Contract disputes are not uncommon in the global construction industry, but their resolution mechanisms vary based on market maturity, and in the Middle East – particularly UAE capital, Abu Dhabi – this is a critical business factor for construction contractors and consultants. These trends, among many others, will be discussed at Construction Week’s Dispute Resolution Question Time Abu Dhabi 2018 conference on 24 October.
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 later this month 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 resolution mechanisms.
The nuances of legal challenges faced by construction experts will be simplified at the Abu Dhabi conference. After all, dispute resolution in the UAE capital, as one of the conference’s panellists explains, must not be allowed to overlap with the mechanisms available or adopted in its neighbouring markets, such as Dubai. James Harbridge, partner at HFW, adds: “Abu Dhabi has a distinct market, [but] its requirements are often overlooked or unhelpfully tied together with the needs of the Dubai market.
“However, in terms of construction dispute resolution, Abu Dhabi has a number of Abu Dhabi specific tools available at its disposal – Abu Dhabi Commercial Conciliation and Arbitration Centre (Adccac) and Abu Dhabi Global Markets (ADGM) are two examples of that.
Antonios Dimitracopoulos, partner and head of arbitration, dispute resolution, and construction practices at BSA Ahmad Bin Hezeem & Associates, appears to share this view. As he explains to Construction Week ahead of the event, dispute resolution in the construction sector is “largely carried out through arbitration, which is in turn conducted either ad hoc or under the auspices of an institution”.
Dimitracopoulos continues: “There are many institutions in the UAE, and the professional and cultural background of the arbitrators they appoint can be particularly diverse. As such, the resulting experiences and outcomes can also be varied.”
The latter point, Dimitracopoulos explains, also creates the need to “share, in a relevant forum, impressions and opinions [that can] enhance the understanding of expectations and increase knowledge exchange in this sector”.
The million-dollar dispute industry
Knowledge-sharing is particularly important in a region where construction disputes continue to cost the industry millions of dollars. The value of construction disputes rose to $91m in the Middle East last year, with two of the top three dispute-contributing factors of 2017 being linked to client responsibilities. According to the Global Construction Disputes 2018 report by Arcadis, 2017’s dispute value was 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”, as Construction Week reported this September.
The high number of disputes in the Middle East – or even just the GCC – indicates the challenges related to legal resolution options in the region. As Rob Jackson, regional director at Royal Institution of Chartered Surveyors (Rics) tells Construction Week, dispute resolution is “fragmented” in the Gulf.
He continues: “There is still a lack of legislation related to specific industries, and disputes are still taking too long, and costing too much to resolve.
“The reality is that many projects will not be delivered on time and within budget, and the length of time and resources required to resolve disputes – and the subsequent damage caused to commercial relationships – continues to be a serious issue.”
Jeffrey Badman, partner at HKA, says his team has seen “an increase in the use of arbitration to resolve disputes between government entities and contractors” in the region, “with the exception of Kuwait”.
“In Kuwait, the dispute resolution process for government contracts as of recently requires disputes to be referred to the Kuwait Courts, rather than arbitration,” he tells Construction Week.
Among the reasons behind this, according to Badman, are the maturity of the construction market; the increased number of international contractors requiring certainty and a recognised method of dispute resolution; confidence in the local arbitration processes, and; the “increased scrutiny of commercial dealing by State Audits” to eliminate corruption.
Badman continues: “With the increased vigilance around the region for bribery and corruption by State Audit, individuals and departments within government entities have been less willing to enter into commercial deals to settle claims, for fear of being investigated and prosecuted.
“This, combined with reduced liquidity in the region due to the low oil price over the last two years, has driven more claims into dispute. It has led to not only an increase in the number of arbitrations, but also the use of alternative dispute resolution methods – such as dispute resolution boards, third party independent reviews, and expert determinations – in an effort for the parties to retain more control over the process, reduce their costs, and consider the issues more from a technical perspective.”
The roadblocks to resolution
Does the number of disputes registered in a country indicate growth – or lack thereof – in its construction industry? HFW’s Harbridge says volume is one indicator, but it is not the most important metric to gauge the maturity of construction dispute resolution in a market: “Disputes cannot be measured by simply how many cases are filed or lodged.
“The true measure of dispute resolution is in the satisfaction and confidence that construction industry players – contractors, developers, engineers, and owners – have with those mechanisms.”
One factor that also affects dispute resolution efforts in the industry is lawyer fees, which Harbridge says can sometimes cost “too much”. This is “perhaps because they package the claims and defences in overly complex, non-concise formats”.
