One-sided construction contracts must be ditched pronto for industry to gain from post-CODVID-19 recovery

The construction sector was extremely hard-hit by the pandemic. Despite the challenges, the industry has demonstrated impressive resilience to date. It is, of course, difficult to mitigate against extenuating circumstances arising from shifting geopolitics.

However, there are several ways in which the industry can evolve in terms of business practices, and from a regulatory perspective, to ensure its continued advancement. The pandemic served to highlight that our ability to succeed is heavily dependent upon the success of others. Yet, this important truth is not always reflected in construction contracts.

Whilst competition is extremely fierce, it is vital that the ability to deliver a high-quality outcome is always the deciding factor. Unfortunately, awarding contracts based on cost alone is a common practice, and one that ensures that the most regarded firms are often unable to compete. A proven record of delivering high-profile, large-scale projects to international best standards should be as important as cost when it comes to awarding contracts.

Eye on big picture

In a post-pandemic world, firms and nations alike are eager to jumpstart recovery. However, the long-term reputational damage that can result from health, safety and quality related crises should never be underestimated.

Another common factor that prevents prestigious companies from participating in the procurement process are one-sided contracts. Unfortunately, construction can be a highly contentious industry due to the complexity of projects and the sheer number of stakeholders involved. For this reason, players tend to act out of self-interest as opposed to employing a team mentality.

One-sided contracts, with inappropriate risk, are often the reason why participation is deemed untenable for some highly reputable companies. Every party that has a stake in the project should be included in the contract. This means that each party is only required to take on the risks that are appropriate to, and directly relevant, to them.

Balance risk and reward

Mismatches in risk and reward can seriously affect a project’s ability to deliver according to schedule and to budget. Creating an environment that promotes hostility as opposed to collaboration and problem-solving only serves to breed inefficiency and poorly executed outcomes in the long-term. Ensuring contracts include mutual incentives for collaboration is essential to creating relationships built on trust.

Integrated project delivery (IPD) which uses multiparty contracts to accept and manage design and construction risks as a team is one approach. It is also possible to draft elements of the IPD approach into traditional contracts.

Litigation and arbitration are often lengthy and costly ways of resolving dispute – and can prevent some firms from entering contracts in markets with a lack of clarity around dispute resolution. Traditional avenues can often be avoided through a variety of techniques, including building time for disputes into the project delivery schedule and involving third-party neutrals to provide ongoing objective and independent counsel.

Make regulations count

From a regulatory perspective, it is important there is increased clarity around the enforceability of regulations that govern construction and infrastructure. Much confusion was resolved through the implementation of the 2018 UAE arbitration law which, based on the UNICITRAL model, adheres to international best practices.

Lastly, we can expect that sustainability will be a driving force in construction policy heading into the future. Whether that be through the demands of clients and financial institutions or local communities, the need for demonstrable awareness of - and action on - ESG performance levers is clear.

The construction industry is, in many cases, far along in its thinking on these issues, but greater levels of transparency and consistent reporting will be required to maintain this progress. Given its role in shaping the future of our communities, it is imperative that the industry embrace sustainable requirements and ESG models. At the same time, this will require changes in attitude and documentation to stop this from becoming another fertile source of disputes.