The impact of contract management on dispute resolution

Joanne Strain, partner at King & Wood Mallesons, discusses how a proactive, preventative legal approach to contract administration can avoid future ambiguity and dispute resolution woes

For over a decade, the UAE’s construction market has experienced dramatic peaks and troughs. The decline of market liquidity and oil price instability have drastically altered the way the stakeholder supply chain functions, causing an increase in project delays, cancellations and late payments. Uncertainty and volatility continue to result in a number of major projects falling into dispute, leading to an active claims market.

Arbitration remains a popular choice, providing neutral governing law and language for resolving construction disputes. The ambitious, ground-breaking projects typically undertaken in the region can require specialist contractors to come together from all over the world to pool skills and capabilities. This is often in conjunction with local contractors offering essential long-standing expertise and accountability, giving rise to impressive international collaboration by way of partnerships, joint ventures and consortia.

Electing for arbitration as a means of dispute resolution, depending on the bargaining power of the negotiating parties, may provide a multi-tiered dispute resolution clause. This obliges all parties to engage in amicable settlement discussions or mediation prior to commencing arbitration, which forces them to make an effort to resolve a dispute before commencing costly formal dispute resolutions procedures. Be wary, however, of crafting complex multi-tiered dispute resolution clauses. They can be difficult to comply with, giving the respondent party in any ensuing arbitration the opportunity to contest the arbitration on the basis that pre-conditions to arbitration have not been complied with.

A well-written contract with a focus on contract administration can help prevent a dispute altogether. Transparent contracts tailored to the particular demands of the project and contracting parties can mitigate many of the risks associated with construction projects. They should clearly outline how progress is to be measured against agreed key performance indicators. Clear terms should be agreed to allocate responsibility for time delays and stipulate consequences. Bear in mind that UAE law permits a court or tribunal to amend any agreed liquidated damages clause retrospectively, to equal the loss suffered.

On the occurrence of a dispute, close attention must be paid to the mechanics of the dispute resolution clause agreed, avoiding lengthy and costly jurisdiction challenges. Selecting the right arbitrators for nomination, with the appropriate industry expertise to deal expeditiously with the dispute, is crucial. Essentially, specialists with in-depth knowledge of UAE law will navigate the dispute resolution process, pursuing meaningful relief for claimant contractors while vigorously acting for defendants resisting ill-founded claims.

Although the legal landscape is evolving and the prevalence of arbitration as the preferred method of resolving disputes is growing, there are market elements that remain unchanged. Project delays, cash flow and loose contract administration continue to be risk factors which developers, contractors and suppliers should and can foresee and prepare for. Those with solid contract administration and record-keeping throughout the project have a head start in any ensuing dispute.

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