Saturday, June 12, 2010

The non payment problem

The CFO of Arabtec, the UAE's biggest builder, was talking the other day about cash flows improving when the $8 billion support Dubai's government says it will, conditionally, give to Nakheel eventually means the company can start paying some of its bills.

Forget the slowdown, forget winning orders - the major problem businesses here have been facing is non payment of bills.

Almost as bad has been the 'you want payment you give us a 30% discount' contract-breaking arrogance from the big companies. But that's another story...

The most pressing issue was getting money to the major developers to help them pay their bills, get money flowing through the economy, keep projects going, save sub-contractors from bankruptcy, keep people in jobs.

It's happening but it's all taking far too long.

And although the $8 billion to Nakheel will help, it's really only a drop in the ocean.

A couple of stories I've listened to in the past few days illustrate the problem. Both companies doing well, providing the service they were contracted to provide, meeting deadlines, invoicing the agreed amounts.

The clients haven't kept their side of the deal though. Athough they received what they'd ordered they haven't paid for it.

(Isn't that illegal in the UAE?)

One is a small architectural firm. Non payment of invoices has meant they've had to fire all their staff with just the owner hanging on. The decision was whether to write it off as a lost cause and leave Dubai or hang in as long as possible hoping to collect the amounts due.

Hang in there was the decision, which has sort-of paid off. The bills will be paid, but only with a huge, and completely unjustified, discount. Take it or leave it. Discount or nothing.

It's not only a disgraceful way to do business, in my opinion it's nothing less than fraud.

The other is someone working for a sub-contractor. They've been working in the usual chain, for a main contractor who in turn is working for the developer.

He's just been told he's out of work, along with all his colleagues.

They've been working on five towers in one of the prestige developments. The main contractor hasn't been paid for a while so he's called a halt to work on the towers. The developer doesn't pay, no-one gets payed all the way down the chain.

Since the economic meltdown began I've heard many 'experts' saying that a downturn can be good because it clears out the dead wood, gets rid of the cowboys, that the good companies survive.

Partly true, but it also means that many good companies go to the wall, simply because they don't get payed for the good work they've delivered.

4 comments:

Neil Roberts said...

Agree 100% .... not only do you have to fight your way against the under-the-table bribes and general "wasta" to win business, then you have to wait for the arrogant gits to pay you when and if they feel like it! Aaagghhh.....

ynotoman said...

its the same in Oman.
We would only ever deliver goods / services against payment up front , with one exception , the government.

Anonymous said...

Sure it clears out the "dead wood" but only on one side. People have been saying it for ages. Dubai is a country of men, not laws. People are wising up to that fact and it's going to turn people away from investing or doing business there. Vacation? Sure but who knows? Maybe I'll be arrested for kissing my wife or something.

Anonymous said...

The business (read laws) here are heavily skewed towards the big companies. They build the “biggest”, the “tallest”, the “longest” and the “fastest”, but we can only hope that they would build “professional” and a “fair” business environment for entrepreneurship /businesses to sustain.

I have worked on couple of government projects in Dubai.

- There is a clear lack of experience in maintaining healthy vendor relationship.
- Client keep thinking that the vendor is going to cheat them and run away with their money
- The client managers (expats) needs to demonstrate to their bosses that they are squeezing the vendor to the last drop.
- Milestone sign-off are delayed, sighting trivial issues in order to delay payments
- If we try to reason with them about contractual terms, they threaten us to cancel the order and black-list us

It was a nightmare and I would think twice before taking up projects from government organization. Luckily, we managed to get our payments out, even though it was delayed.

I hope the people here pick up a lesson or two from the Japanese or American (I have exposed to only these two countries) businesses about vendor relationships and management. They need to import the business ethics, apart from electronic gadgets and cards from these countries.