Mediation – Cornering the issues

Quantum Technical Manager Sean Vernon, discusses the issues currently affecting construction projects in the Middle East and how entering into mediation opens up a more inclusive, collaborative forum for dispute resolution unconfirmed by legal timetables and strict contractual requirements.

As those who keep up with world events will know, Qatar is on the way to 2022 and the FIFA World Cup. As such, the whole country seems to be a construction site. New tower blocks, infrastructure, malls and, of course, stadia are being built in all parts of Qatar.

What with the economic downturn in the past few years and the fall in energy prices, times have been hard. Employers want to keep hold of their money, contractors want to maximise their income and minimise their outgoings and there has been a general ‘belt-tightening’ in the construction industry.

Having said that, the push is still on for 2022 and everything needs to be completed ahead of that, so that Qatar can host a successful event with all the infrastructure, public transportation network, first class stadia and accommodation to service the 1.5 million¹ set to invade Qatar to cheer on their respective countries.

With belts being tightened and an immovable deadline getting ever closer, the pressure is on and so claims are being made left, right and centre. This is a climate for dispute.

Qatar’s contracts have traditionally been somewhat one sided. The majority are distant cousins of the FIDIC forms, heavily modified in the employer’s favour, with others being bespoke contracts that are even more heavily weighted towards the employer.

“Qatar is expanding its efforts to create awareness of developing alternate dispute resolution mechanisms in construction projects.

FIDIC Red Book 1999 is often used as the basis for Qatar contracts and states with regard to dispute resolution that either party may refer their dispute to the appointed Dispute Adjudication Board (DAB). If either party is dissatisfied with the DAB’s decision the parties will try to settle amicably failing which the matter can be referred to arbitration. All within contractually prescribed timescales.

Usually in Qatar terms allowing referral to DAB are removed and the dispute is raised direct to the Qatari courts. Some of the common forms leave referral to arbitration but the DAB is almost always removed. This can be viewed two ways. Firstly, the employer wants to keep the dispute at Site level and settle amicably or secondly, the employer wants to make escalation of the dispute too costly and time consuming for the contractor to consider.

Often contractors’ claims are rejected for reasons such as time bars, differences of opinion regarding culpability for events or, in the case of delay claims, the duration of the events and often differences of opinion with regard to the appropriate methodology for delay analysis.

If the contractor and employer reach a stalemate then the contract states that the only way to progress is to court, or possibly arbitration. Qatar is a Civil Code jurisdiction and all documentation and proceedings are in Arabic. Taking an employer to court is not to be considered lightly due to both the time and the cost of the process. Costs will be incurred with nothing coming in and no guarantee of a positive outcome at the end of the process.

I truly believe that this is where mediation can play a positive role. A typical scenario would be where the contractor has numerous outstanding claims for both extension of time and variations. The contract mechanism for dispute would typically be to firstly engage in discussion with the engineer in an effort to resolve the matter, following which he would make a determination in the absence of mutual agreement. The contractor should then raise a notice of dispute within the prescribed timescale if he was in disagreement with the determination, following which the parties would try to resolve the matter amicably.

“With belts being tightened and immovable deadlines getting ever closer, the pressure is on and claims are being made left, right and centre

If this was not possible, after a set period of time, typically the contract would allow the matter to be raised to higher management level. After a further period of time, if agreement could still not be reached, the disputing party could file with the relevant court. This can lead to a kind of brinkmanship with each party not wishing to push the matter further but also not wanting to let it run indefinitely. With regard to the employer, he holds the money so he is not too worried but if he wanted the matter to go away he could push the process to the point where court filing was required and if this was not done by the contractor within the required time, the dispute would be time barred.

This can be further exacerbated by engineer’s representatives paid by the hour, who do not have the authority to make monetary or time settlements and with no particular incentive to settle disputes. The contractor will be required to finish as per the original completion date and also starved of cash, both in preliminaries’ costs and in disputed variations. This typical tactic appears to be to starve the contractor so that he is desperate to make a deal at the end of the project and thus will accept a lesser settlement in a quicker time just to get some cash.

