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10 SEP 2020

Is COVID-19 a catalyst for change in resolving construction disputes?

Over the past few years, tightening liquidity, reduced capital spending by governments and fewer contracts being awarded have resulted in an increase in the number of claims submitted. However, this year, with the added stress of the Covid-19 emergency on the markets, there is a potential for an influx of disputes causing immense, long-term damage to the industry.

According to the Arcadis’ 2020 Global Construction Disputes Report, “with COVID-19, the industry is dealing with an impact that it has never faced. Creative solutions will be required to successfully start and complete projects.”

The pandemic, besides adding economic pressure on the industry that may result in a flood of disputes, has also highlighted some of the best ways to overcome the prevailing issues in the construction sector. Collaboration and early preventive mechanisms that were just being promoted before, are now becoming more widely used to help project participants avoid, mitigate and resolve disputes.

To understand the impact of the pandemic on disputes in the region and how collaboration will play a key part in the global recovery of the sector, we speak to Shawkat Abbas, Head of Contract Solutions Middle East at Arcadis.

How will COVID-19 affect construction disputes in the region?

Various projects across the GCC have been delayed and some terminated because of the COVID-19 pandemic. This is expected to result in increased pressure on projects and parties involved and the eventual emergence of disputes. However, data from our recent research showed that despite the difficult economic environment and the increase in average dispute value in 2019, parties in the Middle East are already moving toward faster resolution to avoid the long-term impacts of prolonged disputes. This trend is likely to continue because although parties aim to get the upper hand in every dispute, going through it can be damaging to their resources, time, or project completion no matter what the result is.

Shawkat Abbas, Head of Contract Solutions at Arcadis Middle East
Shawkat Abbas, Head of Contract Solutions at Arcadis Middle East

Are there any key learning lessons from this period?

There are four main learnings for the Middle East Construction Industry during the COVID-19 period: 

  1. Understand your contract: Discussions around Force Majeure and other contract clauses became common at the onset of this pandemic. All discussions, however, go back to “it depends on what the contract stipulates.” 
  2. We are all in this together: Yes, contracts are set up to allocate and distribute risks among the parties. However, in most cases, setting the contract aside for a moment and thinking out of the box and collaborating together can prove to result in a win-win scenario for all concerned. Some leaders of the organizations of the parties on construction projects in the Middle East region have already initiated the "we are all in this together" approach and are working hard to ensure its propagation throughout the entire supply chain. 
  3. Set transparent and detailed documentation: If you have been in the construction industry long enough, you would know how important documentation is with or without a pandemic. It is once again put under the spotlight because it serves as the backbone of resolving disputes. 
  4. Embrace alternative ways of working: Many of the emergency procedures that companies have proved ineffective because the level of restrictions that we experienced were unheard of. On the flipside, we witnessed how incorporating digital ways of working can help minimize disruptions to work and services which in turn is a way to avoid disputes.

How important is collaboration between all parties to avoid disputes?

Collaboration for all parties in the construction sector needs to be taken very seriously, especially given recent challenges faced by the industry in the Middle East.

Encouraging stronger collaboration by all project players increases the chances of completing projects on time and within budget. In other words, this could yield to higher profits and less changes. In 2019, the Middle East region had an estimated average value of $62 million in construction disputes, which could have significantly been reduced had the involved parties aligned on project goals and objectives.

My constant advice to clients and teams is to embrace a spirit of trust and teamwork on the project and throughout the extended supply chain for all participants to feel invested in reaching a set of goals together and letting go of the traditional adversarial behaviour. This also includes collaborative procurement and contracting structures, starting with early contractor involvement as well as mechanisms that ensure an equitable sharing of risks and fair incentivisation that are aligned along the entire supply chain including subcontractors and suppliers.

A foundation of trust allows parties to start implementing various techniques and methods to collaborate and innovate further such as using digital virtual technology (BIM 3D, 4D, 5D). These must-have ways of working and collaborative tools promote transparent and effective communication. We very much believe in the medium to long-term that digital advances in blockchain technology and smart contracts will play a pivotal role in enabling collaborative methods to be implemented successfully in construction projects.

Finding global solutions

The need to improve the way relationships are managed, and differences of opinion are handled has highlighted various alternative ways conflicts can be resolved. One such method is the formal Conflict Avoidance Process created by RICS that encourages cooperation between parties and resolves disagreements early. This has allowed 14 emerging disputes to be resolved, with each settlement being amicable.

To encourage collaborative working and the use of early intervention techniques, leading professional and institutional bodies joined to form a Conflict Avoidance Pledge which commits organisations to adopt conflict avoidance and early intervention techniques for their projects. To date, over 180 organisations have signed the pledge and significantly, over 60 have signed up after the beginning of the Covid-19 lockdown.

Another form of alternative dispute resolution, that has been used more and more frequently since the pandemic has been mediation. Organisations, such as the Saudi Center for Commercial Arbitration have launched their COVID-19 Emergency Mediation Program (EMP), a low-cost program to help parties resolve their disputes swiftly and amicably resulting in an enforceable bond. Having signed an agreement with RICS, the SCCA will now also add RICS’ Panel of Mediators to their Mediator Roster for EMP cases.

Despite the pressures currently being put on the industry there is an opportunity to implement positive change and it is evident that this situation may become a catalyst that accelerates the use of such collaborative and preventative techniques going forward.