‘Unrealistic’ deadlines spark construction disputes in Gulf

Shutterstock/Randy Hergenrether

• Middle East among worst for delays
• Giga-project developers adopt new contracts
• Saudi Arabia awarded $44bn of work in H1 2023

Developers in the Middle East are setting “unrealistic” timelines for building projects, industry experts have warned, as the region is named among the worst in the world for construction delays.

Construction overruns added 82 percent to schedules in the region, well up on the global average of just over 67 percent, according to the 2023 CRUX Insight Report from dispute resolution and risk consultancy HKA. Africa performed marginally worse at 82.9 percent.

“Some of these timelines that are put forward at tender stage, at the time when not much information is available about the extent and complexity of the project, are unrealistic,” said Jad Chouman, HKA partner and head of Middle East.

• Dubai’s unfinished Falconcity plots sell at steep discount
• Construction to start on Rua Al Madinah giga-project
• Doubts remain around completion of Jeddah Tower

On average, Middle Eastern projects had 22.5 months added to their schedules, according to HKA, which looked at 410 projects in the region and more than 1,800 worldwide over six years.

As a result of the delays, contractors’ claims for extra costs sought to add 35 percent on average to project budgets.

More than half (57.3 percent) of the 410 projects in the Middle East were delayed by a change in scope, compared to only 33 percent worldwide.

Contract interpretation caused more than a quarter of disputes (28.8 percent). The global average is just over 17 percent.

Chouman predicts that the approaching Vision 2030 deadline will be a “major cause of disputes and claims” in Saudi Arabia, particularly on giga-projects.

The kingdom awarded $44 billion of contracts in the first half of 2023, according to the latest construction report from JLL.

Chouman added that some Saudi Arabian developers were trying to prevent disputes by experimenting with different types of contract, to involve contractors at an earlier stage and increase collaboration and risk-sharing.

“In many of these new giga-projects we see new kinds of contracts being offered to contractors just in an attempt to get the best to come and do the work,” said Chouman.

Cash flow issues (26.6 percent) and late approvals (27.1 percent) were also significant causes for construction disputes in the Middle East.

Barry Lewis, the recently appointed CEO of Dubai-based Alec Engineering and Contracting, told AGBI that “legacy issues” between developers and contractors were affecting the region’s industry and need to be resolved.

“As a contractor, unless there’s a pre-arranged agreement for us to provide funding on a project, we basically come there with the expectation that the client is funding the project and we get paid for the work that we execute,” he added.

“If developers are serious about local contractors delivering projects, they have to start treating them fairly.”

Fitch Solutions forecasts that the Middle East and North Africa’s construction industry will grow by 3.2 percent in 2023 and then average 3.5 percent each year through to 2027.

Leonie Sellers, a partner in the Dubai office of construction law firm Fenwick Elliott, said the pace and ambition of construction in the region made higher levels of disruption on Middle East projects “inevitable”. 

However, she added that “widespread efforts” were being undertaken to help projects run more smoothly.

“Dispute adjudication boards, for example, are increasingly being implemented for major programmes of work. Particularly if introduced early on, these have the potential to address and help avoid disagreement,” she said. 

“There are also improvements being made in the regulatory procedures for arbitration, which is critical as the Middle East continues to pursue some of the world’s most ambitious infrastructure and development programmes.”