Middle East construction disputes valued at $91m in 2017

Client responsibilities are linked to two of the top three factors that caused regional building disputes in 2017, it has been revealed

Dispute values have increased in the Middle East even as resolution times reduced in 2017, Arcadis found [representational image].
Dispute values have increased in the Middle East even as resolution times reduced in 2017, Arcadis found [representational image].

The value of construction disputes rose to $91m in the Middle East last year, it has been revealed, with two of the top three dispute-contributing factors of 2017 being linked to client responsibilities.

2017’s dispute value is a notable hike over 2016’s corresponding value of $56m, and is said to reflect “the scale of the programmes being delivered in the region, with large projects typically carrying a higher dispute value”.

Among the alternative dispute resolution methods that gained traction in the Middle East last year were party-to-party negotiation; arbitration; and dispute adjudication boards.

According to the Global Construction Disputes 2018 report by Arcadis, the average time needed to resolve a dispute “continues to decrease” in the region, while the volume of disputes in 2017 “seemed to be about the same as 2016”.

READ: Half of Middle East's 2014 JVs ended in disputes

The 2017 version of Arcadis’s report questioned whether the Middle East’s construction industry could avoid “the common pitfalls of recent years” that contribute to disputes in the region.

Commenting on this, the 2018 report states: “Unfortunately, the findings from the 2017 survey indicate that 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.

“On a positive note, this cause has dropped from the top spot on the list to the second, demonstrating the industry may be heading in the right direction. To a certain extent, this result is no surprise as the economic backdrop remains similar to last year.”

Arcadis cites the lack of market liquidity, driven by “a comparatively low oil price”, as one of the chief factors causing cash flow constraints, especially in “an environment where firms are taking a tougher approach to contract entitlements”.

“This year’s top cause for disputes – failure to make interim awards on extensions of time and compensation – as well as the third cause – owner-directed changes – could be attributed to the impact the client has on a dispute taking place. Both causes can be viewed as being related to the client’s responsibility.

“When the project manager or engineer is the material influence for the dispute, the most common causes include a failure to be impartial to the employer’s interests, a lack of understanding of the procedural aspects of the contract, or a lack of authority that is limited by levels [as] issued by the employer – such as not being allowed to issue variation orders over a certain value.”

Dispute resolution is rapidly becoming a major talking point in the Middle East’s construction industry, where stakeholders – especially contractors – are exploring ways to mitigate their financial risks.

The nitty-gritty of construction disputes will also be discussed in the UAE capital later this year, at Construction Week’s Dispute Resolution Question Time: Abu Dhabi event.

On 24 October, 2018, more than 60 experts from Abu Dhabi’s construction development, contracting, sub-contracting, and consulting communities will meet at the Sofitel Abu Dhabi Corniche hotel to discuss the greatest legal hurdles faced by their businesses.

Topics that will be discussed during the three-hour event include late payment resolution, contract claims, arbitration options, and alternative dispute resolution mechanisms.

Click here to read more about the event and how you can attend.


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