Top 5 Construction Risks for Contractors & Owners, and How to Mitigate Them

The construction industry is renowned for its inherent risks, from financial challenges to planning complexities and procurement hurdles.

In this article, we delve into the complex world of construction risks with Mr. Mahdi Abu Ghazaleh, a seasoned industry veteran who has extensive experience working on mega projects in the Middle East.

In his recent endeavors, Mahdi served as the MEP Manager at AECOM, ensuring the successful completion of Zayed international Airport - Abu Dhabi. He also made significant contributions to hospitality projects like The Address Downtown Hotel, and played a pivotal role as a Project Management Consultant (PMC) on the ambitious World Island Project. Presently, Mahdi's focus lies on construction management at Red Sea Global. Let's delve into his insights on the risks inherent in construction projects and why this industry maintains its uniquely risky nature.

From unpredictable weather patterns to supply chain disruptions and evolving client-contractor dynamics, the construction terrain presents a myriad of challenges that demand proactive risk management strategies. However, relying solely on theoretical approaches may not suffice. Drawing from my experience, here are some practical tips to effectively mitigate specific risks in construction.

One of the primary challenges in construction projects, particularly for large-scale endeavors, revolves around financial management, specifically addressing cash flow shortages. This situation is compounded by delayed payments, leading to significant setbacks in procuring essential materials and maintaining project momentum. Contractors often encounter difficulties in funding ongoing work and acquiring necessary equipment.

Moreover, certain clients may withhold funds to mitigate unforeseen expenses, further complicating the financial process. Their lengthy approval processes for additional funding requests exacerbate cash flow issues for contractors. Consequently, contractors may resort to delaying procurement to manage their financial resources, resulting in project delays.

To mitigate these risks, proactive measures are essential. For fast-track projects necessitating rapid expenditure, it's crucial to engage contractors with robust financial stability capable of meeting the project's financial demands. Establishing clear financial understanding between the client and contractor for special cases from the outset is imperative.

Additionally, clients should consider establishing dedicated procurement departments to handle essential materials independently, ensuring project milestones are met without unnecessary delays. This scenario allows to streamline the procurement process and enhance project efficiency.

In the Middle East, clients typically present contractors with extensive wish lists. As a marketing strategy, contractors often agree to some of these demands to secure contracts. However, this often leads to unrealistic timelines or other compromises to meet deadlines.

Design plays a crucial role here. Without a fully consolidated design, contractors may face challenges in executing works and obtaining complete awareness of specification of required materials. These cases occur frequently in mega projects when the detailed design is being conducted in parallel with construction start. However, construction progress may catch up, or detailed information may be needed at early stages.

Another issue with scheduling is that despite the presence of professional planners, crucial details are sometimes overlooked. For instance, when planning material procurement, contractors may schedule material approvals, delivery periods, and the procurement process but forget to account for special selected material where sample delivery, factory visits, and adjustment periods are not accounted for. This oversight can unexpectedly prolong the procurement process for a single material, leading to delays.

On the workforce front, contractors frequently find themselves without the necessary manpower on-site, especially after adhering to clients' changes in priority. Expecting all hands to be available immediately, disturbance to the sequence of priority with minimal tolerance, especially in fast-track projects, leaves little room for error and often forces compromises to meet the client's wish list.

For mitigating these challenges the quality of consultancy work is significant. Such renowned firms as, for example, my previous employers AECOM and WS Atkins, always make sure considerations for installation and maintenance are incorporated into design. So, collaborating with them can greatly facilitate on-site execution.

To mitigate such delays, it's crucial to integrate long lead items early into the project schedule and commence procurement promptly. While customization can enhance a project, it often leads to delays in engineering and procurement. Therefore, it's essential to strike a balance between custom and common materials, considering both the project's requirements and potential delays.

