Late payments challenge Qatar construction sector

Contractors and subcontractors in Qatar are over a barrel with overdue invoices, forcing a number to close doors as their companies flounder, waiting in vain for payment of work done. The all-pervasive malady has the contractors scrutinizing their contracts and the developers clenching their jaws, generating a growing number of cases requiring arbitration, says secretary-general, ICC International Court of Arbitration.

In the main, the point of dispute are related to pricing or delay in the delivery of projects. In 2015 about 30 cases of commercial disputes from Qatar reached the International Chamber of Commerce (ICC) arbitration body, whereas a decade ago, there were less than five cases, ICC attests.

Disagreements have included environmental impact (EI) and variation order (VO) issues, owing to contracts which often push contractors into a Catch-22 situation, whereby they are obliged to proceed with instructions in order not to be in breach of the contract – yet payment is based on fully-priced and agreed VOs or change orders (COs), which can take months if not years to settle.

With already tight margins, main contractors are not typically in a position to bank-roll the projects where delayed payment becomes protracted. The knock-on effect is that the supply chain too, is unpaid.

Often the impact of late payment becomes concentrated as it passes down the supply chain, where subcontractors and suppliers have lower turnover and fewer diverse supplies and services to balance bad payments.

A construction specialist outlines: “I’ve spoken to a number of in-house counsel recently and the view is by and large, that there may be more claims about, but there is no appreciable increase in formal disputes (court or arbitration proceedings) yet. The difficulty is that, the majority of projects in the sector are government-led and there remains a fear, within international companies at least, that they can only consider taking legal action against a government body if they accept that they are never going to work in Qatar again.

“Most international companies are not there yet, but as the award of new projects slows over the coming years, we could see companies willing to accept that.”

The specialist points out however, that subcontractors and suppliers do not necessarily suffer from the same concerns: “but the sheer cost of formal dispute resolution, particularly in the international arbitration insisted upon by main contractors, prohibits some claims".

It is clear that cash flow is the lifeblood of construction. If main contractors get paid late (or not at all in some cases, especially for variations) they cannot pay their subcontractors, who in turn cannot pay suppliers, who simply ‘turn off the taps’ and then clients and their project managers surprisingly, wonder why projects are not meeting schedule and why there are no materials on site?

It’s at this stage that tempers are apt to flare and contracts scrutinized. Obviously, there are two sides to every story and if the contractor is not performing there are other remedies under the contract, but to stop payment has a ripple effect that is contrary to the intentions of the parties and, in most cases, more detrimental to the successful completion than having the benefit the client might think.

Note: This is the modified version of the original news, but the original one can be seen through the author above