Face to face: Sachin Kerur, Pinsent Masons
Pinsent Masons’ head of Middle East, Sachin Kerur, tells how drafting the right contract can eliminate disputes and simultaneously enhance the quality of the final build
An ambulance blares on the street outside the office tower in Dubai from where Pinsent Masons Middle East operates. Despite traffic congestion on the road, all vehicles systematically pave a makeshift route for the ambulance. The scene leads Sachin Kerur, partner at Pinsent Masons – and chief of its Middle East operations – to remark on the quality of Dubai’s infrastructure.
“Infrastructure plays a [key] role in the portfolio of investments that people are attracted to,” Kerur tells Construction Week. “I mean, if you look at yields around the world these days, [you’ll find that] many asset classes are affording reduced yields, so everybody will be looking at the most attractive and bankable project.
“The UAE has the fundamentals to make some of these projects extremely attractive, and it sits geographically in a location that is highly advantageous,” Kerur continues.
“Look at the success of Dubai Metro. It is a very popular system. So if you replicate that kind of patronage across projects in the region, then you’ll have a series of very bankable project opportunities.
“But that will not be without challenge, that’s for sure.”
Prodded about what these potential hurdles might be, Kerur replies: “The industry is always plagued by issues – economic, technical, and others. It is pretty used to dealing with a variety of problems, and it does so in a relatively pragmatic fashion. So it sees itself as being able to withstand difficulties.
“But this region [Middle East] is facing certain pressures no different from any other region, be that the fall in oil prices and the uncertainty that generates, the demand on material and human resources, [or dealing] with tight timeframes around procurement programmes.”
Kerur allows optimism for the construction industry in the next few years, despite the dip in global oil prices and the reduced government spending it has resulted in, stating the situation encourages “a lot of focus” on the development of long term projects in the region.
“Therefore, the product needs to generate revenue over a long period, and that leads to much more emphasis on design and constructibility,” he explains.
“It may need to be designed and developed to a much more rigorous specification than would otherwise be the case,” Kerur explains.
Crude concerns aren’t the only ones haunting the regional construction sector. Worrying statistics show that the GCC’s ability – or lack thereof – to formulate dispute-proof contracts is at an all-time low.
In June 2015, Arcadis’s Global Construction Disputes Report 2015 stated that in 2014, the Middle East saw its dispute values increase to their highest value since 2011, growing from $40.9m in 2013. Disputes worth $76.7m were reported in 2014, the study found.
Kerur, however, argues that contractual disputes – and what causes them – are complications plaguing more than just the Middle East region.
“There are endemic issues that are [present] throughout the sector globally, and hence it is no surprise that many reports that analyse the number of disputes in the industry are consistent in their findings,” he says.
“I think choosing a construction contract today is rather like being faced with a restaurant menu. You have choices and just like you would in a restaurant, you choose that which best suits you at that time,” Kerur adds.
“There are a host of construction contracts out there, on the menu so to speak, but the trick is to ensure the right contract is used for the right project. Where I think we do see errors is in the selection of forms of contract. Be that FIDIC or any other form – time and again the wrong form is selected.”
Kerur claims all forms of contracts are “very clear”, and comprise guides as to when they should – or shouldn’t – be used.
“You’ll find a problem if you try to violate those guides; they’re there for a reason, they’re telling you when to use them,” he says.
“If you try to vandalise a standard form of contract too much, then you’ll end up with a contract which simply wasn’t designed to work in circumstances you [initially wanted it to].
“They are initially thought through and drafted by committees, and should be subject to fairly limited tinkering, but what happens is, as I said, they are heavily amended, heavily vandalised, and they don’t bear any resemblance to the equilibrium that was provided for at the outset of the contract,” Kerur explains.
But to whome does the blame shift in such a situation? Kerur argues it may not necessarily be the responsibility of contractors to ensure an appropriate contract is formulated.
“That really requires developers and government to understand when and when not to put out a particular form of contract,” he says.
“I don’t think one can point the blame at any one particular participant; the industry has a unique status in that the product that is being developed is a one-off. There is no ability to produce prototypes to ensure you get it right, and it is subject to technical, climatic, financial, and other pressures during the lifecycle of a project.
