Qatar builders hit by escalation-cost contract clauses

17/07/2017 05:53 AST

International contractors working in Qatar have been warned to review their contracts to avoid being hit by escalation costs triggered by the boycott by the Anti-Terror Quartet (ATQ). As major construction projects grapple with disruption and material shortages caused by shipping delays, lawyers are poring over contracts to assess the potential legal exposure of builders.

It represents a difficult choice for both clients and contractors. Qatar’s government wants to ensure key projects associated with the 2022 World Cup are finished on time but without being saddled with higher costs, while builders must assess whether the reward of winning work is worth the potential contractual risks.

While most construction contracts place the onus on contractors to procure building materials, they also include clauses to allow an extension of time in circumstances including those “caused by governmental actions.”

Most big construction projects use a basic contractual template known as FIDIC, which is derived from the French acronym of an organization of consulting engineers set up a century ago.

The contract can be amended in various ways, but the standard form includes basic rules about where responsibilities lie when projects go wrong.

“A contractor may have an entitlement to an extension of time, but it does not follow under the FIDIC form that the contractor also has an entitlement to more money,” said Andrew MacCuish, a partner at Kennedys, the international law firm. “Money to compensate the contractor is a separate and difficult area.”

Contractors bidding for new work in Qatar say tenders issued for work since the boycott was introduced will have to pay any escalation in costs, the Middle East Economic Digest (MEED) reported this week.

On June 5, the ATQ — comprising Saudi Arabia, the UAE, Bahrain and Egypt — severed ties with Qatar, alleging support for terror groups. Flights and shipping were disrupted, and the road link to Saudi Arabia was closed.

That has caused widespread disruption to the construction sector and has even cast doubts over Qatar’s ability to host the 2022 World Cup.

“It will have an impact in two respects. First, there is the human factor, which means Qatar ceases to be as attractive a place as it may have been perceived in the past,” said MacCuish. “People, especially those with families, will be looking at the impact upon their lifestyles, for example, the ease of travel in and out of Qatar, which has become a bit more difficult. Professionals thinking about moving there, or indeed remaining, will be looking at these issues, as well as the quality of the work available under the boycott.”

He added: “The second impact is in relation to the supply of material. Shipping by sea is still available, although Qatari-flagged ships can’t call at Fujairah in the UAE, and vessels from Qatar or sailing directly to Qatar are banned. Similar restrictions apply in respect of the port of Jebel Ali.”

Construction lawyers expect the boycott to unleash a tangled web of contractual disputes and court cases for what was already perceived as a challenging market by some international construction groups.

Lawyers say some contractors may seek to use the “force majeure” clause, which allows for a contract to be cancelled, but there is no clear legal consensus on its applicability. As important as what the construction contract is seen to allow may be where the dispute is heard.

The interpretation of a contractual row is likely to be different in a Qatari court than one in a different legal jurisdiction.

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