Construction contracts in Qatar, particularly in the public sector, are typically very employer/procurer-friendly, and understanding risk transfer is essential.

International standard form construction contracts, such as the Fidic (International Federation of Consulting Engineers) suite of agreements, are used in Qatar, although as in other jurisdictions they tend to be heavily amended. In addition to the terms of the construction contract itself, anyone undertaking a construction scheme in Qatar needs to be aware of the impact of the Qatar Civil Code.

While many of the principles that apply in the country are similar to the principles that apply in this sector in the other Gulf civil law countries, there are some specific nuances and variations from English law that developers, contractors and lenders should know about.

Delay-liquidated damages

If the contractor causes delay to a project’s completion, most construction contracts will give the employer the right to claim delay-liquidated damages.

Under an English-law contract, parties are able to freely agree rates of delay-liquidated damages. However, if that rate places a burden on the contractor that is out of proportion with the employer’s legitimate interests, an English court will consider it a penalty and strike out the entire provision from the contract. A court or arbitral tribunal will assess the damages payable and determine if they are extravagant or unconscionable according to applicable norms. It is therefore usual to see additional drafting in English law construction documents to mitigate the possibility that an employer may be left without any contractual remedy if completion is delayed.

The parties to a Qatari-law contract are similarly free to agree rates of delay-liquidated damages. However, if the liquidated damages clause does not accurately reflect the actual loss suffered by the employer, the contractor may apply to a Qatari court to decrease the damages. However, unlike in other GCC jurisdictions, an employer in Qatar cannot petition the court to increase sums payable if it suffers losses above the liquidated damages stipulated in the contract, unless the losses arise as a result of the contractor’s deceit or gross mistake. This is a mandatory provision under Qatari law and cannot be contracted out of. Penalty provisions under Qatari law are considered void.

Prevention principle

It is a long-established principle of English law that if one party has prevented the other from complying with a contractual obligation, the first party may not seek to enforce compliance with that obligation. As a consequence, the date for completion no longer applies and the employer is no longer entitled to claim delay-liquidated damages. This is commonly known as the ‘prevention principle’.

Such a concept does not formally exist in Qatar, but there are provisions in the Qatar Civil Code that have the same result.

While an employer will not automatically lose his right to claim liquidated damages if he causes delay and does not grant an extension of time to the contractor, Article 191 of the Qatar Civil Code provides that one party will not be obliged to perform under a contract where the other party has failed to perform its obligations.

Article 183 of the Code goes further and provides that where one of the parties fails to perform its obligations under a contract, the other may demand the rescission of the deal. This can be compared with the common law right of termination.

Additionally, Article 257 of the Qatar Civil Code entitles a court to decrease the amount of indemnity or reject any request for indemnity where the negligence of the beneficiary (in this case, the contractor) contributed to or aggravated the damage. It is also recognised that the principle of ‘good faith’ in Qatar goes some way in preventing an employer from insisting on the contractual completion date and claiming compensation from the contractor where the employer has breached its own obligations under the deal.

Good faith

There has been much debate about the existence of a duty of good faith under English law, and the courts have been reluctant to recognise any such general obligation in commercial contracts. Express good faith provisions are in use, although their application and interpretation are still a matter of contention.

In Qatar, by comparison, the parties are obliged to act ‘in a manner consistent with the requirement of good faith’. This principle of good faith in contract has a statutory basis (as is always the case under Qatari law), although it has been suggested that it may extend to the performance of obligations imposed on the parties by law, custom and the nature of the transaction.

The general application of good faith is fact- and contract-specific. If an employer has caused delay, this may curtail its ability to deny a contractor an extension of time and prevent the employer from insisting on liquidated damages. Purposeful prevention of completion may also result in orders for damages to be paid.