Legal Opinion: A long term view - Part 2

Senior Associate Omar Al Saadoon.

In the concluding second part, Omar Al Saadoon, senior associate, construction and engineering practice – Al Tamimi & Company, discusses issues affecting the industry.

The first part of the article dealt with current industry trends and legal avenues available to stakeholders. This part of the article deals with the underlying reasons for hope in the UAE and lessons to be learnt from all those involved in the local industry

Reasons for Hope
The reduction or scaling down of projects is likely to result in an increase of competitive tendering as a procurement route as sub developers and master developers (pressured by the requirements of debt funders) will seek to cut costs and gain increased added value to projects. This can only be a good thing for stakeholders in the industry.

Notwithstanding the uncertainty of the extent of the global downturn and its real impact on the local construction industry, the current downturn is not likely to be felt as acutely as economies in the West for the following reasons:

1. The availability of world class facilities and infrastructure associated with mixed use projects completed in the UAE over the past 10 years is likely to continue attracting foreign inward investment;
2. Official declarations of the combined amounts of sovereign wealth funds in the UAE coupled with the authorities’ commitment to continue and complete their ambitious strategic master plans for Abu Dhabi and Dubai;
3. The UAE’s pre-eminence in the Gulf region as an innovator in the construction and property industry with its large pool of skilled resident expatriates;
4. The important and far reaching regulations due to be implemented by Dubai’s Rera to regulate the activities of developers and safeguard purchasers’ financial interest in an investment;
5. Substantial oil proceeds generated over the last three years which the UAE Government has prudently invested will further increase its ability to further withstand the effect of the global downturn.OPEC’s
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   ability to monitor and adjust its oil prices to reflect market conditions should also further assist the UAE in sustaining the development of its construction industry.

Conclusion
Developers will have to be pro-active, diligent and creative if they are to survive market conditions for at least the next two to three years.

Developers should seriously consider for example price discounts for early bird or bulk purchasers on plot sales with preferential or flexible payment plans (including the transfer of legal title to units as a form of payment) should be considered as well as procuring the works through alternative forms of contractual security in close consultation with banks.

Indeed a stakeholder’s relationship with banks should remain if not become a key priority for survival.
 
Lessons should be learned by stakeholders in the industry in order to re-align themselves with the reality of what is taking place in construction industries worldwide. Lessons such as:

Moderation in being able to have adequate security to meet their debt obligations before embarking on large scale if not grandiose projects; interconnected nature of stakeholders interests’ due to globalisation which means the decisions of all stakeholders affect one another (to a lesser or greater extent) thereby increasing the attraction of a team based approach instead of an adversarial one; patience in riding out the current storm and re-focusing on the core strengths of a company instead of attempting to be the jack of all trades and master of none; and gratitude for all of life’s small but precious mercies.

On a more practical tone, let us not forget the UAE government is a successful federation with long standing ties between the ruling families in all the emirates.

The authorities have repeatedly renewed their official commitment in  supporting master developers and local banks to fulfil the objectives of their ambitious master plans to redevelop Abu Dhabi and Dubai and to continue pursuing their long term objective of being leaders in the construction and property industries in the Gulf region if not the Middle East.

Time will tell as to how well the UAE government will respond to the global crisis affecting our industry, but I continue to take a long term view of this country’s industry and in this respect, I remain in the optimist’s camp.

CURRICULUM VITAE

Omar Al Saadoon specialises in construction & engineering law including public procurement for seven years. Before joining Al Tamimi & Company, he worked as the head of the construction department for Kuit Steinart Levy, a “Legal 500” commercial law firm in the United Kingdom.

He provides specialist advice (including the application of PPP/BOT contractual frameworks) to clients including government ministries, government-owned development companies, multinational contractors and consultants and consortiums on complex and high value projects in the industrial, healthcare, education and commercial sectors.

Al Saadoon typically advises clients on a wide range of contracts including FIDIC, NEC, EPC, DBO, BOT and PFI to suit a project’s particular requirements and the client’s interests. He is a panelled reviewer for FIDIC.
His particular area of interest and expertise focuses on Iraqi laws relating to procurement and construction contracts.

If you would like to write for Construction Week in this column, please email rob.wagner@itp.com