Sharpening the knives in Dubai

I have just returned from a trip to Dubai, that glittering jewel of the Emirates. It was my first for 18 months and I can’t help but feel the construction landscape there is changing – and not just in the physical sense.

The construction environment in Dubai has become a precarious place of late. All those lawyers, delay analysts, claims consultants and expert witnesses who have passed through the territory in the past five years or so will start to find their forays becoming more regular.

Dubai is quite simply the most amazing building site in the world. Cranes obliterate the horizon, hoardings guard some of the most ambitious projects the world has ever seen. There’s more building than seems feasible in 3,885km2, but development is needed to cater for a projected population growth of 50% from 2002 to 2010 and a threefold increase in tourists.

What’s more, in Dubai what you see is certainly not all you are going to get as plans for more developments spring with alarming regularity from the drawing boards of the world’s signature architects.

Our own business in the UAE has grown from 18 people in 2003 to more than 600 people today. We are managing developments that are the size of Coventry.

I am part of a team of specialists at EC Harris who focus on construction disputes. Ideally we help clients avoid them, often we help to mitigate them, but more often than not we provide support to resolve them. This work takes place in the UK, across mainland Europe and throughout Asia. The Middle East, however, has been less busy. Surprising, you might think, given the scale of development and the fact that speed of development has been the priority often at the expense of cost and contractual certainty. There has, however, been a reluctance in the region to pursue formal dispute proceedings and many of the projects are yet to enter the phase when disputes may arise.

Eighty percent of all construction projects in Dubai are delayed. this is likely to be a hot topic

The local construction market has been relatively parochial and formal dispute resolution has been avoided at all costs. For years there were only a small number of players, so foreign investment in the conventional sense was limited and the dispute resolution environment was immature and rarely tested.

­But things may be about to change. Construction labour costs are estimated to have risen by 60% since 2006 and continue to rise, bringing hardship to a region noted for its preference for fixed-price lump sum contracts. Many companies that have benefited from cheap labour now face higher wage expectations as a result of the boom in the Indian economy. Material costs have also risen and will continue to rise as the impact of oil price rises reverberates across the sector.

Anecdotally, 80% of all construction projects in Dubai are delayed. Who will ultimately bear the cost of these delays remains to be seen, but this is likely to be a hot topic for most contracts. So, with projects extending in duration, skilled labour shortages increasing, construction costs continuing to rise and many contracts let on a fixed-price basis with no mechanism for adjustment for price fluctuation, the outlook is bleak. Those without secure and effective supply chains in place or at risk of price fluctuations, face challenging times.

Employers such as the neighbouring Abu Dhabi government are now using contracts with standard adjudication provisions. The Society of Construction Law has set up a local branch and academic institutions are looking to offer post-graduate courses in dispute resolution to the local population.

Quite what Dubai offers in terms of a secure environment for formal dispute resolution is a matter for lawyers to address, but one thing is certain: the dispute bubble that has been growing over the past five years may well be about to burst.