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Can alternative dispute resolution tools reduce Middle East construction conflicts?

by Oscar Rousseau on Mar 31, 2018

Frequent late payments and contractual disputes have created an environment that the Middle East’s construction contractors appear increasingly concerned about – some are even mulling the prospect of exiting the region to work in markets where the risks and rewards are more evenly balanced.

Naturally, this scenario is worrying, and certainly one that all construction stakeholders would like to avoid.

Regional legal experts have warned that the current state of dispute resolution is further stretching finances for contractors. And in an industry where steady cash flows are a necessity, lengthy and expensive dispute cases are a concern that need to be addressed as soon as possible.

Solutions to disputes, such as mediation and adjudication, are on offer to help contractors and developers find a resolution, and improvements to alternative dispute resolution (ADR) mechanisms have received backing from a number of legal professionals, as well. But to understand why ADR has become an important topic, it is necessary to first understand why so many experts are advocating means of resolution that avoid litigation. Speaking to Construction Week, director of the Middle East for the Royal Institution of Chartered Surveyors (RICS), Robert Jackson, recounted a meeting he held recently with major international contractors that had operations in the Middle East. Jackson said he was told that the situation for contractors had worsened in recent years, adding: “The overall consensus is that things are getting worse, to the point where a lot of [the contractors] were saying their [internationally based] headquarters are suggesting pulling out of the Middle East.

“[Top] contractors potentially pulling out […] is not good for business, and will not attract investment.”

This sentiment was echoed by others that attended Construction Week’s Dispute Resolution Question Time, held at the Le Méridien Beach Resort & Spa in Dubai on Wednesday, 21 March. For instance, senior quantity surveyor at Alemco, Paul Yates, told Construction Week that market risk was among the key factors that led contractors to question their future business operations.

Yates added: “A lot of the major contractors are struggling with their cash positions in the UAE. When […] disputes happen, you can see projects come to a standstill. Previously, maybe contractors would be willing to just see it out on the basis that they could override the cash flow issue through [external] funding, or central funding from a sister or parent company.

“But now, I think, [contractors] are willing to say they will just stop and walk away, because they know it will never get to a dispute position where they feel they can challenge the employer, because there is such a small client base.”

Chris Lyon, also a quantity surveyor from Alemco, a mechanical, electrical and plumbing (MEP) subsidiary of ALEC, added: “We find that, from the contractor’s side, the client requests things to get done immediately, but they don’t understand the impact to the programme [or] to the overall contract values. It impacts the ability to deliver a project on time.”

At the Leaders in Construction UAE Summit held in October 2016, business leaders said there had been a rise in the number of construction-related dispute cases, and warned that contractual and payment issues would continue to increase if they were not addressed. Commenting on how the market had evolved since then, Charles Lilley, partner at Berwin Leighton Paisner (BLP) – one of the four panellists at Construction Week’s Dispute Resolution Question Time – said: “We are seeing as many disputes this year as we have seen in the previous years.”

Another panellist, Jed Savager, partner at Pinsent Masons, said 2016 was “a very busy year” in terms of the number of dispute cases, and that 2017 had “continued that trend”. Managing director of the Middle East for Driver Trett, Lee Barry, added: “The Middle East, historically, has always been subject to a lot of disputes. It slowed down quite a bit a few years back, but it picked up in 2016 and there was quite a bit of traction to go to arbitration.”