Learn how to construct stronger deals

Learn how to construct stronger dealsSachin Kerur

The resurgence of the construction and real estate sector is a positive stride for the UAE economy. But in order for projects to translate into genuine economic contributions, the terms of construction contracts need to be updated and enhanced to ensure they are fit for purpose.

According to a recent research report by Meed Projects, in the first six months of this year, construction contracts worth $15 billion (about Dh55 billion) were awarded within the UAE, with six developers netting deals worth more than $500 million each.

These figures demonstrate the significant contribution the construction industry is making to the UAE economy. However, certain steps must be taken to support the industry and ensure this growth is able to continue. Thus, the contracts for projects must hold the correct entity responsible for delivery of each stage. This will help prevent time-consuming litigation later.

Time wasters

Legal disputes between construction companies in the Middle East are significant - the region is still grappling with fallouts from projects that soured as a result of the economic crash six years ago. Last year, legal disputes took an average of 14 months to settle, compared to the six months it takes in mainland Europe, 11 months in the US and a year in the UK.

According to most commentators, the reason for the delay is a combination of a backlog of lawsuits from schemes stalled during the downturn, lack of qualified arbitrators, dearth of expert witnesses in the region, and the absence of a specific construction court in the UAE to resolve disputes.

Given the potentially lengthy and costly process of resolving a dispute, it would be far more effective to recalibrate construction contracts. An important element in doing so would be to make sure that those who bear risks are those who ultimately best manage them.

For example, conventionally, it is the contractor who is responsible for the overall project, a part of which is the design approval. However, the go-ahead is contingent on the building consultant. Accountability needs to be realigned to ensure the building consultant remains responsible for the designs he/she develops in order to avoid delays.

Issues are compounded by the fact that in the Middle East, the construction industry is represented by building surveyors, contractors, architects, consultants and engineers from all over the world, each with individual standards and differing methodologies. This is an area that needs to be addressed to in elude a balanced method of assigning responsibility.

To do this, the implementation of internationally accepted standards to ensure all entities are performing within agreed principles should be considered These standards could be drafted by industry specialists to guarantee relevance, in a way similar to how international accounting principles are applied to an organisation's finances.

Educated solutions

With this in mind, and as each of the GCC countries look to recruit more nationals in the industry, who will one day be in charge of multimillion dollar contracts, it is important to consider the introduction of construction and property development degree-level courses in the region, which address commonly occurring local challenges and environmental conditions. Rather than sending students overseas to study elements not necessarily relevant in their home market, a stronger focus should be placed on the development of the knowledge required in this country.

The UAE construction industry is witnessing a no table rebound, as growth returns to the market.

The Dubai Chamber of Commerce estimated that construction will add about 11.1 per cent to UAE's GDP next year, and as one of the most rapidly growing economies in the Middle East, the UAE is likely to experience considerable investment in the construction industry from public and private enterprises over the coming years. It is, therefore, fundamental that we work to protect the industry by making sure that the contracts we use to protect developments serve their purpose.

Click on Protect Buyers in Dubai and read on the legal measures which have been introduced to safeguard property buyers in Dubai

Source: Sachin Kerur, Special to Property Weekly

The writer is Head of the Gulf Region at law firm Pinsent Masons. Kerur advises government and private sector clients on privatised and publicly procured infrastructure and development works, particularly across the Middle East and India. He is listed in the Who's Who Legal's Global Construction Lawyers

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