Basic contract issues remain the root cause of many of the disputes across the region
Ongoing liquidity issues within the Middle East construction market has seen an increase in the number of claims submitted however the industry is resolving them more swiftly, according to the latest research from Arcadis. On a less positive note, basic contract issues remain the root cause of many of the disputes that materialize across the region.
The ‘2017 Middle East Construction Disputes Report’ is an annual study from Arcadis that examines the most common causes of dispute on construction projects, as well as the average duration and value of disputes, and the method of resolution most commonly deployed. The findings are based on an assessment of the construction disputes handled by the Arcadis Contract Solutions team in the Middle East over the previous twelve months.
Average value and length of time needed to resolve a dispute decreasing:
Over the last year, the average length of time needed to resolve a dispute in the Middle East fell to just 13.7 months. This is 10% quicker than in the two previous years, and is less than the global average. Similarly, the average value of a construction dispute also decreased, dropping from$82m in 2015 to $56m in 2016.
Rob Nelson-Williams, Regional Head of Contract Solutions, Arcadis Middle East said: “This trend towards swifter resolution is particularly welcome as it’s helping to improve liquidity across the wider supply chain. In a tight market, we’re seeing an increase in the number of claims submitted as contractors take a tougher approach to entitlements to help protect their cash flow position.”
Fig 1 – Average length and value of construction disputes handled by Arcadis (2010-2016)
Basic contract understanding still at the heart of most disputes:
A failure to properly administer the terms of the contract remained the most common cause of disputes on construction projects in 2016, closely followed by poorly drafted, incomplete, and unsubstantiated claims. This once again underlines the need to get the basics right, and the importance of seasoned technical and commercial advice when it comes to contract strategy.
Nelson-Williams commented: “Every year, we see the same basic issues repeatedly cropping up when we analyse the causes of disputes on construction projects. Within the industry, there’s a pressing need for better education on how to avoid these pitfalls. A sharper focus on removing ambiguity from within a contract at the very outset, and better training on how to prepare a robust and credible claim are two relatively simple steps that would make a significant difference.”
In this year’s report, proper contract administration was pinpointed as the single biggest factor that would help to reduce the number of future disputes. The other two factors that the Arcadis team called out also related to contract issues, namely the production of accurate contract documents and a more balanced approach to risk allocation.
“Over the next 12-18 months, clients need to be careful that, in the haste to get spades in the ground to meet fixed deadlines, that they do not make rushed decisions around contract and procurement strategies. With disputes typically lagging a year or two behind project commencement, there’s a risk that poor decisions taken now may only become evident much closer to the delivery date when the margin for error is a lot slimmer’, concluded Nelson-Williams.
Fig 2 – Most common causes of disputes on construction projects handled by Arcadis 2016 and factors that would have the biggest impact in terms of avoiding disputes 2017.
Party-to-party negotiation still the preferred method for resolving disputes:
Consistent with previous years, party to party negotiation and arbitration remained the two most common methods of dispute resolution in the Middle East.
While claims and disputes were a facet of most market sectors in 2016, they were most prevalent on public sector and social infrastructure projects. This year’s report also indicated a rise in the number of claims and disputes on oil and gas projects, as the sector becomes more cautious in response to a low oil price environment.
The full findings from this year’s report are available to view here: 2017 Middle East Construction Disputes Report