The third significant risk in construction projects is related to communication and manpower management. Effective communication is crucial, yet often compromised. Sometimes, under pressure to meet deadlines, the flow of information is inconsistent, leaving workers and engineers unclear about their immediate tasks. This lack of direction can lead to inefficiency as personnel may not fully understand the project's progression or their role in it.

Moreover, clients may have shifting priorities, especially in large-scale projects, which may require showing progress for high-profile visits or inspections. While such events can accelerate certain areas of a project, they can also divert resources and focus from other areas, creating imbalances.

Project management plays a critical role in facilitating systematic communication down to construction managers and site engineers. Any delay in communication at the top can cascade, causing delays at the operational level. In my experience structured progress meetings and systematic information sharing are key to smooth operations. These meetings help ensure that every team member understands their priorities and what comes next in the project sequence.

Another aspect I've noticed involves the scheduling of shifts. Night shifts and weekend work are sometimes necessary to meet milestones, but they should be planned carefully. Overworking the same set of workers around the clock can lead to exhaustion and decreased performance. Instead, it's more effective to have separate teams for day and night shifts to ensure that work continues efficiently without burning out the workforce.

Proper planning and scheduling of these shifts are essential, not only to meet deadlines but also to maintain worker morale and productivity. It's vital for project managers to anticipate and manage these aspects proactively rather than reactively, ensuring that any intensive work periods are short-term and strategically placed within the project timeline.

The fourth significant risk in construction is disputes between contractors and clients. Disputes often arise from ambiguities in contracts, particularly regarding responsibilities and project specifics. These disputes disrupt the project progress, creating delays as parties negotiate resolutions.

To mitigate such risks, it is crucial to draft clear and comprehensive contracts with provisions that anticipate potential misunderstandings. On-site, efficient dispute resolution processes are essential. Rather than allowing debates to consume time on the ground among contractors engineers and client construction management team, any issues should be escalated immediately to the project management team. The team, equipped with a thorough understanding of the contract, can swiftly determine whether the issue constitutes a variation, a claim, or a standard execution, and then direct the appropriate course of action.

This process helps to quickly address and resolve issues, preventing delays and keeping the project on track by minimizing time wasted on conflicts.

The fifth key risk in construction involves navigating regulatory requirements and ensuring compliance with local authorities. For unique or mega projects, such as airports, which have specific regulatory demands that differ significantly from typical building codes, early and continuous involvement of regulatory bodies is crucial. This ensures that all project specifications meet the specialized standards required for such facilities and avoids last-minute compliance issues.

To manage this effectively, it is common practice to include or consult with representatives from relevant regulatory bodies throughout the project lifecycle. In regions like Dubai and Abu Dhabi, projects can further streamline compliance by engaging companies accredited by these authorities to perform preliminary reviews. This preventive step helps reduce the chance of major compliance issues, as these accredited companies perform initial checks before final inspections by the authorities. Although this does not eliminate the need for official rechecks, it significantly reduces the scope of changes required at later stages.

In Saudi Arabia, similar approaches are adopted, where accredited engineering firms conduct ongoing reviews to facilitate final approvals by civil defense and other regulatory entities.

In managing large projects, a critical lesson learned is the importance of strategic operational planning, particularly when some phases or areas of the project are completed while others are still underway. This involves careful coordination of when to activate various systems like cooling, lighting, and servers to ensure they are functional yet efficient in resource use.

For instance, in one project from my experience nearly 90% of the batteries had to be replaced at handover, which cost millions of dollars. This issue arose because these systems were running longer than necessary on standby.

In some projects, to mitigate heat and humidity damage to installed furniture and other sensitive materials, we employ a technique known as "wild air," which is essentially temporary cooling. However, running these systems can be quite costly, and if not managed properly, can significantly inflate the project's operational budget.

So, you need to carefully plan and schedule when and how different sections of the project are activated. In some cases, this might mean redesigning the project to allow for phased activation of systems — turning on certain areas while others remain off, rather than activating everything simultaneously. This phased approach ensures that systems are only operational when absolutely necessary and not running when they could be incurring unnecessary costs.

