Federation International Des Ingenieurs – Conseils (“FIDIC”) (from French, the International Federation of Consulting Engineers) in 1999 published The Red Book: Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (“Red Book”). In Qatar, FIDIC Red Book is the most commonly used standard form contract for construction and engineering works where most or all works are designed by, or on behalf of, the employer.
FIDIC forms are largely based on English common law principles, however these common law roots do create certain paradoxes when the contract are used in civil law jurisdictions like most of the Gulf States. This problem is further complicated when the contractors and employers, in a Qatari legal environment, follow a general practise of agreeing to a standard FIDIC form as opposed to a bespoke contract in the interest of saving time. However, it has been proved time and again that such a practise may not only prove detrimental to the parties but may also adversely impact the time and cost thereby jeopardising the successful completion of the entire project.
In the subsequent sections, we analyse some of the pitfalls in detail and also indicate precautionary measures which may be taken to avoid such traps.
(a) Provision of indemnity
Generally, indemnity provisions are among the most vigorously debated clauses during contract negotiations in construction contracts in the Middle East. An indemnity obligation is meant to compensate the affected party to a contract from losses arising from death, personal injury and property damage caused by the counterparty.
In common Law, an indemnity may also allow a claimant to frame its claim in debt as opposed to breach of contract, however, in civil law indemnity is a provision of the contract and subversion of the same would be breach of contract resulting in termination and would not be treated as a debt.
The Qatari Courts consider a claim under the indemnity in the same manner as a breach of any other term of the contract. Clause 17.1 of the FIDIC Red Book, which seems to be worded to operate in a common law environment, must be amended to commensurate with the requirements of the Qatari law. One of the advantages of having an indemnity provision in a contract is that the parties become aware of the probable breaches which may result in a dispute in advance and have the opportunity to take measures to avoid the same from the commencement date of the contract.
(b) Decennial Liability
The thriving construction industry in the middle-east attracted various internationally renowned big players from diverse legal jurisdictions. Engineers and construction companies coming from both common law and civil law jurisdictions are used to negotiating and limiting their exposure in the defects liability period. The requirements and duration of the defects liability period have a direct impact on the prices quoted to the employer for any construction project. However, the defect liability period is treated quite differently in Qatar.
The defect liability period, known as the decennial liability in Qatar, is one of the typical concepts of the Qatari jurisdiction and may prove to be an unpleasant surprise for any new comer. Decennial liability is a strict liability. The Qatari law provides that the contractor and designer of the works would remain jointly liable for a period of ten years from the completion of the works. The decennial liability covers total or partial collapse or fault in the buildings even if the collapse or fault has resulted from a defect in the land itself provided that the defect threatens “sturdiness or safety”. Decennial liability may not be contractually limited or excluded.
(c) Limitation of Liability
Under the Qatari laws, parties generally have a fair amount of freedom to agree caps on their eventual liability (subject to various provisions in the applicable civil code). Generally, during contract negotiation, clause 17.6 of the FIDIC Red Book (Limitation of Liability) is typically amended to insert additional “carve outs” or exceptions to put a cap on the eventual liability of the parties. Most of the contractors operating in the Qatari legal environment do not realise that even after inserting a caveat in clause 17.6, there still remain some clauses which pierce through the limitation of liability. Clauses worth mentioning here are clause 18 (Insurance) and clause 17.1 (Indemnities) which need special attention to ensure the liability of the parties is limited to the value of the contract. Additionally, instances like fraud or negligence may be treated in a manner under the Qatari laws which may pierce through the limitation cap prescribed under the contract. However, it is not possible to contractually limit, for example by way of a cap on liability, the statutory decennial liability relating to total or partial collapse of or fault in in civil structures.
(d) Commencement Date
A feature of the FIDIC Red Book 1999 edition is the reorganisation of various contractual terms, now following a more logical format. Accordingly, clause 8 now deals with all topics related to commencement of work, programming, delays and suspension during the course of the works.
Clause 8.1 of FIDIC Red Book asserts a commencement date of 42 days after the contractor receives the letter of acceptance, unless particular conditions of the contract provide otherwise. The engineer gives the contractor at least seven days’ notice of the commencement date. The contractor commences the design and execution of the work “as soon as reasonably practicable” after the commencement date, proceeding with works “with due expedition and without delay”.
In practice, as described above, many construction contracts in Qatar are negotiated with no tendering/bidding whatsoever, or with significant post tendering or bidding negotiations. FIDIC has introduced the requirement to reach agreement and then create a letter of tender and letter of acceptance prior to signing the contract, which is somewhat naïve and it would be preferable to include these as agreed terms in the contract. Even if the particular conditions of the contract can easily be amended but it is suggested it would be far simpler if FIDIC followed the model of other standard forms of contracts, introducing the commencement date as agreed and therefore inserted into the contract particulars.
However, care must be taken while drafting the letter of intent. It is common for this letter to mark the commencement of onsite works, though negotiations of minor issues have yet to be finalised. Therefore, it is critical this letter not be interpreted as the letter of acceptance, so drafting must be meticulous.
The Harmonised Multilateral Development Bank (MBD) Pink Book rewrites clause 8.1 to require for the following conditions precedent to be fulfilled by the parties before the commencement of works:
i. contract signed by both parties;
ii. receipt by the contractor of “reasonable evidence of the employer’s financial arrangements”;
iii. site possession given to the contractor;
iv. provision of any advance payment and corresponding guarantee/bond.
The amended contract asserts the contractor’s option to terminate if the conditions precedents are not fulfilled within 180 days of the letter of acceptance, introducing additional complexity to commencement of work and ignoring the possibility that site possession is not always necessary – or in fact advisable – at the outset of contractor works.
