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In the dynamic business landscape of the Gulf Cooperation Council (GCC), fostering positive owner/contractor relationships may just be the key to unlocking mutual success. Construction contracts generally lean in favour of project owners, leaving contractors to carry the majority of the risk. With the scales tipping in favour of owners, those contracts sometimes make it easier for owners to delay paying contractors on time, quickly certify variation orders, or apply fair principles in resolving disputes. This creates an adversarial relationship, forcing even the most notable local contractors to go out of business, and many international contractors to leave the GCC market.
As market players look for ways to counter the effects of the pandemic, the idea of partnering is becoming more common. The GCC has always attracted diverse talent from around the globe, but now it’s becoming increasingly critical to attract and cultivate more harmonious, collaborative and transparent relationships within the construction market.
Creating a positive environment
Trust and good faith play a large part in construction contracts. Much like any relationship, once trust is broken it’s not easily rebuilt. Major players in the GCC recognize this and are beginning to adopt a more collaborative approach to construction contracts and capital projects.
A few of the most important and prevalent changes include:
1. Statutory Adjudication
Adjudication is a dispute resolution process introduced to the construction industry in the United Kingdom (UK) by the Housing Grants, Construction and Regeneration Act of 1996. Adjudication has been a part of international standard form contracts for more than 20 years; however, it’s only starting to gain traction in the UAE as a means of providing relief to contractors.
Historically, dispute resolution in the UAE has been challenging, time consuming and expensive. However, as the market evolves, this process is helping protect cash flow in the supply chain.
DLA Piper and MEED’s Time for Change: Construction in the GCC reaches a tipping point report explains, “Two of the key principles behind the UK and Australia's statutory adjudication schemes are (1) that a party can refer a dispute to adjudication and expect a decision within 28 days (or slightly longer); and (2) that decision is then binding and enforceable but not final. This essentially means that a decision is likely to be made on limited information and that for the scheme to work, the courts have to accept “rough justice” and be prepared to enforce adjudication decisions regardless of whether they are right or wrong.”
Without a steady flow of cash into the supply chain, international courts are willing to take this approach as justice can be delayed and addressed in court or through arbitration later. Embracing statutory adjudication and enforcing a temporary decision in the Middle East will take some time, however The Qatar International Court and Dispute Resolution Centre prepared a draft scheme that – in today’s market – has the potential to promote significant change.
2. Non-Traditional / Collaborative Procurement Models
For every project, there is a delivery model that will help you reach your goals with more efficiency. As the GCC market shifts, project owners are more openly exploring non-traditional models to identify the optimal procurement approach for their project. Integrated Project Delivery (IPD) is just one example of this.
In short, IPD is a shared risk/reward contract model developed to maximize value from the owner’s perspective through shared risk, process transparency and increased collaboration between all parties. However, it’s not uncommon for owners to engage a qualified advisor to support the project team and help them maintain the positive project-first culture IPD requires. It’s an approach that asks owners, consultants and contractors to put the past behind them, shift their perspectives and become more transparent in order to be successful.
Embracing alternative procurement approaches will become increasingly critical to attracting talent back to the GCC. But there needs to be some sort of incentive for contractors and owners to rebuild the trust and interest that enables collaborative procurement models to succeed.
From IPD and Public-Private Partnerships (P3) to Progressive Design-Build and other delivery models, the help of a qualified advisor can support owners seeking more collaborative contracts. There are experts with the knowledge and experience to support the feasibility, strategy, governance and tendering of construction contracts. Although advisors or consultants generally represent the owner – or in the case of IPD, the project – it’s their goal to make sure all control documents are as balanced and comprehensive as possible. Risk allocation is the heart of many owner and contractor concerns. Many non-traditional procurement models focus on fair risk allocation, where risk is either divided equally or assigned to the party most suited to manage the weight it carries.
3. Encouraging Impartiality with Contract Administrators
Owner representatives – like engineers or project management consultants such as ours – have a duty to act impartially under widely used Fédération Internationale des Ingénieurs-Conseils (FIDIC) contracts. However, in practice this hasn’t always been the case. But at what point is it appropriate for owner representatives to point out contractual inconsistencies?
The GCC construction market is fortunate to have experts from international construction markets grounding themselves in fairness, transparency and collaboration. While these experts represent owners, it doesn’t mean that they can’t advocate for and encourage impartiality when dealing with contractors. More owners and consultants are adopting this approach, particularly due to the high volume of work – especially in Kingdom of Saudi Arabia (KSA) – where owners are competing for the attention of high-caliber contractors.
But contractors also have a role to play. The Saudi Contractors Authority (SCA) is a great example of a local entity that supports contractors in the KSA and advocates on their behalf. The SCA aims to organize and develop the contracting sector so it can continue to drive construction and development in the KSA. The SCA offers contractors representation and a safe environment to find solutions to contracting problems through innovation and enhanced communication.
It’s vital to the future viability of the industry to reconfigure construction contracts so they’re recognized as a collaborative tool that project teams can use to resolve issues quickly and proactively. This will ensure that the GCC construction market continues to support the presence of thriving local and international contractors, as well as the region’s infrastructure ambitions.
Balancing the scales
Rebuilding trust in the industry will take time and is certainly very possible. As owners embrace partnerships through accepting statutory adjudication, and adopting non-traditional procurement models and impartiality, the efforts behind these collaborative models will begin to produce positive, shared rewards.
Balancing the scales in owner/contractor relationships is really about finding ways to benefit each party so the GCC can continue to develop and expand its construction market. Taking a more collaborative procurement approach may feel as if the scales are tipping in favour of contractors, but owners will also reap its benefits.
Building partnerships through collaboration increases project certainty. With each party feeling confident and committed to a shared goal, project teams can develop practices that enable them to function efficiently and effectively. Over time, owners can build a roster of project partners that they’re comfortable with and who they can trust to deliver quality projects with more certainty, value engineering and speed.
Interested in learning more about the benefits of collaboration? Reach out to one of our trusted advisors at enquiries@colliersprojectleaders.com.