He continues: “That is why so many companies simply do not attempt to avail themselves of dispute resolution processes. That is what has traditionally happened across the region, but it does not need to happen here in Abu Dhabi.”
Eventually, however, the onus to reduce the incidence of disputes lies with clients and contractors. Dimitracopoulos succinctly describes disputes as “a two-way street”, adding that contractors can minimise the number of cases by using “largely pre-emptive” tools. This includes “choosing reliable employers/developers; bidding only for those projects that are executed under reasonable and fair contractual terms; and invoking their rights under such contractual terms as soon as a dispute arises, rather than at the end of a project, where all contractor leverage is lost”.
Additionally, HKA’s Badman explains, contractors must ensure that they fully understand their scope of work, risks, rights, and obligations under the contract, and the contractual procedures that need to be followed to complete the project and pursue their rights and remedies. They must also ensure they “clarify any uncertain, ambiguous, or contradictory terms and conditions during the tender stage; generally improve their project coordination and subcontractor/supplier management; prepare suitable programmes/schedules, not only for planning and monitoring the progress of the works, but also to model the effects of any additional work instructed or delays that occur; maintain proper records to assist in substantiating a claim and demonstrate cause and effect; prepare well-structured, detailed, and robust claims that assist the engineer/developer understand the claim, and; enhance their understanding of claims, and disputes methods and processes”.
A question of culture
Rics’s Jackson explains that a change of mindset and industry culture is also required to minimise disputes in the region: “Based on our discussions with contractors, [we have found that] they feel and continue to suffer from the master/servant mindset in the industry.
“By aligning priorities and working in partnership with their clients, contractors will ensure the common goals are achieved with minimum disruption to timescales and project budgets, as well as help drive innovation and productivity improvements.”
Developers, like contractors, must adopt new and better ways of doing business to cut the occurrence of disputes. HKA’s Badman suggests that clients “understand and accept that there may be time and cost implications to making changes during the design and construction phases”. The challenges are compounded in such a situation if “the resulting costs [have] not been agreed at an early – or often, at any – stage”, according to Dimitracopoulos.
One of the most prominent causes of construction disputes is the lack of contract standardisation, and Jackson says this must be changed to ensure that all agreements “have a fair and reasonable risk allocation”.
“A proper contract which is efficiently managed, with an emphasis on collaboration and open communication is less likely to suffer from conflicts leading to litigation or arbitration,” he adds.
All four experts will appear as panellists at Construction Week’s Dispute Resolution Question Time Abu Dhabi 2018 conference – on the day, their agenda will also include a conversation about which alternative dispute resolution (ADR) mechanism is most successful in the regional and UAE capital’s construction industries.
Speaking to Construction Week, Badman says the typically adopted method of dispute resolution for “contracts between private developers and contractors, after attempts to amicably settle have failed, is still arbitration”. HFW’s Harbirdge, meanwhile, says that mediation and determinations “do not seem to work well in this region”, adding that arbitration and litigation “work well, but for the costs associated with them”.
He adds: “To reduce costs, parties should be willing to allow the Arbitration Law to apply to disputes. As seen in Oman, such arbitration provides parties with flexibility as the parties can limit their costs by excluding the need for witness evidence and for in-person hearings, and have a relatively quick determination.
“The ADGM should be promoted and used more,” HFW’s expert adds.
HKA’s Badman believes that early expert involvement in the claim and dispute resolution process would help to ease the process, as would “providing a technical review of the events and issues by way of third-party independent reviews or expert determinations”.
He adds: “These processes should focus on the technical merits, causation and impact to the project – delay and quantum. This utilises a combination of technical specialist to suit the subject matter of the claim/dispute.
“I would like to see the establishment of a regulatory body to accredit and govern professional dispute avoidance practitioners to ensure consistency and standards to develop industry confidence. Because of the level of State Audit scrutiny in certain Middle East jurisdictions, there are a number of disputes that on their merits have unnecessarily been referred to arbitration, and could be resolved without the considerable added time and cost that has been expended. They would also benefit from enhancing their level of understanding of claims and disputes, and the respective process.”
Evidently, there are many routes that contractors and clients can pursue to both avoid disagreements and resolve them – but is it possible that a construction project in the Middle East is completed without a dispute? Rics’s Jackson says that while there are “some great examples of collaborative delivery where projects are delivered with minimal disputes”, such instances are “few and far between”. BSA’s Dimitracopoulos says “there is no reason why” such projects should not be possible, “especially if contractual terms are fair and applied promptly and if projects are well thought out with necessary variations and changes being kept to a minimum”.
“Hope springs eternal,” HFW’s Harbridge concludes.