’s very difficult at times to understand.”
Appleby provides solutions around the whole cash flow situation and other challenges. By comparing mature markets around the world, Appleby says that there should be some sort of a regulatory control of payments in the market. He gives an example: “In a mature market, they have a very similar [regulatory control of payments], it forces payments to come to contractors and sub-contractors and there’s a regulatory framework around that. If this was implemented into this market, it would probably improve the overall delivery of
projects in out region.
“In addition to all this, there should be better collaboration between consultants and contractors in the market. There is a lot of tension between consultants and contractors and that’s not in anyone’s interest. That’s actually detrimental to the project and detrimental to the market and industry.
MEP consultants form a part of our industry. There needs to be better collaboration working together instead of trying to blame others, which has been the case many times over the past few years.

The way forward

Last year, EFECO went through a re-building process, says Appleby. He explains: “When you re-build an organisation, you have to get back to the grassroots. We entered the year with exceptional project execution and manufacturing capability across both ductwork and prefabrication. Last year, financially, we ended the year in good shape, which is positive considering the MEP sector at the moment.”
“We have a mix of business which is inside and outside of Arabtec. We have several Tier 1 contractors who want to work with us. I feel in the coming years, we are in very good shape. We believe we have mitigated several risks.”
Most MEP professionals believe that increased adoption of technology is in their future. However, many still steer away from committing their time or money in technology.
Appleby believes that technology is the only way forward. He says: “Our sole focus is to deliver an MEP project in this market using better technology and innovation. The advantages of which are not just to us as an MEP contractor but also to clients, and contractors, who are constructing the building. Anything that we can do to make a project more seamless, aid the progress, provide assurance, ensure visibility, particularly for the contractor we work with, is a big advantage to everyone. We are very much focused on that at the moment.”

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