Could new project finance models help reduce GCC construction claims?

Construction claims and disputes may be on the rise in the Middle East, but alternative models of project finance should serve to ease this situation in the not-too-distant future

COMMENT, Business

Construction claims and disputes appear to be on the rise in the Middle East. More than 60% of Arcadis’s contract solutions team reported an increase in the volume of work handled in 2016, according to the consultancy’s 2017 Middle East Construction Disputes Report. Moreover, upwards of 90% of those surveyed felt that their workload had either increased or stayed the same, compared to levels encountered during the previous year.

The Arcadis report cites a number of reasons for this increase, chief among which is a lack of market liquidity caused by the post-2014 oil price decline. The paper’s authors note: “These difficult macro-conditions have seen various programmes of work cancelled, deferred, or terminated, and this naturally results in a higher volume of claims and disputes.

“Constraints around cash flow have also resulted in slower payment across the supply chain and, in some cases, non-payment for work carried out,” the report continues. “In an already tight market, this has inevitably driven a much harder attitude to entitlements and obligations.”

Nevertheless, the Arcadis team also found that construction claims and disputes are being handled increasingly swiftly in the Middle East. In 2016, the average length of time needed to resolve a dispute in the region saw a year-on-year reduction of 10% to 13.7 months – a figure that is below the current global average of 14.3 months.

Counter-intuitive though it may seem, regional claims and disputes practices are working in tandem with industry stakeholders to ensure that project-related disagreements do not occur in the first place. Through the provision of services such as commercial and planning management, and expert support, these companies are attempting to reduce the prevalence of claims and disputes without taking a bite out of their workloads.

In this week’s special feature, experts assess the current crop of GCC aviation projects and anticipate future trends within the sector. Commenting on measures that can help to minimise disputes and claims on regional aviation projects, DBSConsult’s David Brodie-Stedman advocates early stakeholder involvement, multi-stage tendering, and progressive procurement strategies.

Encouragingly, interviewees identified another trend that could serve to ease the situation further. When quizzed on future trends within aviation, TAV Construction’s Ümit Kazak and Faithful+Gould’s Myles Finger both predicted greater private sector involvement – a shift that is by no means limited to the aviation sector.

If GCC member states succeed in convincing private sector organisations to invest in regional construction and infrastructure projects, it should help to alleviate the current squeeze on market liquidity. Tying in with Arcadis’s findings, this in turn could eliminate a major driver behind today’s claims and disputes.

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