(d) Conditions Precedent
The most contentious provision of the FIDIC 1999 Red Book is the requirement under its clause 20.1, which is a condition precedent to any claim for extension of time or cost.
Reference to clause 20.1 elsewhere in the contract demonstrates that if the contractor is not compliant if he forfeits any entitlement to an extension of time or cost irrespective of relevant circumstances.
Clause 20.1 states that a contractor ‘shall give notice to the Engineer, describing the event or circumstances giving rise to the claim. The notice shall be given as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance’ .
Therefore, a prudent contractor should never assume that conflicts can be resolved informally, and instead always take care to comply with the timescales set out in sub-clause 20.1 and submit the required notice within the prescribed period of 28 days. The only area in which the contractor is given any leeway is where it was reasonable to conclude he could not have been aware of the event or circumstance giving rise to the entitlement to extra time and/or cost. It is suggested that a prudent contractor should adopt the practice of having at least one review in every 28 day period to assess whether any notice ought to be given under contract.
Although not a condition precedent of the entitlement to make a claim, clause 20.1 requires the contractor to keep records, making those records available to the engineer.
Within 42 days of the contractor becoming aware (or should have become aware) of the claim, or over a longer period if the engineer agrees, the contractor must send a fully detailed claim with supporting particulars. This claim will be treated as interim but it must be updated at monthly intervals. The final claim must be sent within 28 days after the end of the effects resulting from the event or circumstance that gave rise to the claim.
The requirements to submit this claim within 42 days and to update the claim are not conditions precedent in the same way as the initial notice, though it is clear failure to comply with this requirement will prejudice the contractor’s position.
The engineer has 42 days after receiving the claim to respond with approval or disapproval and detailed comments. Monthly payment certificates will include the amounts the Engineer approves within the Contractor’s claim.
(e) Application of Laws
When using a FIDIC Reb Book, parties must consider the interplay of the applicable laws of the contract with the Qatari laws (place where the works under the contract would be performed) specifically in respect of the interpretation of the terms of the contract. Conflicts between the contractual terms and the applicable law of the contract may be avoided by making necessary, amendments and carve-outs to the FIDIC Red Book. Some of such instances which may prove detrimental to both the employer and the contractor and must be addressed during contract negotiation stage are discussed below.
i. Liquidated Damages
Whilst using the FIDIC Red Book in Qatar, it must be remembered that the Qatari laws under Law No (22) of 2004 (“Civil Code”) permits the parties, to agree to a level of liquidated damages. There is, however, no distinction in Civil Code between penalties and liquidated damages, so parties are able to agree that penalties will be levied as damages for delay to completion. There are, however, certain provisions of Qatari law that may assist an employer, whose sole remedy is liquidated damages, and the actual losses incurred to him may not be reflected fully in the agreed cap to the eventual liability.
In such instances, Article 266 of the Civil Code permits the court to intervene, despite what is agreed, to adjust the level of liquidated damages to reflect a party’s actual loss. Article 266 of the Civil Code provides that: “The compensation agreed upon will not be payable if the debtor proves that the creditor has not sustained any detriment, and the court may reduce the compensation below what was agreed upon if the debtor proves that the assessment was exaggerated to a considerable degree, or that an obligation has been obligation in part. Any Agreement that rules otherwise is null and void.”
ii. Dispute Resolution
The influx of contractors based in the United Kingdom and the United States in the Qatari construction market meant that there was an automatic preference by the contractors to resolve any dispute through arbitral proceedings, based and governed under the laws of their home countries. The Qatari law allows the parties to agree to such an arrangement and it also ensures comfort of the parties who end up agreeing to a jurisdiction of their own choice for the resolution of the disputes.
However, in majority of cases, arbitral awards consequent to such arbitration proceedings are unlikely to be ratified/enforced within the Qatari jurisdiction. This is simply because of various requirements of form and procedure that have to be fulfilled during the arbitration proceedings in order for the arbitral award to be enforceable in Qatar.
Therefore, the parties to the contract must ensure that the applicable laws and rules of arbitration must not be in conflict with the Qatari law to ensure prompt and efficient ratification of arbitral awards.
iii. Consequential Losses
The Qatari laws allow the parties to agree to any term in a contract. Clause 17.6 of the FIDIC Red Book attempts to exclude the consequential losses and limit the liability of the parties. However, in various instances (like fraud, negligence and pollution) the provisions of the Qatari law may override the terms of the contract to determine the extent of liabilities on the parties to the contract.
Foreign contractors, specifically the ones based in a common law jurisdiction and have established a branch or an entity in Qatar to participate in the construction and engineering works where the state is the ultimate employer, must be wary of the aforementioned risks.
Qatar has moved steadily in recent times to become the hub of international sporting events in the Middle East region. The 2022 FIFA World Cup is scheduled to take place in Qatar in 2022. Qatar would be the first Arab country to host the World Cup and this would be the first time the World Cup would be held in the Middle East region. Also, the 15th Asian Games, officially known as the XV Asiad, Asia's Olympic-style sporting event, were held in Qatar in 2006.
Hosting of international sporting events of such demeanour, prestige and recognition around the globe ensured that Qatar and its codified laws remain in constant limelight on the international stage. Qatar has risen to the occasion and has deployed a constant effort at all levels to develop its laws so that the country is able to more capably meet the enormous challenges that lay ahead.
Laws pertaining to construction and engineering are no exceptions to this on-going ‘change’ phenomenon in Qatar. With a plethora of international firms and contractors coming to Qatar to play their part in meeting the ever increasing demands of the construction and engineering industry, we expect that the local laws would continue to evolve, change and refine towards betterment.
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