The major issues coming from this dispute process are that it is bad for all parties but this is usually only seen from the one side. From the point of the view of the contractor, he has no cash flow, so he cannot pay his supply chain, so his supply chain does not deliver or produce on time. He therefore has less cash flow and so it continues. All the while, the employer is demanding completion on time, threatening penalties and withholding payments. This is not a sustainable situation. And going to court would only increase the cash flow problems.

“With rising numbers of regional project deferrals and cancellations an increase in the number of claims submitted and formal disputes have materialised.

The parties are both entrenched to the point that they cannot move or they will lose face. Their positions are set. What would ideally suit the situation would be mediation. Entering into mediation opens up a more inclusive, collaborative forum for dispute resolution and is not confined by the time constraints and legal and contractual requirements of going to court or arbitration.

Mediation being non-binding up to the point of agreement and confidential in nature allows the parties to explore options that are not presented within the strict confines of the contract. The mediator’s facilitation allows the parties to see other aspects of the dispute that may not be immediately obvious and for them to open up and admit their shortcomings with no fear of these being used against them. It can also allow the contractor to meet directly with the employer without going through the engineer and his representatives, who may have their own agendas.

The parties can explore the issues and needs of both sides rather than the strict contractual obligations. The employer wants to have his building on time, to the required quality, without his mistakes being aired in public and to avoid a reputation for being overly contractual and litigious, such that nobody will want to work for him in the future, or at least not without a huge contingency sum in their bid.

Similarly, the contractor wants to avoid penalties, complete the project with sufficient profit, without his mistakes being aired in public and to avoid a reputation for being overly contractual and litigious, such that nobody will want to employ him in the future.

“Contractors want to avoid penalties, complete the project with sufficient profit, without their mistakes being aired in public.

It is amazing how the needs of the parties overlap, but the contract is so narrow that these do not come out. The contract is purely about time and money and the strict liability of the parties with regard to these.

Focusing on the parties’ needs shows that both want a good job in the quickest possible time with no damage to reputation and the possibility to do future work, even with each other. This is much broader than the contract, which will constrain any decision of a court or tribunal, and states that the job will be done in a certain time for certain money and does not explore the greyer areas such as reputation and the future.

This approach also aligns with the way of doing business in the Middle East, this being similar to party to party negotiation with nobody losing face. Having experienced the pain of going through the contractual dispute resolution procedure in Qatar it is heartwarming that one of Qatar’s major employers, Asghal², recently hosted a joint seminar with Qatar International Court and Dispute Resolution Center (QICDRC) and the Chartered Institute of Arbitration (CIArb) on alternative dispute resolution procedures³.

In Arcadis’ ‘2017 Middle East Construction Disputes Report’⁴, it was noted that the Public Sector saw the largest number of disputes in 2016, followed by the property/real estate sector. It was also observed that mediation was still ‘much less widely adopted compared with other parts of the world however in time it could well become more in vogue.’ Party to party negotiation was the top ranked method of dispute resolution with arbitration in second place.

In light of this, with any luck more employers in Qatar will embrace alternative dispute resolution, including, hopefully, mediation. Qatar is an ideal market for mediation as mediation offers a confidential, privileged atmosphere for resolution where wider solutions than those offered by the contract terms alone can be explored and at a fraction of the time and cost of litigation or arbitration.

¹ Qatar expects 1.5mn fans for 2022 World Cup: official – http://www.gulf-times.com/story/567790/Qatar-expects-1-5mn-fans-for-2022-World-Cup-offici
² The Qatar Public Works Authority responsible for publicly funded schemes such as roads and drainage infrastructure.
³ http://www.ashghal.gov.qa/en/mediahub/news/pages/joint-seminar-between-ashghal-qicdrc-and-ciarb-on-investment-treaty-arbitration-in-relation-to-construction-projects.aspx#.WubusohubIU
⁴ AVOIDING THE SAME PITFALLS, 2017 Middle East Construction Disputes Report, Rob Nelson-Williams, Ed Spencer and John Mulhern

This article is published with the purpose of promoting discussion only. The contents must not be relied upon or applied without first seeking professional advice.