Out-Law Analysis | 04 Aug 2020 | 11:52 am | 6 min. read
Construction companies in Qatar can look to avoid costly litigation or arbitration proceedings by seeking to resolve disputes over construction project claims via mediation, expert determination or the use of dispute boards.
These alternative methods of dispute resolution could prove attractive to employers, contractors and sub-contractors as they grapple with the challenges the coronavirus crisis and resultant restrictions imposed by governments pose to the timely completion of works.
Often claims on construction projects arise because of the changes to the original scope of work, known as variations. Changes can be instructed either formally, using proper contractual mechanisms such as change orders for example, or informally, such as in correspondence, comments on design drawings, meetings or by email.
Informal changes often cause disputes. Employers commonly resist contractor's claims that informally instructed changes amount to variations on technical grounds, relying on ambiguities in poorly worded specifications, and often deploy arguments that the claims are invalid as a result of procedural failings, such as lack of notice or lack of timely notice, to resist compensating the contractor.
Contractors on the other hand, at the end of a project, often advance composite claims made up of multiple events including compliance with instructions which amount to a change to recover time-related losses, or prolongation costs, or to substantiate a disruption – loss of productivity – claim.
These issues can arise because of the different approaches and strategies pursued by employers and contractors during the life of a project.
Employers want their asset delivered on time and on budget, and usually, regardless of the procurement model adopted, want the ability to impose changes on the contractor as they observe the project progress. Main contractors want to deliver the asset on time and on budget, and to make their projected profit margins. This includes an ambition to achieve greater than planned margins through well managed variations which can be anticipated on all major infrastructure and energy projects in the region.
Subcontractors have similar priorities to main contractors, and are often asked to agree to "pay-when-paid" or "equivalent project relief" provisions which restrain their entitlement to compensatory relief, until the main contractor has received the same from the employer.
It is in no one's interest for claims arising from construction projects to fester and become the subject of major conflict, as this can impact working relationships and future collaboration and also affect the project profit margin. However, attempts to amicable resolve claims are not always successful. A lack of good record keeping to evidence claims, a lack of cash to settle legitimate claims and a lack of belief from those facing claims that the other side will pursue those claims through formal dispute resolution channels are among the main reasons why settlement is not reached.
In Qatar, there are two formal methods of dispute resolution: litigation and arbitration. The main contracts between employers and main contractors will provide for either litigation or arbitration in the event of dispute. At subcontract level there is a greater tendency for arbitration.
There are other ways to resolve construction claims beyond litigation or arbitration. Tiered dispute resolution clauses can be used in contracts to set out one or more steps to be taken to amicably settle disputes before litigation or arbitration is commenced. The main forms of alternative dispute resolution (ADR) are mediation, expert determination and dispute adjudication boards.
There are limited sources of data showing the extent to which ADR is adopted in Qatar. In 2019, Pinsent Masons Qatar and Constructing Excellence Qatar conducted a survey to identify the extent to which the construction industry in Qatar adopts ADR techniques. Out of 127 respondents, a third said they had.
Mediation is a process whereby the parties jointly agree to appoint a mediator or conciliator, as a neutral third party, to facilitate discussions with a view to reaching agreement on the core issues and settling disputes. The mediator does not have the authority to impose a solution or to produce a decision, determination or award. They are tasked with bringing the parties together, onto mutual grounds.
Mediation is a popular approach to formal dispute avoidance, and given its flexibility, has gained significant traction in recent years, given the cost and length of time more formal processes can take. Several institutional bodies have mediation 'rules' including the ICC and local to Qatar, the Qatar International Centre for Conciliation and Arbitration (QICCA) and the Qatar International Court and Dispute Resolution Centre (QICDRC).
In Qatar, mediation clauses can be seen in the Supreme Committee for Delivery & Legacy contracts and the subcontracts which flow down from them. The Supreme Committee for Delivery & Legacy is the body responsible for letting contracts for FIFA World Cup 2020 infrastructure.
The adoption by Qatar of the Singapore Mediation Convention in 2019 provides a process for the direct enforcement of cross-border settlement agreements between parties resulting from mediation. Similar to the New York Convention on Enforcement of Arbitral Awards, the Singapore Mediation Convention provides a method for enforcing mediated settlement agreements. Qatar ratified the Singapore Mediation Convention in March 2020, and the country's interest in it signals to foreign investors, many of whom are in the construction industry, that Qatar's policies are aligned with modern practice and that reform is driven by market demands, above all else.
Some Qatari government authority contracts contain expert determination provisions in the dispute resolution clauses. Examples include those issued by Kahramaa, Qatar Rail and the 2018 form of Ashghal contracts.
Given the confidential nature of such processes, there is little public information on the extent to which expert determination is adopted by members of the construction community in Qatar. However, experience suggests it is infrequently used. Often parties prefer the certainty of a final decision being issued by a judge or arbitrator, and are put off by enforceability risks, even with binding expert determinations, given the unfamiliarity of the Qatari judiciary with the process and binding nature of the outcome.
In countries where expert determination is a more familiar concept such as the UK and Australia, the courts have adopted an approach of 'provided the expert has asked the right questions, the court will not assess whether he has given the right answers.' That is more of a risk in Qatar where courts have been known to be interventionist, particularly in relation to arbitral awards.
Another reason parties do not adopt expert determination as a process is because it falls apart for procedural reasons which the contract does not clarify and permits the parties to bypass expert determination stage in the contract. There are however, some examples of expert determination being adopted, including at the end of a project to settle large claims and avoid formal litigation or arbitration being commenced. Those are often expressed as 'binding' expert determinations.
Under the first FIDIC construction contract, which came out in 1957, all disputes had to be referred to the engineer for a decision. As the engineer is hired and paid for by the employer, the engineer is often subject to commercial pressures that can make it difficult to act impartially. Contractor's claims might call into question the engineer's conduct as administrator of the works, which creates a conflict of interest. As a result, the engineer loses credibility as the party who is capable of settling disputes. That situation led to the introduction of Dispute Adjudication Boards (DABs).
DABs are a standing body, set up upon signature of the contract or commencement of performance, to help parties avoid or overcome disagreements that arise during implementation of the contract. They can be either formed at the beginning of the project and remain in place until the end or formed as and when individual disputes arise and expire after it has been dealt with.
Qatari construction contracts, at least at main contract level, rarely contain clauses which state that a DAB will be appointed to enable parties to have disputes resolved immediately, as the project progresses, rather than allowing them to build up and end up in formal dispute resolution proceedings. Even when they are included in construction contracts, there can be reluctance from one of the parties to take the steps necessary to form the DAB, prompting claims to be pursued through more formal dispute resolution instead.
DAB clauses are not contained in the standard form government contracts in Qatar, though there has been an effort in 2019 by the Royal Institution of Chartered Surveyors in Qatar to push the 'Dispute Avoidance Service' which operates in a similar way to DABs.
It is known that there are situations where contractors with valid claims are not pursuing them because they cannot fund the associated fees to do so. This is not a problem unique to Qatar. Funders such as Augusta Ventures have identified that as an opportunity and are very interested in funding claims with over 50% chance of success. The benefit for the funder is that they receive a percentage of the winnings – this figure is agreed with those raising the claims upfront who are given an avenue to recover their entitlement not otherwise available due to lack of internal financial backing.