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To be published by Middle East Consultant – July/August 2024 combined Edition

HKA Partner, Nicola Caley explains how changes in the construction industry are affecting project scope, leading to a rise in disputes and increasing the need for expert services

Do you see any key trends here in the Gulf Cooperation Council (GCC) in terms of dispute resolution and arbitration initiatives?

The arbitration landscape has seen a series of important changes in the last few years.

2021 saw the abolition of the DIFC-LCIA Arbitration Centre, with its future caseload transferred to the Dubai International Arbitration Centre (DIAC). Subsequently, in 2022, DIAC issued new rules to align with international standards. Since then, DIAC has refreshed its court and is working hard to position itself as the region’s leading arbitration centre.

There have been significant developments in other parts of the region as well. In November 2022, the Saudi Centre for Commercial Arbitration (SCCA) opened a branch in the Dubai International Financial Centre with a view to providing a comprehensive range of facilities for alternative dispute resolution (ADR), including arbitration. The SCCA also established an independent SCCA court to determine technical and administrative issues related to SCCA-administered cases. 

The Oman Commercial Arbitration Centre (OAC) introduced new arbitration rules in 2021 and subsequently signed an agreement with the Chartered Institute of Arbitrators (CIARB) to work together to develop the OAC as an effective dispute resolution centre.  Bahrain Chamber of Dispute Resolution followed suit with new arbitration rules in 2022.

It’s fair to say that interest in arbitration as the method of final dispute resolution has increased in the region in recent years, and there is increasing competition between GCC countries to become the regional centre of choice.  Potentially, this is beneficial to the parties as the availability of arbitration as a final dispute forum rather than local courts may encourage more international participants to the market, thereby increasing capacity, capability and competition.

Is the sheer complexity of many new projects – e.g.: the Saudi ‘giga-projects’ changing these dynamics?

Many of the giga-projects are still early in their project lifecycles, so it will be interesting to see what happens as they progress. For many of them, we have seen a slightly different approach to contracting, which may help reduce the number of disputes, although this remains to be seen.

The complexity of the projects does require a different approach to project delivery. A giga-project is, in reality, a programme of projects that all need to come together to deliver a single outcome.  Many different entities are involved in this delivery, and therefore, the integration between these entities and their scope is a key factor in successful project delivery.

The importance of spending time in the planning and set up stages of a project cannot be overstated.  From the client’s perspective, developing a well-designed project governance and packaging strategy is key. Understanding the capacity of the market and early engagement with the market is important to inform the packaging strategy. A considered approach to risk allocation can have a positive impact on the cost of a project. 

If the contractor has better information about the project and does not have responsibility for risks that he cannot control, then he does not need to price for the risk transfer.  In this way, the client pays only for the risks that actually materialise rather than the contractor’s uncertainty if he is required to take responsibility for risks that he cannot control or does not fully understand.

If and when disputes do arise, the level of technical complexity is likely to place even greater emphasis on the role of experts in unravelling the underlying issues.

What do you see as the main challenges here in the GCC’s construction sector?

The pressures being felt by the industry are acute. There are still shortages in critical commodities and price inflation due to the long tail of COVID and the Russian-Ukrainian war. Unrealistic delivery periods for projects remain an issue, which inevitably leads to delays and disputes.

Given those economic conditions and the level of activity in the region – notably the scale of development in KSA, the onus should be on optimising how projects are set up and mitigating risks, so they run more smoothly.

The high level of demand also provides a potential opportunity for contractors to agree on more balanced contract terms with developers.

There is always a good deal of comment about the ‘openness’ of contracts in the region: do you feel that these need to be made tighter and more specific – and would this lead to less frequent disputes?

Where ‘openness’ means a lack of definition of contract scope, this implies significant risk transfer from employer to contractor. 

However, I would say, in real terms, the risk is never truly transferred from the employer to the contractor, as the employer is the owner of the project. When the contract allocates most delivery risks to the contractor, many of which he is not in a position to control, the risk of disputes increases inevitably, for many reasons.

First, the contractor will endeavour to interpret the contract in such a way that creates space to claim for the impact of events on project delivery. Second, the contractor is likely to try and recover time and cost impacts by interpreting the specification in a way that’s more favourable/less costly for him and by looking for delays by the employer that can be used as the basis of a claim for an extension of time. 

This creates a transactional rather than a relational environment for project delivery, which is not ideal, particularly given the long duration of many megaprojects. A more balanced approach would likely improve project delivery and reduce disputes.

We know from the CRUX Report that this region is among the worst in the world when it comes to project lateness and over-run: what do you see as the principal factors responsible for this tendency?

The high-risk / low-margin model that still prevails in the industry can prevent proper investment in modernisation, innovation, and people in the supply chain, making contractors financially vulnerable. It also creates a capability issue that can contribute to failure to perform in accordance with the programme.

On a major project, the governance of the project is as important as the technical side of delivery. Without all of these capabilities, there will be delivery challenges.

Underdeveloped projects and short bidding periods create uncertainty for the contractor when preparing its programme. This is often combined with contracts that place the risk where there is little or no control over it. The consequences are, therefore, difficult for the party owning the risk to predict when establishing the programme and manage during delivery.

Over-aggressive bidding and ‘must-win’ projects mean the winning contractor may be on little or no profit margin, driving the wrong behaviours already described – a claims culture that, again, ultimately may make the business financially vulnerable.

