The lowest-priced bid may mean the highest input from the employer

In an exclusive interview with QCN’s Farwa Zahra, Astad Project Management's chief commercial officer Abdulaziz Al Mulla discusses contractual challenges currently faced within the construction industry in Qatar and the wider region.

In Qatar, what are the major reasons behind disputes arising between contractors and clients?

There are a number of reasons why disputes arise between contractors and clients. More often than not, the contractor and the employer are considered to be adversaries rather than partners. This is a phenomenon in Qatar and the wider region. There is a lack of trust between concerned parties from the outset of a project. With time, this can lead to a lack of communication throughout the different phases of a project, provoke defensive stances, and perpetuate a culture of blame.

Secondly, there is the issue of lowest price bids and the frequent use of lump-sum contracts. It is important to have price certainty for projects, and lump-sum contracts are a way to achieve that. However, these contracts put major pressure on the employer to scope the work correctly. If the scope is not fully defined and written down clearly, then issues including delays and extra costs will arise. The principle of lowest price not being equal to lowest cost must be considered. In certain instances, the lowest-priced bid may mean the highest input from the employer. Employers need to realise that a lump-sum bid, with the majority of the risk being assumed by the contractor, does not come cheap as risk premiums can be very high.

Furthermore, there is a lack of advice to employers on the risk and its potential impact on a project. A successful project is one that is built on time, to the required quality, and within budget – this is rare in Qatar and the region. Most projects do not meet planned deadlines and budgets and the employer is not fully informed of the risk and its possible repercussions, particularly at the time that proposed variations are being considered. This can then in turn lead to a lowering of quality as the client realises that he cannot afford the full cost of the changes as well as the impact of those changes on the programme and the scheduled date of completion.

Qatar is one of the most expensive countries in the world to undertake construction projects, with an excess of 20 percent risk premiums in tenders. The risk is usually apportioned to the contractor. Contractors will assume risk if the contract requires them to, or if it is in their interest to do so, but they will deal with this risk within their pricing and programming of the work.

What are some of the ways to overcome these disputes?

Employers need to start considering other procurement options, which involve risk sharing, such as target contracts. In some countries, there is significant use of partnering contracts and Early Contractor Involvement (ECI). These contracts require early collaboration between involved parties to fully investigate project issues such as buildability, value engineering and risk, which can affect the successful outcome of a project.

Employers also need to realise that contractors have a huge knowledge of the industry. It is their business to understand construction. Therefore, why pay more for the contractor to keep all that knowledge to themselves when you could actually save money and benefit from their knowledge?

Risk apportionment, sharing logistical issues such as early ordering and delivery of critical materials, and the procurement of appropriate equipment should all be considered as matters that could affect the project and/or arise as claims later.

But this cannot be done by just a few pioneers trying to change the industry. Maybe it also calls for some ‘top down’ government intervention to issue a mandate for the Qatar construction industry to ‘look in the mirror’, and to change its practices. This has happened in many other countries.

Construction contracts in Qatar are often in favour of the employer. What are some of the areas that should be focused on in order to make these contracts more balanced?

First of all, there needs to be a mindset, a cultural shift, beyond mere words on paper. The industry must collectively look at how we can all make ourselves more aligned to best practice. Yes, of course we can look to employers to play their part, but it is not just about employers, one or two forward-thinking employers or consultants will perhaps make people think about what we do and how we do it, but they cannot change the culture of our whole industry. It is about all the parties playing their part to make the industry a better, and of course, a safer place to work.

The employers should stop treating their contractors as adversaries and start treating them as partners. This can happen by promoting early involvement of contractors in projects, as a single example.

Contractors themselves should also consider their relationships as part of the process, by rethinking their supply chain, whether it is their subcontractors, their suppliers, or other specialists. We can all play our part.

Apart from the central evaluation system, has Qatar developed any homegrown solutions to improve construction practices?

We at Astad are in the midst of developing a solution that we will share with the market very soon. We have produced our very own ‘Suite of Contracts’, and we are encouraging our current employers to use them, while also discussing their use with our potential employers and other employers throughout Qatar and the region. The suite is made up of templates for construction contracts, design-and-build contracts, design services contracts, and professional services contracts.

The Astad’s inclusive suite of contracts was developed as a result of lessons learned from the unique types of contractual challenges we faced within the construction industry in this region. We hope they will be an invaluable addition to the existing forms of contracts currently used in the market, but with some distinct features. For instance, they take into account challenges faced in the Qatar construction industry with ways and means to address these issues and avoid them as much as possible. This has been prepared with the mindset to give employers and other stakeholders a comprehensive document with full front-end terms and conditions, appendices and annexures. Most importantly, the contracts call for fairness and equality between parties.

Would you say that this balanced approach to all parties in the Astad Suite of Contracts will end up being biased towards the contractor?

The Astad Suite of Contracts will provide a fair process to all parties to ensure that eventually all of the involved parties are winners. As mentioned earlier, the current contracts do not provide what is considered to be best practices to the parties involved in the process of construction due to various reasons that are specific to the employers, which in turn backfire on the employers and harms their project. If the current contractual culture continues, the employers will lose significantly. It is the employers’ projects that will be delayed, and they will also pay the extra cost that is caused by them offloading all the risk onto the contractors. The Astad Suite of Contracts will not be biased towards the contractor, it is simply fairer and biased towards the best delivery of the project-based on international best practice to guarantee the best circumstances to achieve the employer’s vision.

We have recently heard that Astad is undergoing an expansion. What can you tell us about the motivation for such expansion, and how will this affect your operations in the future?

We have recently expanded our operations internationally with the launch of Astad International, which is the international arm of Astad. The motivation behind this expansion comes from the accumulated experience we have in Qatar. We are a major project management company with a portfolio of projects that reflects our teams’ innovation, such as Education City, the National Museum of Qatar, Lusail Sports Arena, and many other prestigious projects in Qatar. We believe the experience, knowledge, and excellence that we have built in Qatar over the years will prove to be beneficial to clients around the world.

This expansion will have positive effects on our operations as our portfolio will continue to grow, adding to our history of delivering complex and iconic buildings and infrastructure projects.