Construction Disputes rise in the Middle East

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Construction Disputes on the Rise in the Middle East
The average length of time to resolve construction-related disputes rose in Asia, the Middle East and the UK.

According to a recent study by EC Harris, titled, Global Construction Disputes: A Longer Resolution, construction-related disputes are taking the longest to resolve in the Middle East, although Asia and the UK are not far behind.

The time-to-resolution of such disputes is taking 14.6 months on average in the Middle East, according to the study. Last year this figure was 9 months, which indicates an increase of 62 percent. The resolution of construction-related disputes in Asia, took 14.3 months on average.

While dispute total values fell across all regions, the Middle East still experienced the largest disputes at an average of USD 65 million. Overall, average global dispute values fell by USD 500,000 to USD 31.7 million, down from USD 32.2million in 2011. Asia recorded a value of USD 39.7 million, and in the UK disputes more than doubled in value from USD 10.2million to USD 27 million. Disputes in the U.S. had the lowest value at USD 9 million.

David Dale, Head of Contract Solutions, Middle East at EC Harris; “Construction projects are increasing in complexity, so when a dispute materialises, it can be just as complex to initiate the formal dispute resolution procedure which is resulting in many disputes spanning a year or more. The sheer volume of disputes in the Middle East may be another reason for this delay. There are a limited number of arbitrators and expert witnesses based in Middle East, so there has been, to some extent, a backlog of cases while respective parties counsel, experts and the arbitral tribunals’ schedules can be coordinated. To relieve this backlog, parties have sought to appoint arbitrators/expert witnesses that live and practice outside of the Middle East which has helped, but can still cause delay to coordination and availability problems.

Dispute values tend to vary year on year and but they do indicate that with many billions of dollars being spent on construction, particularly in the Middle East, it is likely that high value disputes will continue to be a feature in international markets.” — David Dale, Head of Contract Solutions, Middle East at EC Harris, commenting on the findings of the report

The report highlighted several reasons for the increased length of resolution. It says the sheer volume of disputes in the Middle East are a contributing factor in the delays. There are a limited number of Arbitrators and Expert Witnesses based in Middle East, so there has been a backlog of cases, to some extent. Additional factors influencing those delays include; Arbitration timetables being extended, parties becoming better at delay and frustration tactics to put off any award, and the lack of enforcement for Arbitration awards.

The research also found the causes of construction disputes in the Middle East during 2012 were:

  • Failure to properly administer the contract, which is the most common reason
  • Failure to make interim awards on extensions of time and compensation
  • Employer imposed change
  • Contract selection was not a ‘best fit’ when compared to the project’s characteristics
  • Third party or Force Majeure events

Regarding the frequency of disputes among Joint Venture (JV) arrangements, the report found that, where a JV was in place, a dispute within that arrangement occurred on average, about 19 percent of the time.

David Dale; “Joint venture agreements are becoming more prevalent, particularly where a project is of such a large size and scale or there is a need because of licensing requirements for a local JV Partner. These JVs are causing a significant number of cases, so more needs to be done in order to ensure that the JV itself does not end up in dispute.” — David Dale, Head of Contract Solutions, Middle East at EC Harris

Elaborating upon the methods of resolution, the report identified party to party negotiations as the most common method. This is followed by followed by arbitration and adjudication which is largely due to frustrations with the arbitration and possible enforcement process which results in a greater number of parties agreeing to the negotiation strategies.

David Dale; “The greater stability experienced in the region is one of the key reasons for third party or force majeure events dropping to fifth place as a reason for dispute. Outside Libya, Syria, Egypt and occasionally Bahrain, the region has settled back down which has allowed construction projects to proceed with less disruption from outside events. I think this trend is likely to continue, with a gradual increase in the number of disputes in such places as Qatar, Oman and the Kingdom of Saudi Arabia.”— David Dale, Head of Contract Solutions, Middle East at EC Harris, commenting on the findings of the report

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