Construction dispute resolution in focus as low liquidity adds pressure
EXCLUSIVE: Experts say GCC construction stakeholders must get early advice to ensure disputes are resolved in a timely manner
Dispute resolution around contractual disagreements is not new to the Middle East construction sector, but over the last 12 months, the construction industry has witnessed payment delays, growing number of disputes, expanding timeframes for the recovery of cash, and lower-than-anticipated settlements, which have been exacerbated by low liquidity in the Middle East market and increased competition.
More than 60 top lawyers, consultants, and construction experts gathered for Construction Week’s Dispute Resolution Question Time: Abu Dhabi 2019 event held on 22 October 2019, at the Sofitel Abu Dhabi Corniche hotel to gain insights on the root causes of claims and disputes; dispute avoidance and resolution; as well as new arbitration and alternative dispute resolution (ADR) mechanisms.
Key panellists at the discussion, which was moderated by Jed Savager, partner at Pinsent Masons, included Antonios Dimitracopoulos, partner and head of arbitration and dispute resolution at BSA Ahmad Bin Hezeem & Associates; Julian Haslam-Jones, director at HKA; and James Harbridge, partner at HFW.
The region’s top lawyers and construction experts on the panel pointed to some of the root causes for construction disputes in the GCC, including ambiguous contracts for complex projects; under-designed projects going to tender; unclear termination clauses; poorly-drafted and uncertified claims; imbalance in risk allocation; and unresolved variations, among others.
Commenting on the main causes for construction disputes, Dimitracopoulos said: “For a dispute to arise, I think you need a fertile ground, first of all. In my experience, the fertile ground usually is found in the contract itself – some poorly-drafted clauses, some heavily slanted contracts in favour of one party, or even some commercial agreements within the contracts that offer very narrow anticipated profit margins for contractors.
He added: "That means that the contract is very fragile – commercially and financially – for anything that that may not go as planned, will now have more chances of elevating itself into a dispute, and possibly, legal action . So the contracts and the profit margins are the bedrock, or the fertile ground, for disputes.”
Speaking about an issue closely linked with disputes, Haslam-Jones said: “Often variations are not resolved. This then leads to the contractors doing the extra work but not receiving payment for it, and then entering into a cash flow problem. This is why it’s important for parties to deal with the variations in the early stages and try, and resolve as many items of the variations as possible.”
In terms of resolving disputes, the panellists emphasised the need for robust, credible claims based on transparent and well-kept records, as well as pre-allocated budgets for arbitration.
Commenting on the need for timely advice, HKA’s Haslam-Jones said: “When you do get into these situations where you are struggling, and you feel that you haven’t been paid on time, and you feel that there is an issue – you need to get advice early on.”
HFW’s Harbridge added: “There is a tendency for contractors to make life harder for themselves by not putting the contractual notice out on time. Taking advice early does pay off – the type of issue you can look at is whether you have the legal right to suspend the work – I think that’s also something worth exploring.”
The discussions also focused on the new arbitration laws; and highlighted the benefits of mediation and alternative dispute resolution mechanisms, which can help stakeholders resolve disputes during the project rather than after delivery.
Harbridge said: “Now, with the new arbitration law, given that it’s allowing interim awards, we might also see some courageous contractors saying, ‘you know what, I’m going to take you arbitration right now’ on a specific issue, while the project is still ongoing.
He added: "We’re so used to arbitration happening years after the cessation of the project, so it will be interesting to see what would happen if someone started to say, ‘you know what, I’m only six months in but I’m already going to go to arbitration’ on a specific point.”
Commenting on mediation and alternative dispute resolution mechanisms, Haslam-Jones said: “The key aspect is that parties need to buy into it, and that can be a challenge at times. But what we’re seeing is that it is becoming more common, and it has certainly increased in the last two years.
"Now, this is could be because parties don’t want to spend big amounts on litigation or arbitration and this could be a cheaper alternative. Yet, alternative dispute resolution is what parties are turning to here.”
Dimitracopoulos added: “I’ve experienced dispute adjudication boards (DAB) and expert determinations in Abu Dhabi. I find mediation a very useful tool in instances of a gentleman’s disagreement, not in instances where there’s a straightforward lack of liquidity, non-payment of certified amounts, and issues like that, where there’s hardly any point to mediate, but rather a dire urgency for an enforceable decision. But, in instances where there is commercial interests, or interpretational disagreements, I think mediation could be useful.”
The event was supported by Construction Week’s official claims partner, HKA; gold sponsors, HFW and BSA Ahmad Bin Hezeem & Associates; training partner RICS; and legal partner Reed Smith.