Construction Disputes in the UAE and KSA Expand - Firstbit Blog
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Construction Disputes in the UAE and KSA Expand
3 min read

Construction Disputes in the UAE and KSA Expand

Published 29 Mar 2024
The construction sector in the UAE is valued at USD 41 billion, with arbitration accounting for almost half of all dispute cases. These figures are on the rise. Law firms have to adapt to evolving government regulations, intense market competition, advancements in technology, and communication challenges.

Legal professionals practicing in the United Arab Emirates anticipate that managing disputes within the construction industry will become increasingly intricate in the years ahead, given the sector's expansion and evolution.
Mordor Intelligence forecasted a market valuation of USD 41 billion. By 2029, the market is expected to grow to USD 50.4 billion.[?]
Following the 2007-2008 financial crisis, disputes commonly revolved around cancellations and suspensions due to financial constraints. However, present-day construction disputes primarily revolve around issues such as delays, design modifications, and disagreements between employers, contractors (both government and private), and subcontractors.

Michelle Nelson, a partner at Reed Smith stationed in Dubai and Abu Dhabi, remarked on the notable shifts in construction dispute patterns during her two decades of practice in the UAE. [?]
Recently, the COVID-19 pandemic caused another sort of raft of disputes, with projects being interrupted, supply chain issues, and the like.
Michelle Nelson
A partner at Reed Smith stationed in Dubai and Abu Dhabi
Suzannah Newboult, a partner at DLA Piper in Dubai, shed light on the adverse effects of intense market competition, including the consequences of aggressive pricing strategies and overly ambitious project timelines. [?]
We're seeing extremely tight deadlines throughout the region, often unrealistic, leading to widespread project delays.
Suzannah Newboult
A partner at DLA Piper in Dubai
According to a study by consulting firm HKA, projects in the Middle East experience substantial delays averaging 83.1% of their initially planned schedule duration, significantly surpassing the global average of 68.6%. [?]
Construction disagreements are typically well-documented. With the surge in electronic data and more casual forms of communication, data volumes are growing, but managing this influx is increasingly challenging. Moreover, there are informal communication channels used on project sites, such as WhatsApp, which often surface late in the dispute resolution process.
Suzannah Newboult
A partner at DLA Piper in Dubai
Newboult also highlighted another issue where parties involved in construction cases sometimes fail to provide contractual notices for events that could lead to additional time or costs. This omission can stem from various reasons, including oversight and negligence, potentially jeopardizing their right to claim additional time or expenses.

Suzannah also observed that this scenario is quite common in the region. However, it poses difficulties when building a case on their behalf.

Due to the uncertainty and complexities involved in litigation within local courts, parties embroiled in disputes often opt for arbitration, which offers greater technical expertise in construction matters compared to local judicial systems.

DABs in the Middle East and the Challenges

According to Nelson, arbitration is favored over local courts due to its perceived predictability, particularly in handling intricate and high-value disputes, which can be challenging for local court judges due to language barriers and the scale of disputes.

As arbitration gains prominence in construction disputes, Newboult observed a rising interest in alternative methods such as Dispute Adjudication Boards (DABs), mediation, and expert determination.

DABs, in particular, have become increasingly common in disputes related to Saudi Giga projects — large-scale development initiatives aimed at economic diversification, job creation, and attracting foreign investment.[?] This shift could potentially elevate Saudi Arabia as a leader in dispute resolution, possibly prompting similar practices in the UAE.
According to the Dubai International Arbitration Centre's 2023 report, arbitrations account for nearly half (49%) of all construction dispute cases in the UAE, marking a good development trend in this matter. [?]
While Saudi Arabia's dispute resolution landscape is expected to evolve further, the UAE's system is considered mature due to its history of significant disputes over the past two decades.

The competition between the UAE and Saudi Arabia extends beyond geo-economic rivalry, encompassing global influence and strategic visions.

Saudi Arabia's rapid transformation, with a construction project pipeline estimated at USD 1.1 trillion, aims to position the kingdom as one of the world's largest construction hubs. In contrast, the UAE has evolved into a global destination for tourists, expatriates, and investors over decades.

This competition for talent and resources in Saudi Arabia can lead to increased disputes, impacting projects due to the push for innovation and technological advancements, according to Nelson.

Newboult also highlighted the trend of Saudi Arabia's increased adoption of technology in construction projects, necessitating legal practices to adapt to handle disputes arising from tech-based contracts.

Furthermore, the presence of Chinese and Korean contractors in the Middle East construction market presents additional challenges for law firms in the UAE. These contractors often prefer exhausting amicable settlement options before turning to formal arbitration, resulting in longer resolution timelines compared to Western counterparts. [?]
Content Writer
Anna has a background in IT companies and has written numerous articles on technology topics. Now, building up her expertise in construction and legal regulations, Anna expands the horizons of our blog and delights her readers with insightful articles.
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