Construction dispute values in the Middle East up 88% in 2014

Disputes relating to major construction projects rose almost 88 per cent last year to reach $76.7m in value, according to a report by built asset design and consultancy firm Arcadis.

It was the highest value increase in construction disputes since 2011, the report added.

Construction dispute values touched $112.5m in 2011 as a result of a number of high value claims that were initiated for projects undertaken in 2008 and 2009.

With the construction sector in the region picking up again, disputes too are growing.

Top reasons for construction disputes in the Middle East were failure in properly administering the contract, poorly drafted or incomplete and unsubstantiated claims and a biased manager or an engineer, the report said.

One of the major construction disputes in the region was between Lindner Depa and Qatar after the latter cancelled an airport fit-out contract over Lindner Depa’s inability to complete the work on time.

Lindner Depa – a joint venture between Dubai’s Depa and Germany’s Lindner- countered such claims saying that it had been allowed into the site nine months late and was given unfavourable contractual conditions during a renegotiation of the deal.

The issue is yet to be resolved as Lindner Depa launched a Dhs 900m arbitration proceeding against New Doha International airport in 2013.

“The Middle East construction market is back in full swing and contractors and employers are seeing more liquidity in the market,” said Arcadis Middle East’s head of alternative dispute resolution Edward McCluskey.

“With this though those parties that parked their losses now have the funds to pursue those claims that were parked. We forecast that this trend shall continue into 2015 as more parties have the required liquidity to pursue those claims that were put on ice.”

The report also examined the likelihood of disputes resulting from a joint venture partnership.

“Joint ventures are becoming more commonplace as developers opt to divest risk across major programs and blend specialist skills in the supply chain into one contract,” said McCluskey.

“However, this approach comes with many potential risks attached. Joint ventures can be typically described as a compromise agreement and our research shows that almost a third enters dispute proceedings.”

The Arcadis study also examined the duration, value, common causes and methods of resolution of construction disputes across the world.

Overall Asia registered the highest value of construction disputes at $85.6m where values more than doubled, the report found.

But dispute values dipped to $29.6m and $27m respectively in North America and the UK.