Common contractual concerns

Michelle Nelson, partner, Pinsent Masons, says it is worth examining five common traps before plunging into construction in Dubai.

Let's examine some of the potentially troublesome issues which contractors face regularly in the Dubai construction market. In preparing this article I have highlighted five issues which we are asked to advise contractors on regularly.

Price escalation

One of the hottest topics in Dubai (and indeed the rest of the region) at the moment is price escalation. We are asked, perhaps weekly, whether there is any way of recovering additional costs as a result of increased costs for labour, materials and other resources in the absence of a provision in the contract for additional payment.

While it may be possible to make such a claim in the absence of such a provision in the contract in certain circumstances, this is by no means certain.

The best way to deal with it is to make proper provision for it in the contract.

Employers are becoming amenable to this - the harder task is to produce a formula or other means of assessing the costs.

Coordination

Another issue regularly raised in this market is coordination. Most contracts here include onerous coordination obligations on the part of the contractors or subcontractors - the thrust being that the contractor is obliged to coordinate with others involved in a project without any ability to make a claim if they are delayed by other contractors or incur additional costs.

These clauses can be extremely harsh on contractors and can expose them to difficulties.

Consider, for example, projects such as the Dubai International Airport and the Dubai Metro where there are multiple contractors at work, often in confined spaces.

How is a contractor supposed to allow for all consequences of such coordination in his prices and ensure that he is not delayed as a result of having to do so?

We would always advise contractors to consider the potential implications of such wide-reaching obligations before entering into the contract as it is often extremely difficult to mitigate against their effects later.

Programming

A similar issue relates to programming requirements and a common requirement to ensure that a contractor's work programme will accommodate other contractors' programs, again often without additional time or money.

Contractors frequently find themselves in situations where they are expected to absorb the effects of working to another contractor's timetable without the ability to recover the cost of doing, despite disruption to their own works.

Again, this should be considered carefully before a contractor signs such clauses.

Design

Another issue is design. We are constantly advising contractors in situations where they have been given certain design responsibilities under the contract but have then had their design freedom removed by interference by the employer or its consultants.

In these instances, the contractor has priced the work on the basis of its ability to design the works with little involvement of others, except to the extent required to verify that the design complies with the employer's requirements.

Instead, the designs can be changed under the guise of ensuring compliance with the employer's requirements when in reality it is often little more than the employer deciding that he would prefer it another way.

Contractors must therefore carefully consider the parties involved in the project and their potential for interference before signing such design obligations.

The difficulty is that liability will still remain with the contractor, even where he has effectively been forced into certain design 'choices'.

Variations

The final issue is variations. The speed in which projects in Dubai are instigated can lead to substantial changes to the detail during the course of the works as ideas develop and often change.

While many changes are easy to incorporate into the works, others are not and may require extensive consideration of the impact, in terms of both time and money.

Another difficulty in relation to variations is in recognising the changes as variations under the contract and agreeing on proper payment for them.

What often happens is that contractors are faced with many small 'clarifications' to the works which they are expected to incorporate without question or additional payment.

These ‘clarifications' often mount up and it is not long before a contractor realises that he has not kept a proper record of them - both in terms of complying with notification requirements under the contract or their possible or likely impact.

The above comments are my observations on some of the more pertinent issues when working in this market in Dubai. They are not, in themselves, unique to Dubai but can make working in such a market challenging. Of course, as with any challenge, the potential reward is great.