BSA Ahmad Bin Hezeem & Associates

Rebuilding trust between the contractors and developers in the UAE

Rebuilding trust between the contractors and developers in the UAE

June, 2014
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With Dubai’s recovery from the last property bubble burst being now tangibly felt, are there any lessons to be learnt  from the events that lead to an unprecedented increase in construction disputes? Antonios Dimitracopoulos, Partner and Head of Construction with Bin Shabib & Associates, examines how lack of trust is essentially the cause of  damaged relationships that end up in court or arbitration.

Which typical instances have had a negative impact on trust within the UAE construction industry?

It all starts at the tender stage with developers providing un-negotiable contracts during tender, on a ‘take it or leave’ it basis. This often results in terms agreed that are not only unfavourable to one party but also unclear and unworkable for both.

What would you say is a notable example of such a contract?

A classic example relates to contracts that often include unworkable dispute resolution methods, which result in time being lost, simply in trying to determine the right forum. To compound the issue, developers and consultants/engineers often agree on dispute resolution clauses that are incompatible with those between the developer and the contractor. This can cause a labyrinth of procedural diversions in those instances of the 10-year long, or decennial, liability for major defects, where it would have been helpful to determine the liability of the consultant or the contractor
before the same forum, be it court or arbitration.

So is it primarily the developers that give rise to instances where trust is breached?

Not at all. Contractors are equally responsible as the project progresses, particularly when they experience delays not attributable to them. We have seen countless instances where contractors fail to give notices of delay in accordance with contractual time limits. This, of course, will provide an opportunity for a time bar defence on the part of the developer who will in turn lose faith on the genuineness of a contractor’s claim.

Why do you think contractors would neglect what is essentially their own interest and not notify the developer when a delay may occur?

This is mainly because they are normally not in a dispute resolution mode. They are focused in completing the project — not in gathering the necessary ammunition that will enable them to pursue a claim later, if they are not paid. This is why contractors’ records evidencing delaying events are collated retrospectively, once a claim for extension of time is to be made at the end of a project, rather than contemporaneously.

Other than the initial ‘take it or leave it’ basis of tender submittal, are there any other instances where developers contribute to a lack of trust on construction sites?

The major trust breaching trend is engineers acting more as developers’ representatives rather than neutral parties, particularly when they reject blindly all claims filed by contractors. Another common occurrence is developers calling, or threatening to call, contractors’ bonds to dissuade
extension of time claims from being pursued.

Does the breach of trust trail go beyond the developer-contractor relationship? Are others affected?

Inevitably there is a knock-on effect on the subcontractors with what is commonly referred to as “back to back” contracts. The typical development in that scenario is that contractors abuse the meaning of “pay when paid” clauses and refuse payment to their subcontractors, even when the project is completed and such payment forms a clear entitlement. There are also, of course, real estate repercussions on the end user/buyer, many of whom have been impacted by on-site delays.

Are there any trust-building practices that can be adopted?

Developers can be negotiable on wording of contracts and also negotiate claims for delay, rather than blindly rejecting them. It would also help us, construction lawyers, if a sensible dispute resolution method were agreed upon. Finally, abusing the ability to call performance bonds and treating
them as negotiating leverage tools is obviously a trust breaker, so that must be eliminated as a practice.

And how can contractors contribute to the trust building process?

They can — and I think they will — be proactive from now on with claim preparation, by engaging qualified time planners as soon as a delaying event has crystallised and have their prolongation costs prepared by auditors.

Contractors must also treat ‘pay-when-paid’ clauses with subcontractors in the spirit that they are meant to, by expediting payment from the developer, rather than “passing the buck” onto the subcontractor. In short, the construction site should be treated as a common ground for team
work — not a battlefield for acrimonious exchanges.

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Published: June 2014
Publication: Bloomberg
Title: Rebuilding trust between the contractors and developers in the UAE
Practice: Construction
Authors: Antonios Dimitracopoulos

 

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