Why more contractors are ‘playing’ the claims game

For construction employers in the Middle East, the mere mention of the word ‘claim’ was once enough to sour a relationship, but as the stakes are raised, more contractors are appointing claims consultants in the early stages of a deal. CW talks to Gordon Moffat, managing director of Knowles Middle East, about the changing contractor-employer relationship.

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By  Sean Cronin Published  April 15, 2006

|~|Moffat200.jpg|~|The days of employers trading extensions of time for guarantees against prolongation costs may be numbered, according to Moffat.|~|How long have you and Knowles been active in the region?

I have been working in Dubai for the past 14 years, and prior to joining Knowles, I worked for a local contractor as its commercial manager.
Knowles opened its first office in the Middle East in 1986, and eight years ago the chairman, Roger Knowles, approached me to run the Dubai office and develop the company across the region.
Between our offices in Dubai, Abu Dhabi, Qatar and Egypt we now have over 50 staff, mainly working on claims and contractual issues, as well as planning and delay analysis.

Do you act for emplo-yers across the entire construction industry?

We have worked on a variety of projects, from the interior fit-out of hotels through to oil rig fabrication; so right across the entire spectrum of the industry and across the Gulf.
One week we may be working on a road contract and the next, a sub-sea pipeline; this variety is one of the more enjoyable aspects of the job.

Are contractors in the region becoming more ‘claims’ conscious?

There are so many developments in the region at the moment that many contractors can afford to be choosy about their choice of employer.
This in itself immediately reduces the potential for disputes, as they generally already have good working relationships in place.
One of the main benefits to us is due to the magnitude of the projects in the region. As a result, contractors are involving Knowles to protect their interests at a far earlier stage in the construction process.
In the past we would be called in towards the last quarter of a job or even after completion. Now we are involved almost at the start; this is a direct consequence of the fact that the penalties and overall risk are so great.

Does the rush to proc-ure projects contribute towards claims against employers?

The procurement process is a large contributor to claims, in that employers here are too anxious to commence the project, which results in them issuing a tender for a job that is only 60% or 70% complete.
Contractors are normally forced to price on a lump sum basis, but due to design development and other changes, this ultimately results in variations and matters concerning time.
Many projects finish on time and the project is a success; but in achieving this the employer may have spent 20% or 30% more on the project than if they had waited until the design was finished properly at the outset, through a more traditional and timely procurement process.
It is all about employer expectations — “I want my tower finished quicker than the guy next door.”

What would your typical construction claim be about?

Most claims relate to Extensions of Time (EOT). Once you are awarded the extra time, you alleviate any liability to penalties and damages. Having worked as a commercial manger for contractors, my main priority was to ensure that money is not being wasted unnecessarily down the proverbial toilet through penalties or damages.
A number of employers may use EOT as a bargaining tool, in that they will “trade off” extensions of time and damages or penalties against prolongation cost claims from contractors. In other words “I won’t penalise you. But I don’t want to see any claim for prolongation at the same time” — they try to set one against the other.
This used to be a very common and frequently accepted approach, but nowadays more money, and of course reputation in an increasingly competitive market is at stake and the days of set-off between prolongation and penalties on certain jobs may be coming to an end.

It has been said that employers in this region take contractual claims personally. Have you had experience of this?

I think claims are often seen as a personal affront. Some employer organisations still see it as a personal issue, and that will always be a problem when there are personalities involved. This should not be the case; by representing claims either party in a construction contract is merely trying to assert its rights under the contract. If they fail the other party may consider that the first party was just “trying it on” and only then may individuals consider it a personal affront.

Are you seeing more contractual claims being processed within the industry in the UAE?

We are seeing more claims being submitted, in the space of the last eighteen months we have seen a significant change in attitude.
With some companies, claims were never part of their culture, but with the increased costs in the industry and unrealistic expectations from employers, they are having to seek remedies both within the contract and at law.
Ultimately, disputes under construction contracts are usually settled by arbitration, and I am sure with the recent establishment of the Dubai International Arbitration Centre (DIAC), that this will give confidence, both in the existing market and to international investors, that disputes can be settled in the proper manner.
But it should be remembered that until the UAE signs up to the New York Convention for the enforcement of international arbitration awards there is still an ultimate risk to the international contractor.||**||

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