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Middle East construction disputes surge

Construction disputes in the Middle East rose to their highest level last year since 2011, when the fallout from the global financial crisis was at its most severe.

The average value of the disagreements jumped 88 per cent to $76.7 million last year, according to data from the Arcadis building consultancy.

Only Asia had more expensive disputes, with average claims of $85.6m.

North America recorded averages of $29.6m, mainland Europe $38.3m and $27m in the United Kingdom.

Arcardis said the main reason for disputes in the region was a failure to properly administer contracts. It added that one striking statistic from its research was that almost half of all joint ventures formed to carry out contracts ended up in dispute during the year, which was the highest of any region. The global average is one third.

The average length of time it took to solve a dispute in the Middle East also lengthened to 15.1 months, compared to 13.9 months in 2013.

Allon Hill, Middle East head of contract solutions at EC Harris, said that the global financial crisis had led to all parts of the building industry – clients, consultants and contractors – racking up significant losses.

Some had decided to write these off but others put claims on ice, and have recently been reviving them as business has improved and more money has flowed into the sector.

“In 2014, we saw a number of high-value claims being initiated for projects that were undertaken in 2008-09 due to money now being available to pursue those claims,” he said.

“This would appear to be the main reason why the value of the claims has increased in the region. We predict this trend to continue throughout 2015 as more parties have the required liquidity to pursue claims.”

Sachin Kerur, head of the Middle East region at the law firm Pinsent Masons said that the increase in the value of claims could be explained by the fact that bigger, more complex infrastructure projects such as airports, processing plants and power plants were now reaching completion. These projects, by their nature, attract higher numbers of claims for larger sums.

“I would say that it reflects where we are in the cycle,” he said.

“These projects are at the commissioning stage, and that will be the time when contractors, if they feel they have legitimate claims, will put them through.”

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