Renegotiation becomes the order of the day

Mish'al Moosa, managing director for the Muscat-based Dar Al Zain project.
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Region wide trend
The renegotiation fever isn’t restricted to the UAE alone, but has spread across the region, including to neighbouring Oman.

“Why would you keep paying old and over-inflated rates in a new and corrected market?” asks Mish’al Moosa, managing director for the Muscat-based Dar Al Zain project, which has also recently completed successful renegotiations with sub contractors and suppliers.

“Renegotiation is the way forward, if you ask me,” says Moosa. “It is an essential tool to kick-start the region’s economy. Renegotiations can help bring some sanity back into the market and save many companies from potentially going bankrupt, due to having previously signed ridiculous contracts under pressure.”

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Moosa added that many of his suppliers offered to reduce their prices on their own, but he did come across a few who did not want to renegotiate.

“Some people are greedy at the end of the day and to be honest, we don’t want to work with people like that. After the renegotiations, we gave back all the savings made to our customers in the form of reduced prices, which eventually, is good for the market.”

What the law says
The obvious question that comes to mind then is if one is within their rights to renegotiate a contract?

Moosa says he was. “It depends on the agreement. For us, it was in our contract that we could renegotiate if there was a drastic change in construction costs.”

But Sachin Kerur, partner at law firm Pinsent Masons in Dubai, says that such provisions in contracts are a rarity and the only way to be on the right side of the law in the absence of such a provision, is if both parties agree to a renegotiation.

“Only if both parties agree to renegotiate and draw up with a new contract, will it be within the law. If either of the parties does not agree, it could turn into a dispute.”

Contractors speak
Everyone is not as vehement as Moosa when it comes to renegotiations. Philippe Dessoy, general manager of Six Construct wasn’t all for it, but agreed that it did have more benefits than drawbacks in the current situation.

“The good side is that at least you can expect to start getting paid after renegotiating a contract. Certain clients, who have chosen not to renegotiate, haven’t paid us up til now and those that we have renegotiated with, have begun to filter in some money.

But despite some clear advantages, Dessoy also pointed out the dangers that could come with renegotiation.

“It’s not ideal and certainly not fair to renegotiate a contract because, in effect, you’re breaking it. And that beats the whole point of signing a contract – protecting your right to get paid on what was agreed is why contracts are signed in the first place.”

Asking a rather interesting question, Arabtec CEO Thomas Barry says: “Would clients be happy to renegotiate if the market is flipped and prices skyrocket again? We’ve been through such a situation in the past and to be very honest, we had to deal with it on our own; we didn’t get the opportunity to renegotiate when we were facing tough times.”

But he also said that if the economy would benefit from the process, it would be a road worth exploring.

“At the end of the day, we have to see the bottom line. Profit isn’t a bad word and if everyone is still making their margins, then its better to actively reposition contracts, rather than just sit and wait for something or nothing to happen.”

And like Barry says, if the end result is movement in the market, maybe renegotiations could prove to be the best option to aid an ailing construction sector. Money could begin exchanging hands again and companies would begin receiving payments that are due.