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Qatar 2022: Tight deadlines may mean more spending

Will compressed deadlines pre-2022 see contractors charging top dollar?

Andrew Jones, partner, Dentons Qatar.
Andrew Jones, partner, Dentons Qatar.

From a construction point of view, reflecting on the aftermath of the World Cup in Brazil 2014, 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 World Cup 2022. With the right protections in place, as outlined below, we highlight how this is unlikely to be the case.

Projected expenditure

Qatar has announced $140-billion worth of projects are to be carried out as part of its preparations to host the FIFA 2022 World Cup. While some $4-billion 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 on the completion dates.

Current status – works underway

With the five-year countdown to 2022, construction on eight stadia 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 Qatar’s $40-billion project Integrated Railway. The progress of this $40-billion 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 $12-billion project was scheduled to be completed in time for the 2022 competition.

The planned 12-kilometre crossing comprises a series of tunnels and bridges connecting Hamad International Airport to the heart of the city of Doha. Originally unveiled in December 2013, as of January 2015 however, the project no longer appears 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. First, Qatar has a clearly defined set of public tendering laws to help protect public spending on projects of this nature.

Employers haveplaced requirements such as international contractors partnering with local companies, 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 performance of the contract and in return for any advance payments made on the project.

In addition, the bespoke construction contracts for the major projects usually contain terms which 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 projects.

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 out on FIFA-related contracts, there are significant commercial considerations at play, outlined as follows.

The international construction firms have often agreed to international arbitration as the dispute resolution mechanism on many contracts. Contractors from jurisdictions with mutual recognition of arbitral awards will not wish to be involved 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.

International firms partnering with a local company in order to win work is significant. If international contractors do demand payments to complete projects they may well find that their local partner is only too prepared to complete the projects without them. Indeed, as has been seen on part of Qatar’s Integrated Railway Project, international contractors can be replaced by local contractors to complete critical projects in Qatar.

Conclusion

With these careful preparations Qatar will ensure it avoids similar pitfalls and problems encountered in Brazil. That said, with the approaching deadlines, Qatar may be prepared to meet some of the claims from contractors in order to guarantee such delivery deadlines are met.

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