Dubai: A new era of construction disputes from the pervading fallout of the 2008 global economic crisis is only beginning across the Middle East, say experts.
A groundswell of angry out-of-pocket investors, unpaid contractors and materials suppliers involved with developers of incomplete or never-started building projects are symptomatic of an unprecedented cycle of expensive legal battles yet to come, forecast barristers and mediators.
Shahram Safai, a partner with Afridi & Angell who specialises in real estate and construction law, told Gulf News that construction related disputes are climbing rapidly both in number and fiscal severity in the region.
"Afridi & Angell has seen a significant increase in construction disputes in the last half of 2010 and continuing into 2011," Safai told Gulf News Tuesday. "The trend appears to be accelerating with the firm handling in excess of $1 billion (Dh3.67 billion) in claims so far this year. It appears that this is just the beginning of a construction disputes cycle in the Middle East." Most complaints hinge on contract clauses and building delays, he said.
"In our experience, unrealistic contract completion dates and construction slowdowns are the top causes of disputes," Safai said from his firm's Dubai offices.
The upside to the new trend is that disputes arising between vendors, purchasers and third-party contractors or building suppliers appear to be settled more quickly via "increased efficiency" of dispute resolution but can take some time to enforce.
Safai said, "It must be borne in mind that enforcement of such awards may take one to two more years in the courts."
A new report released Tuesday by built asset consultancy EC Harris noted that disputes have jumped in the Middle East in the last two years and that the cost to mediate legal flaps in the region on average was $56.25 million, $20 million higher than the global average.
EC Harris' new Global Construction Disputes Index "found that a failure to properly administer the contract was the most common cause of construction disputes in 2010, demonstrating poor governance during the course of the construction project."
David Dale, head of Contract Solutions, Middle East at EC Harris, said in "an age of ever-slimmer margins, the industry needs to focus far more attention on anticipating and preventing complex disputes in the first place and where disputes have already arisen, to resolving them swiftly and effectively, before they disrupt — or even jeopardise — construction projects."
The cause of many disputes varied, according to the index, from disagreements within joint venture projects, the conduct of project managers and engineers and not understanding contractual procedures.
EC Harris found that disputes in the region ranged, on average, 8.25 months from beginning to resolution, still below the global average of 9.1 months.
Nick Smith, a property and business adviser who is regularly called upon to testify in construction and real estate cases, attributed increasing disputes in the region to a lack of quality, labour and management.
"It's really no surprise that disputes are higher in the region," Smith said, adding that the Middle East may be experiencing higher case loads given the recent property boom was relatively unique to the region.