“So there’s obviously lots of room for things to go awry,” Kerur continues.
“I would say a successful project is where you have to get a huge amount of the fundamentals correct and then have a lot of luck thrown in.”
To Pinsent Masons’ boss in the Middle East, this implies that “the right contractor has to find the right developer; they have to have the right mindset and objectives; they have to feel like stakeholders in the project; have the right amount of time to do due diligence on the project; they have to have the right programme time to develop it; the people have to work together and collaboratively”, besides “a great deal” of luck.
But projects are rarely, if ever, blessed with such good fortune, and less so in the Middle East, it would appear.
Arcadis’s report found that almost half of the region’s joint ventures (JVs) ended up in dispute during 2014, for the second year running; the highest of any region covered in the study.
A failure to properly administer the contract remained the most common cause of dispute in the region. Nevertheless, Kerur is unwilling to discount the workability of joint ventures.
“If the question is why joint ventures themselves don’t work as well as they might, that is often because JV partners are thrown together without having necessarily worked together or taken time to understand each other.”
“There is a lot of experience needed in getting a JV to work well, and within the constraints of a project [too]. I think there are peculiar issues here [in the region], but there’s a lot of it in the industry, wherever you are,” he continues.
There is hope for sharp and dispute-proof contracts where governments procure work, he explains, since it entails control over the total contractual process. Consistent success can be found where governments run projects, a prime example of this being the UAE.
While the same may not hold true for projects implemented within the private sector, Kerur is optimistic about GCC governments taking initiatives to enhance even those contracts which fall outside their purview.
“The [construction] industry at large could benefit from an all-round review of these [contract administration] practices, and that review could be carried out through established bodies that have a stake in the success of projects,” he says.
“However, I think it’s pretty well known where the faults and issues lie; it’s about people having the motivation to correct them, and so I don’t think it will be a surprise.
“Clearly, if you’re tendering for a project and you award solely on price – and therefore fail to take on board the other considerations which could make the project successful – you may end up with a seriously unsuccessful project.
“You have to take all the various paradigms that go into making successful projects – almost in equal weighting,” Kerur continues.
“If you make price your fundamental and only consideration, then you may be storing up trouble. Contractors themselves have to be much more realistic about the nature of the client they’re dealing with and sometimes, contractors themselves have to take a longer term view,” Kerur claims.
“It might take a number of projects to build a good relationship with a developer or client; and they may have to accept in the short term that there are certain practices which they may have to swallow. But in the long term, if they build a rapport with the client or developer, then they will [reap the] benefit.”
Nevertheless, in a price competitive market like the GCC, there may not be much that contractors can do to shift the emphasis towards quality products and processes, and simultaneously retain margins and cover costs. Kerur, however, is confident about contractor involvement.
“I think it’s fair to say that many contractors can have a greater input into the development of a project, [its] design and buildability for example. [They] are often frustrated in being kept away from these critical stages,” Kerur asserts.
“I think you will see forms of procurement that involve the contractor more at the planning stage, given the greater demand for projects that emphasise revenue generation over a sustained period of time.
“You do see early contractor involvement in the region, but I’m not sure you see enough of it, and I think if you were to ask contractors, they’d be quite open to having that early dialogue with their clients in terms of the way a project can be developed to ensure there’s greater alignment between design, construction execution, and project management.”
Collaboration in the GCC might seem a tad more difficult to accomplish given the myriad nationalities, occupations, and ambitions to which it is host.
It is, indeed, challenging to encourage cooperation in such a diverse landscape, but as Kerur points out, it isn’t impossible, least of all for countries like the UAE.
This scenario, however, will require the GCC construction industry to alter its current modus operandi, which typically demands speed through every phase of construction.
Kerur says change in the industry will have to be driven through the end user, who has understood both the product and its use.
“Many end users today look at these on a durable lifecycle basis,” he continues.
“They’re looking for a longer-term usage of the developed product; [subsequently], through different mechanisms of financing projects, contractors will be held to a product’s delivery objective.”
Projects developed to last over longer timeframes will also, Kerur concludes, stress the technical aspects of delivery, rather than “just who was able to offer the lowest price, potentially to build for a much shorter period of time”.