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Home / ANALYSIS / Will fees rise in the lead-up to the World Cup?

Will fees rise in the lead-up to the World Cup?

by CW Guest Columnist on Mar 4, 2017


Bargaining tool: could international contractors use approaching deadlines as leverage to demand additional payments?
Bargaining tool: could international contractors use approaching deadlines as leverage to demand additional payments?

From a construction perspective, reflecting on the aftermath of the 2014 FIFA World Cup in Brazil can be an alarming experience. The rush in the final stages of construction leading up to the event was marred by an almost quadrupling of the overall initial estimated spend.

Certain schools of thought are concerned that Qatar could face a similar experience with international contractors downing tools, pending rapid resolution of claims before completion of projects necessary for the 2022 FIFA World Cup. But with the right protections in place, as outlined below, we highlight how this is unlikely to be the case.

Projected expenditure

Qatar has announced $140bn worth of projects are to be carried out as part of its preparations to host the 2022 FIFA World Cup. While some $4bn of this will be channelled towards the construction of the stadiums across Qatar, the vast majority of spend is on the supporting infrastructure of roads, bridges, airport, rail and hotel projects.

The deadlines to complete the projects required for the FIFA World Cup were set in December 2010, when Qatar was awarded the hosting rights for the competition. The competition is scheduled to take place in Qatar between 21 November and 18 December, 2022. Clearly the deadlines for projects supporting this event have little or no leeway when it comes to completion dates.

Projected expenditure

With the five-year countdown to 2022, construction on eight stadiums for the World Cup across the country is very much underway and reportedly, on target. Perhaps the most significant infrastructure project underway in Qatar is the construction of its Integrated Railway. The progress of this $40bn project is clearly visible across the country. The drilling work on the Doha Metro is largely completed, and the overall work is said to be 50% complete.

Non-essential projects have suffered cut-backs in recent times, one such example being the postponement of the landmark Sharq Crossing project. The $12bn project was scheduled to be completed in time for the 2022 competition.

The planned 12km crossing comprises a series of tunnels and bridges connecting Hamad International Airport to the heart of the city of Doha. The project was originally unveiled in December 2013 but, as of January 2015, it no longer appears to be in the infrastructure budget for Qatar.

It is thought that the project may be completed at some point in the future, but not before the 2022 competition.

Legal protections in place

To achieve the projections outlined above, legal protections have been put in place with the aim of avoiding similar problems encountered in Brazil. Firstly, Qatar has a clearly defined set of public tendering laws to help protect public spending on projects of this nature.

International contractors must partner with local firms to form multi-party joint ventures on larger projects, and all contractors – whether international or domestic – must provide a bond during the tender phase, for the duration of the contract, in return for any advance payments made.

In addition, the bespoke construction contracts for the major projects usually contain terms that protect the employer’s spending on the project, such as: tenders are subject to a maximum and/or fixed price; the employer can de-scope works and award discrete packages to replacement contractors; and the employer can often terminate the contract for convenience.

The possible introduction of a new public-private partnerships (PPP) law has prompted discussion on whether Qatar will procure the necessary projects on this basis, a useful procurement method to manage public spending on larger-scale developments.

Risk of a big pay day for contractors?

While contractors might threaten to use the external deadlines of the World Cup to negotiate a big pay-outs on FIFA-related contracts, there are significant commercial considerations at play, outlined as follows.

International construction companies often agree to international arbitration as the dispute resolution mechanism for such contracts. Contractors from jurisdictions with mutual recognition of arbitral awards will not wish to become embroiled in allegations of unfair conduct, and know only too well they may be based in a jurisdiction where arbitration can easily be enforced against them.

It is common for international companies to partner with a local firms. But if global contractors do demand additional payments, they may well find that their local partners are prepared to complete projects without them. Indeed, as has been seen on part of Qatar’s Integrated Railway Project, international contractors can be replaced by local outfits in Qatar.

Conclusion

Qatar’s careful preparations should help it to avoid pitfalls and problems similar to those encountered in Brazil. That said, with the approaching deadlines, the country may also be prepared to meet some of the claims from contractors in order to guarantee that the delivery deadlines of 2022 FIFA World Cup projects are met.



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