Over the past two years, the construction market in the Middle East has faced several headwinds. Two examples are reduced government spending on major infrastructure projects due to the low oil price and a lack of liquidity within the sector generally.
As a result, one trend we are seeing in the market is an increasing number of disputes reaching a final hearing while previously these may have reached a settlement without the need for an arbitration or court hearing. Eversheds disputes team in Dubai conducted four major arbitration hearings over the course of 2016 and this seems to be indicative of activity in the wider market.
One of the key reasons for this is the unavailability of funds to achieve a settlement. In the event that the parties to a dispute are able to agree terms of settlement, usually the receiving party will only agree to settle if a substantial payment is made in the short term.
When available cash is limited, the hands of the paying party may be tied and the only course of action for the business may be to run the matter to the hearing to seek to reduce the level of the award or judgment as much as possible, with any payment then being deferred to a later debt.
Since this does appear to be the trend, contracting parties should be taking the appropriate preparatory steps as early as possible and during the course of the scheme rather than at the end.
The majority of construction disputes are caused by poor contract administration. When the matter reaches a final arbitration hearing, the historic contract administration has a spotlight trained upon it and will feed into the outcome in terms of the level of the award.
The contract documents for most major projects will include clear provisions for the granting of extensions of time, variations, liquidated damages and a range of other matters that provide fertile ground for disputes. If you are the party that has administered the contract in the most conscientious, compliant and good-faith manner, you will be off to a head start with the tribunal and you will be maximising your prospects of a favourable award.
We are seeing many contracting parties (both employers and contractors) investing in talent in their contract management teams and also investing in training for those teams on specific projects and contractual documents. As well as improving the likely outcome of any final award, by adopting this approach they will be maximising the prospects of reaching a favourable settlement without incurring the time and cost of taking the matter to a final hearing.
In other words, si vis pacem, para bellum (if you want peace, prepare for war).
Ben Bruton is managing partner at the UAE office of UK law firm Eversheds