Published first on the RICS World Built Environment Forum Website
The second HKA RICS WBEF webinar focused on the findings of HKA Crux Insights 2020. Here is a flavour of what was discussed.
Disputes in the region tend to stem from a predictable list of causes…
HKA’s CRUX Insight 2020 reveals the principal causes of construction conflicts in the Middle East to be roughly consistent with those across the rest of the world. Change management, incomplete design and late approvals are all cited as the most common points of contention among project partners in the region. Also high on the list is contract misinterpretation. This reflects a local preference for bespoke or heavily amended standard form contracts, in which key terms and conditions can mean different things to different people.
Martin Burns is Head of Alternative Dispute Resolution Research and Development at RICS. For him, this all points towards a tendency for poor project initiation practices and a failure to include the potential for disputes in pre-contract risk analyses. “Avoiding and managing conflict is about being proactive right from the very start,” he says. “There’s often a failure to anticipate that there will be problems. What people tend to do is hide from the potential for problems to arise – until they indeed do arise. Too often people allow them to build up, but you can’t afford to wait until the project is coming to an end. By then, there’s often a whole legacy of disputes to be dealt with.”
…and local market conditions may have had an exacerbating effect
It’s no secret that the Middle East is an energetic market where the attitude that all things are possible retains a hold on the construction sector. This cut-and-thrust is key to understanding the explosive growth in regional economic performance and geostrategic influence since the 1980s. But those who find themselves in the jaws of the Gulf Tiger must be able to withstand certain pressures.
“It’s a relatively new economy,” notes Shamila Neelakandan, HKA’s Head of Operations in Singapore and Malaysia. “Profit margins need to be maintained, against very tight schedules; you need to push boundaries and embrace new technologies. And because of all that, you need to have a grip on how to manage disputes. Non-adversarial approaches are often better. I worked on the Dubai Metro Project, an iconic megaproject. The disputes that we encountered were eventually negotiated – a win-win for all parties.”
For non-adversarial routes to really take hold, they need to be sketched out in black and white
The win-win outcome represents the best imaginable resolution to any conflict. It is, then, heartening to see evidence that, throughout the region, negotiation is increasingly favoured by parties at loggerheads. Recent RICS research found 95% of construction professionals across the globe stating their preference for negotiation and mediation over more adversarial approaches. This against a backdrop of a significant rise in contentious claims during 2020. And these international trends are mirrored in the Middle East.
There have been warnings that the good will may not extend too far into 2021, as the COVID-19 pandemic continues to test industry patience. But Julian Haslam-Jones, Director at HKA, sees better contract drafting as a possible means of averting the predicted “tidal wave” of litigation threatening the sector. He says:
“These kinds of (non-adversarial) processes are not always part of the contract and tend to occur on more of an ad hoc basis. We should look at formalising them and pushing for earlier engagement. If you leave things to the end of the project, it gets more complicated to forensically understand has happened. If you deal with the issue as it arises, it’s easier to resolve and move on. More importantly, you give all project stakeholders certainty on budget and execution.
And firms that are prepared to spend money on digitalisation should save money on disputes
Research cited previously by WBEF has laid bare just how unwilling the construction sector has been to spend money on the development and deployment of technology. Less than a third of construction companies across 13 of the world’s largest markets spend more than 3% of turnover on digitalisation. The industry has, by and large, maintained a stubborn resistance to the advances of the fourth industrial revolution.
For Shamila Neelakandan, this reluctance to invest represents a huge missed opportunity:
“When you have many project stakeholders across different locations, it is worth investing in cloud-based document control systems. These systems allow instant access to information, increase transparency, and make decisions easier and quicker, with approvals granted at the click of a button. Then there are technologies such as BIM, which allow for project visualisation so that you can pre-empt problems. The downside is obviously the cost. A cloud system requires investment. With BIM, you don’t only have to invest in the system, but you have to train someone to manage it. But I personally believe that there are many more pros than cons, and I urge the market to think about them.”
