Lawyers prepare for legal disputes over late payments to contractors

15 February 2009
Lawyers in the Gulf are expecting a sharp rise in arbitration cases in 2009 because of the increasing number of construction clients delaying payments to contractors.

“We think it is inevitable that companies will start taking legal action,” says Andrew Greaves, a partner with UK-based law firm Trowers & Hamlins. “And, once one or two do, the floodgates will open.”

Speaking at MEED’s Arabian World Construction Summit (AWCS) in Abu Dhabi on 9 February, Greaves said his firm had seen a rise in enquiries from companies seeking advice on how to deal with non-paying clients.

“There is a lot of anecdotal evidence about debts and non-payment of bills, and a lot of people are asking for advice about what action to take,” he said.

“But there is a nervousness about whether to go to the next step [to start legal proceedings]. We are encouraging greater communication, but the tipping point is coming for arbitration.”

Payment delays are placing enormous financial strain on contractors and consultants.

The majority of industry executives polled by MEED at the summit said it was a growing problem, with 86 per cent saying they had seen a rise in payment delays this year, and almost 40 per cent saying it takes three to six months to receive payment.

Property developers have also been hit hard by a collapse of confidence in the property market, and many are revising their strategies.

“We are reviewing our plans to look at more affordable housing,’ said Sami Asad, chief operating officer of Abu Dhabi-based Aldar Properties, at AWCS. “We should cater for the middle and lower-middle classes, where there is demand.”

“Up to the end of last year, the market was driven by speculators and that is now over,” says Hani Shammah, chief executive officer of Abu Dhabi-based Bloom Properties. “Some 90 per cent of potential buyers have been wiped out.”

In response, construction firms are shedding jobs. On 11 February, the UK’s Atkins became the latest firm to announce redundancies, saying it will cut 200 jobs in the Middle East.

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