There can be an overly optimistic view of what is required to successfully deliver the project. This can be from both the client and the contractor side, although, in terms of project overruns, the more significant risk comes from optimism bias on the part of the contractor when preparing the programme as part of its bid.  Unless this bias is countered with proper risk evaluation, the risks associated with time and cost are not evaluated in a robust, realistic and pragmatic way, which can result in an unrealistic delivery programme.

Two other factors related to conservatism that can contribute are an ‘old-fashioned’ approach to contracting models, meaning there is still little or no movement towards a more collaborative approach. And even though new technologies may be adopted, inconsistent implementation means that their potential benefits are not fully realised.

Particularly since the advent of Saudi’s ‘giga-projects’, the GCC has become home to many highly complex, multi-stakeholder developments; does the involvement of so many parties exacerbate problems and the likelihood of disputes?

The involvement of multiple stakeholders increases the complexity of project delivery.  Managing stakeholders is a critical part of delivering any project, and this challenge increases when projects are large, first-of-a-kind, and depend on a large number of interested parties.

In joint ventures, for example, the businesses that come together to deliver a complex scope of work may be very different from each other. The project is often in a country that is not the home country for any of the partners, and they themselves may come from different countries or continents. Often, they bring not only different expertise to the project but also significant differences in ideology, culture and structure.

Contractors forming a joint venture tend not to have much time to get to know each other and understand how they will work together. There is often not enough thought given to project governance and how all the different stakeholders will cooperate to achieve the delivery of the project.  These gaps can be a major contributing factor to disputes on multi-stakeholder projects.

Do you see HKA as potentially becoming a natural ally of Government and the public sector here in the GCC nations?

I think it’s fair to say that our firm’s size, reputation and longevity in the region, as well as the breadth of our expertise, are ideal qualities for this role. HKA has long been a trusted ally of governmental and public sector entities – most recently as an advisor on giga-projects – and I anticipate that this will continue.

While we are best known for our work investigating and resolving disputes, and providing expert testimony, our Advisory Services team – which has supported public agencies and utilities worldwide from Australia to Europe – is expanding in the region. HKA also has a multi-disciplinary range of Forensic Technical Experts, and our regional Forensic Accounting and Commercial Damages team serves both private and public sector clients.

Do you see HKA as potentially becoming a natural ally of Government and the public sector here in the GCC nations?

The industry’s present and future human capital is hugely important.

HKA takes equality, diversity and inclusion seriously, and we participate in many initiatives in the region and around the world. For example, we are signatories to the Equal Representation for Expert Witnesses pledge promoting gender equality, and sponsor supporting events (as we did recently during Dubai Arbitration Week).

Internally, we have a strong focus on developing the capability of our team through internal courses and support for attendance on external courses.  This serves to ensure our team stay at the forefront of current thinking on project delivery and dispute resolution – knowledge we can then share with our clients.

As a business, we believe in continuous learning.  For example, I am currently studying for an MBA in Major Infrastructure Delivery at University College London.  This allows me to stay at the forefront of current thinking on how to structure mega-projects to optimise the chances of successful delivery as well as to share that knowledge with colleagues and clients.

In our region, we also support organisations such as the Lighthouse Club, the British Business Forum and others by sponsoring and participating in events. Our experts share their knowledge through regional forums and seminars, and we encourage open dialogue on key issues for the region. There is a huge opportunity to learn from past disputes and international best practices, which is why we publish and share the lessons learnt through our annual CRUX Insight Report and its free-to-use CRUX Interactive Dashboard.

Tell us about two or three of the projects that you feel most proud of, in terms of the results you achieved?

It’s very satisfying to help smooth the path of a distressed project to a more successful outcome, saving clients significant sums of money and time along the way.

We worked long-term with a major government client on a refinery megaproject, for example. There were many obstacles to its delivery, including the impact of COVID and the challenges of managing the interfaces between many contractors. We’ve helped the client achieve negotiated settlement on most packages so far and continue to support the project to close out.

We have also worked long-term for an international contractor helping them achieve commercially acceptable outcomes on a number of projects in Africa, India and the Middle East.  This avoided the need for formal dispute resolution and the attendant drain on company resources, both from a time and cost perspective.

Generally, my role is to support our clients in resolving disputes before they get to formal dispute resolution. We do this by providing the necessary expertise and additional resources. The difficulty often for the client (whether employer or contractor) is that all team members are fully committed to their day job, so it is challenging to focus on resolving the dispute. We provide that essential focus, along with the expertise to get to the heart of even the most complex issues and propose strategies for resolving the dispute.

Also, the parties are often so deeply embedded in their project that it can be difficult for them to be dispassionate and see contentious issues objectively. As an external party, we can provide a ‘fresh eyes’ review and we are renowned for our impartiality and for providing honest and incisive advice.

Our aim is to resolve the conflict prior to formal dispute resolution. So, we preserve commercial relationships while saving management time and the expense (and risk) that comes with arbitration or court proceedings.

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About Nicola

Nicola Caley has over 24 years of experience in construction with more than 13 years focused on strategic claims management, claims determination, contractual claims preparation and defence and dispute resolution. She is a legal professional with an LLM in Construction Law and Arbitration, a Fellow of the Chartered Institute of Arbitrators and an RICS accredited mediator.

Contact: nicolacaley@hka.com to discuss any of the matters raised in this interview.

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This publication presents the views, thoughts or opinions of the author and not necessarily those of HKA. Whilst we take every care to ensure the accuracy of this information at the time of publication, the content is not intended to deal with all aspects of the subject referred to, should not be relied upon and does not constitute advice of any kind. This publication is protected by copyright © 2024 HKA Global Ltd.