Foreign contractors in Qatar should keep abreast of new terms

 

While the rapid advancement of billions of dollars worth of construction projects has seen dozens of companies rush to enter the Qatari market, these firms often face unexpected challenges, including lengthy tendering processes and a relatively high risk burden placed on contractors and consultants undertaking public sector projects. Although the government’s near-term reforms are likely to focus on the kafala employment sponsorship system (see labour reforms analysis), the recent approval of draft laws devolving the powers of the Central Tenders Committee (CTC) bodes well for regulatory and legislative reforms in the industry.

TENDERS: In Qatar, tenders and procurement are largely overseen by the CTC, which was established with the promulgation of the Tenders and Auctions Law (No. 26 of 2005), although Qatar’s Ashghal (the Public Works Authority), the Qatar General Electricity and Water Corporation (Kahramaa), and Qatar Foundation are also active in launching tenders and awarding contracts.

The Tenders and Auctions Law was amended by Law No. 22 of 2008 and Law No. 14 of 2010, to become the Tender Laws, which today cover contracts for the purchase of items, contracting business, services and works of art. Under the current law, the CTC will act on behalf of the concerned government entity to administer tenders and bids for contracts worth more than QR5m ($1.37m), although contracts for the armed forces, police and Qatar Petroleum are excluded. Tenders worth less than QR5m ($1.37m) are overseen by the Local Tenders Committee (LTC), where contracting is done through local tenders, and participation is restricted to local suppliers, contractors and service providers.

The CTC has the power to receive and review tenders, and to give recommendations for their adjudication, while the Contractors Classification Committee, an affiliated body, holds the power to classify contractors in various specialties, using criteria including skills, technical and financial abilities, and expertise.

PROCUREMENT: Procurement arrangements vary according to project size, and small and medium-sized projects tend to be turnkey, executed through an engineering, procurement and construction contract; a design-and-build contract; traditional procurement in which the design is pre-arranged by the client; or build-only contracts with a single contractor. Alternative arrangements are used on major developments such as the Hamad International Airport project, which was procured on a construction management basis, with the New Doha International Airport Steering Committee acting as the client and engaging a construction manager. Under this arrangement, many contractors and consultants carrying out the design and construction work are engaged separately under a direct contract with the steering committee, rather than the CTC – a model that has become increasingly popular.

In larger projects requiring international capacity and expertise, Law No. 13 of 2000, the Regulation of Foreign Capital Investment in Economic Activity, generally stipulates that non-Qatari contractors must form partnerships with Qatari partners to bid on tenders. This is usually carried out through joint ventures, which can either be incorporated to become a single company, or a joint venture agreement. Legal firm Al Tamimi & Company reported in 2011 that problems most commonly arise when contractors under-price bids or underestimate costs. “The general fear and assumption is that this contractor will, throughout the contract period, make attempts to recoup his lost monies by compromising on quality, giving less, or at worst, the contractor may face insolvency,” said the report.

CIVIL CODE & CONTRACT LAW: Qatar’s Civil Code (Law No. 22 of 2004) is the main body of legislation covering construction-related matters, though many issues – including public-private partnerships and dispute resolution – are not formally codified. Where there is no specific legislation, the court will make a determination in accordance with standard customs or rules of equity, according to an Al Tamimi & Company report.

A key aspect of the Civil Code, given transport bottlenecks and escalating material costs, is Article 48, which includes a principle similar to the French concept of imprévision, in which a contractor for the state may be compensated for cost escalation should the circumstances change so much that a reasonable forecast could not have foreseen the new situation.

The Civil Code does not define a force majeure, or unforeseeable circumstance which would prevent a party from fulfilling a contract, but it does cover the consequences of an extraneous event outside of the contractor’s control, and provides relief to contractors when these arise, including releasing the contractor from responsibility for damages to works, or dissolving the contract if execution becomes impossible.

The Civil Code does, however, allow parties to allocate these risks to the contractor, and risk burden has been a problem for firms operating in the state. Law firm Dentons reported in 2013 that contracts commonly entail a high level of risk transfer to contractors and consultants, with the full extent often unclear. “Relying purely on the assistance of Qatar’s Civil Code will not be satisfactory for parties in complex and high-value projects. Adequate and project-specific force majeure clauses will be necessary across various project agreements in order to achieve acceptable and bankable risk profiles for owners,” wrote James Bremen and Leith Ben Ammar, lawyers at Herbert Smith Freehills, in a January 2015 editorial in Qatar Construction News.

In its 2011 report Al Tamimi & Company warned that foreign construction firms often focus on the technical and commercial aspects, while overlooking the legal terms and conditions in tender documents, which has caused some problems. The firm recommended that companies familiarise themselves with local conditions prior to embarking on a major project, a suggestion echoed by a number of other stakeholders.

DELAYS: Al Tamimi & Company reports that the most common challenges and pitfalls facing foreign firms embarking on projects in Qatar include delays in procurement of materials such as steel, concrete and sand; restrictions imposed on transportation of materials, which cause project delays; a growing labour shortage and lack of available workers with requisite experience; delays in obtaining work permits; lack of familiarity with Qatar’s environment and conditions on the ground; and engaging subcontractors who have not been approved by the concerned governmental party.

The Tender Laws stipulate that contractors can be fined up to 10% of the contract value in the case of project delays, despite Civil Code protection from unforeseen circumstances, and in November 2014 Construction Weekly Online reported that some contractors had asked the Ministry of Finance to waive fees imposed as a result of project delays. Ali Mohammed Al Duhaimi, director of Ashghal’s Investigation and Legal Affairs Department, said this request will likely be rejected. Even before a project is awarded, lengthy tendering processes have also been cited as a financial burden for contractors, although recent moves to spread tendering responsibilities across a broad range of government bodies could help streamline the process, allowing the state to roll out high-priority projects more efficiently.

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The Report: Qatar 2015

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