The road to construction dispute resolution in Abu Dhabi
CW’s Dispute Resolution Question Time: Abu Dhabi 2019 conference to discuss best ways to avoid and mitigate disputes
What are the best legal options to resolve construction disputes? This question, among others, will be addressed by top lawyers and construction experts when they meet for Construction Week’s Dispute Resolution Question Time event at the Sofitel Abu Dhabi Corniche hotel on 22 October. More than 60 key industry figures will be present at the event to debate ways to tackle delayed projects, poorly-drafted contracts, late-payments, and other challenges facing developers, designers, contractors, subcontractors, suppliers, and local consultants in the UAE.
The event will also shed light on updates and changes to local arbitration and litigation laws, as well as alternative dispute resolution (ADR) methods.
Panellists at the event will include partner at BSA Ahmed Bin Hezeem & Associates, Antonios Dimitrakopolous; partner at Holman Fenwick Willan (HFW), James Harbridge; and other renowned legal experts from Royal Institution of Chartered Surveyors (RICS), Reed Smith, and HKA.
Delegates will have the opportunity to voice their concerns, ask questions, and network with both lawyers and seasoned contractors who will share insights on how to resolve disputes and receive settlements in a timely manner. Although resolving disputes around contractual disagreements are not new to the Middle East construction sector, contractors have noted a steady trend of late settlements for the last few quarters.
The ninth Arcadis 2019 Global Construction Disputes report, released in July 2019, stated that late payments last year caused low liquidity in the Middle East market, which in turn increased the average dispute resolution time in the region to a nine-year high of 20 months in 2018. The report added that “poorly drafted, or incomplete and unsubstantiated claims” were the prime cause for disputes in the Middle East.
The Deloitte GCC Powers of Construction report, released in March 2019, pegged the dispute resolution time in 2018 at 923 days – approximately 30 months – compared to 748 days – around 20 months – in 2016.
The Deloitte report also found a rise in the number of disputes – 83% of construction industry respondents stated that they were actively involved in some form of contractual dispute, whether due to unapproved variations, contractual claims, project cancellation or other matters. Additionally, 78% of respondents said they were “rarely recognising revenue associated with these disputes until they are resolved”.
Commenting in the GCC Powers of Construction report at the time of its launch, partner and construction leader at Deloitte Middle East, Cynthia Corby, said: “A highly competitive and price‑conscious market over the past few years has unfortunately led to a ‘lowest bid wins’ model that has seen price as the deciding factor for awards. Pressure to reduce costs to win work often results in frequent disputes, and leads to eroded profit margins, which ultimately affects project delivery.”
Indeed, 33% of contractors surveyed in the report stated that anticipated settlements of unapproved claims amounted to more than 5% of their revenue. It appears, contractors are forced to enter dispute resolution proceedings to ease liquidity pressure and recoup settlements.
In addition to this, the report states that more than 54% of contractors felt that disputes were not typically resolved favourably, and that they were not offered settlements they deserved.
The growing number of disputes, expanding timeframes for recovery of cash, and lower-than-anticipated settlements are also pinching GCC contractors’ financial capabilities to pitch for projects and tenders, according to the Deloitte report.
However, the horizon is not gloomy. According to an Abu Dhabi Executive Council circular issued on 26 March, 2019, government departments and state-owned companies have been instructed to pay construction contractors and suppliers within 30 days of receiving invoices. The move is expected to ease payment delays and consequential funding constraints on capital projects, which impact cash flows throughout the supply chain.
A number of amendments made to the UAE’s civil law procedures are expected to help make litigation faster and resolve disputes more efficiently. Additionally, the new Dubai International Financial Centre (DIFC) Insolvency Law issued by HH Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, in June 2019, will facilitate a more efficient bankruptcy restructuring regime.
Speaking at Construction Week’s: Leaders in Construction Summit UAE 2019 event, partner at Pinsent Masons, Nesreen Osman, said: “We are seeing changes in more formal methods such as arbitration and litigation that are making it easier for parties to pursue their claims. The aim is to try and make it easier for international companies to do business here and pursue any payment claims that they may have.”
Commenting on construction disputes in Abu Dhabi and the Middle East at last year’s event, HFW’s Harbridge said: “There are two driving factors behind disputes in this part of the world – one is a cultural difference in understanding how an issue, which later becomes a dispute, needs to be handled. The other is to do with the more technical aspects of variations, extensions of time, concepts of prolongation costs, [and] lump sum arrangements that form the technical [...] basis of day-to-day disputes.”
The panel of legal and construction experts at the Dispute Resolution Question Time: Abu Dhabi 2019 event will delve into changes in local litigation methods, as well as the prime causes of construction disputes and how to avoid them. Read more about last year’s event at constructionweekonline.com.
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