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|13 August, 2018

Middle East construction dispute value double the global average

Average value of construction disputes in the region touched $91 million in 2017, says Arcadis report

Average value of construction disputes in the Middle East touched $91 million in 2017, says Arcadis

Average value of construction disputes in the Middle East touched $91 million in 2017, says Arcadis

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13 August 2018
The value of construction disputes in the Middle East last year was double the global average and reached its highest level since 2011, although the time taken to resolve them reduced marginally, according to a new report by building consultancy Arcadis.

Arcadis's annual 2018 Global Construction Disputes Report said the average length of time needed to resolve a dispute in the Middle East in 2017 declined 1.5 percent year-on-year to 13.5 months. The global average increased by 6.5 percent to 14.8 months.

However, the average value of disputes in the region in 2017 increased by a whopping 62 percent year-on-year to $91 million, despite the volume of disputes being about the same as in the previous year, the report said. In comparison, the global average dispute value increased by 33.5 percent year-on-year to $43.4 million.

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The report's findings are based on an assessment of the construction disputes handled by the Netherlands-based firm's contract solutions team over the previous 12 months.

According to the report, the 2017 dispute value is the region's highest since 2011, when the average dispute value was $112.5 million. However, 2011 also saw the region reporting the lowest average length of disputes at nine days, before moving to double digits in subsequent years, where it has remained.

A press statement that accompanied the report attributed the steep rise in value to "a small number of high-value disputes and a flow of 'mid-value' final account claims."

The report pointed out that the economic backdrop for 2017 remained similar to 2016, when liquidity issues "due to a comparatively low oil price" squeezed cash flow across the supply chain and saw contractors taking a tougher approach to entitlements.

Recurring factors

The most common reasons cited for disputes saw two new entrants in 2017. A failure to make interim awards on extensions of time and compensation was the top cause of disputes, while owner-directed changes took the third. Failure to properly administer the terms of a contract, a recurring issue for the past three years, took the second spot.

The report pointed out that both the first and third causes are related to "client responsibility".

"When the project manager or engineer is the material influence for the dispute, the most common causes include a failure to be impartial to the employer's interests, a lack of understanding of the procedural aspects of the contract, or a lack of authority that is limited by levels of authority issued by the employer (i.e. not allowed to issue variation orders over a certain value)," it said.

Rob Nelson-Williams, regional head of contract solutions for Arcadis Middle East, said in the press statement that the firm continues to see "a lot of the same issues" crop up in its analysis of construction disputes in the Middle East.

"This underlines the need to get the basics right, and the importance of seasoned technical and commercial advice when it comes to contract or claims strategy," he said.

According to the report, as regional construction-related events loom closer and as pressure increases to meet fixed deadlines, "a sharper focus on removing ambiguity from within a contract at the very outset and better training on how to prepare a robust and credible claim are two relatively simple steps that would make a significant difference."

On the dispute resolution front, as in previous years, party-to-party negotiation and arbitration were the two most common methods of resolving construction disputes in the region in 2017, the report said, with a Dispute Adjudication Board taking the third spot.

(Reporting by Anoop Menon, Editing by Michael Fahy)

(anoop.menon@thomsonreuters.com)

© Thomson Reuters Projects News 2018