Construction disputes fall 42%
Even though construction disputes in the Middle East have dropped by 42 per cent to $65 million in 2012 from $112.5 million in 2011, the value remains the highest in the world.
And not limited to that, even the time taken to resolve a dispute in the Middle East remains above the global average. In the Middle East, it takes 14.6 months to settle a dispute, while the global average is of 12.8 months, according to EC Harris, the global built asset consultancy.
“This is a significant drop, but values are still high enough for the Middle East to have the highest value disputes by region. There is no particular reason for this drop, and still reflects the size and scale of construction programmes being undertaken in the region,” the consultancy said in a report titled, ‘Global Construction Disputes: A Longer Resolution.”
Value of disputes in Asia stood at $39.7 million in 2012 compared to $53.1 million in 2011. Disputes in the US were the lowest at $9 million ($10.5 million in 2011), while in the UK disputes more than doubled in value from $10.2m to $27m. Overall, average global dispute values declined to $31.7m from $32.2m in 2011.
In terms of length of dispute, Asia takes 14.6 months, which is a tad better than the Middle East. However, in the US and the UK it takes 11.9 months to settle a dispute, with decisions in mainland Europe arrived in just six months.
Party-to-party negotiations continued to top the list of methods of alternative resolution followed by mediation and arbitration.
David Dale, Head of Contract Solutions, Middle East at EC Harris said: “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.”
The report reveals that 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,” Dale said.
The top five causes of construction disputes in the Middle East during 2012 are: Failure to properly administer the contract; 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 and third party or “Force Majeure” events.
MEED data reveals that the GCC projects industry is expected to see contracts worth $1.35 trillion being awarded by year-end compared to $730 billion last year.
Saudi Arabia leads the region with close to $600 billion projects to be awarded, followed by the UAE with over $350 billion contracts and Kuwait with over $150 billion. More than $250 billion are expected to be awarded this year between Qatar, Oman, and Bahrain.
In its recent report, Deloitte said the UAE has replaced Saudi Arabia as the GCC's largest construction market with $16.2 billion worth of contrract awarded last year. Total contracts awarded in Saudi were $15.6 billion.