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Low oil prices continue to squeeze liquidity in 2017, report finds

The report from design and consultancy firm Arcadis found the average value of disputes in the Middle East hit $91m in 2017, a 65% jump on the year prior

Arcadis found issues around proper contract administration continue to pose issues [representational image].
Arcadis found issues around proper contract administration continue to pose issues [representational image].

Low oil prices continue to foster a liquidity squeeze across the Middle East's construction supply chains with firms’ approach to contracting entitlements shifting accordingly, fresh research has revealed.

In its annual 'Global Construction Disputes Report' for 2018, Arcadis said issues around proper contract administration – one of the top three causes of disputes for the past three years – continue to "trip the industry up and result in claims and disputes".

This result "is no surprise", given a similar economic backdrop as the previous year, the design and consultancy firm said.

"A comparatively low oil price has continued to drive a lack of liquidity in the market, resulting in cash flow constraints across the supply chain," it explained.

READ: Can alternative dispute resolution tools reduce Middle East construction conflicts?

Such dynamics continue to create an environment where firms are taking a "tougher approach to contract entitlements".

The report, designed to reveal key themes and insights into the global construction disputes market, also cited the top cause for disputes was "failure to make interim awards on extensions of time and compensation". 

'A failure to properly administer the contract’ and ‘owner directed charges’ were ranked second and the third respectively.

More generally the report found that the average value of disputes in the Middle East rose to $91m, a significant 65% jump on 2016’s figure of $56m.

READ: Legal giant KWM expands Middle East dispute resolution team

Arcadis said this year-on-year increase "reflects the scale of the programmes being delivered in the region, with large projects typically carrying a higher dispute value".

"The demise of Carillion in the UK, and the contribution of Middle East debt to that collapse, have caused many international contractors to look much more closely at what they have provided for in their accounts across the Region," added Mark Blanksby, partner of projects and construction at law firm Clyde & Co, as cited in the findings.

Such firms, he added, are starting to "drive action in relation to the recovery of legacy ‘tail end’ debt, particularly regarding unpaid retention sums and claims that are carrying value in the accounts".

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Construction Week - Issue 754
Nov 23, 2019