Another critical lesson I've learned relates to climate change and its impact on construction projects. Recent weather events, such as unexpected heavy rainfall in desert regions like the Gulf region, underscore the need for proactive risk mitigation strategies. Extreme weather conditions can lead to construction delays, material damage, and increased insurance costs.

This includes:

By addressing these challenges head-on, we can enhance project resilience and mitigate the financial and operational impacts of climate-related disruptions.

There is a shift in the construction industry, particularly in how projects are managed. Clients are increasingly taking on the roles typically held by the main contractor. This involves overseeing the entire project and handling subcontractors directly. This change introduces a risk to maintaining quality.

To mitigate this risk, it's crucial to establish strong quality control measures:

My experience mostly concerns projects in the UAE and Saudi Arabia. So, if we compare the construction environments in these two countries, you can see distinct differences due to their development stages. The UAE, being the leader in the region, has a robust logistic infrastructure to ease the material procurement. It is a major logistics hub with readily available resources, including manpower and expert consultants, which streamlines project execution. Conversely, Saudi Arabia is currently experiencing a construction boom, which often requires importing materials that are not commonly used by local contractors, leading to increased costs and project delays.

Additionally, the UAE has a well-established regulatory framework accustomed to a wide range of projects, including innovative and new designs. Saudi Arabia, on the other hand, is still adapting to the new demands of its construction boom. This adaptation extends to the way projects are managed and regulated, creating a learning curve for both regulators and contractors.

One significant aspect during the UAE's construction boom was the integration of international and local companies, which helped in skill transfer and project management. This kind of integration is still developing in Saudi Arabia, where projects often require foreign expertise to guide local contractors.

The challenges of managing projects in these countries also vary. For instance, Saudi Arabia faces higher project costs due to its reliance on imported materials and the ongoing development of its local construction capabilities. These factors influence how projects are scheduled and managed financially.

Finally, the logistics and workforce management also depend heavily on the location of the projects. In the UAE, I've worked across different environments from islands to urban centers and each presented unique challenges. For example, remote projects require more effort in terms of worker welfare and integrating with local communities to ensure project success. These differences highlight the distinct approaches needed in each country's construction sector.

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We've seen significant advancements with the use of 3D design tools from BIM, which have transformed how we handle project designs. Previously, identifying clashes involved overlaying multiple drawings, but now, with these 3D tools, we can easily spot and understand any design issues early on.

Even though there's still a margin of error, these tools greatly assist our site engineers. For instance, engineers equipped with tablets can access these 3D designs right on site. This immediate access is crucial; it prevents the need to go back and forth to the office to resolve issues. They can open the design, review it on the spot, and make decisions quickly, which significantly speeds up the resolution process and reduces time wasted.

Regarding documentation management systems, we've employed platforms like ACONEX and Zutec, which are excellent for managing and sharing documentation efficiently. These systems streamline the distribution of documents, but they're not without their challenges. One issue is the noise created by frequent notifications. When you're busy with multiple site activities and scheduling, the constant alerts can become overwhelming and lead to missing important documentation. This happens especially with approvals needed for material and engineering submittals that are time-sensitive.

To counter this, companies need to implement KPIs to monitor timely responses from employees. However, even with KPIs, the volume of notifications can cause important items to be overlooked, which sometimes results in delays of several days.

Another improvement could be enhancing the notification system to make it more targeted, by introducing a mobile app that is user friendly. This would help in ensuring that only relevant notifications are received, reducing the likelihood of missing critical updates.

Ultimately, these documentation systems are part of a larger ERP framework that integrates various project aspects from design to planning, allowing everyone from the contract team to project managers to access and manage their responsibilities effectively.

Imagine a triangle that has three pillars:

Through my experience in procurement, project management, construction management, and project development, I have learned the significance of each of these areas. No single aspect supersedes the others. Instead, they all must be effectively managed and integrated to build a strong, successful project.