Monday, June 24, 2013

Construction Contracts - Avoiding Common Pitfalls

Over the past decade, our Muscat-based Construction Dispute Resolution Team has advised on numerous disputes between parties to construction contracts.  On review of the reasons for why construction contracts ended in dispute, we have identified a number of common themes, and how to avoid these problems.

It is often simple in retrospect (and outside of the pressure to meet project milestones/manage workforce) to identify where problems in a construction project arose. The challenge to running an efficient and financially successful project is to identify the risks at the outset, and put robust procedures in place to avoid potential problems arising.  Although some of the recommendations set out below may seem obvious and straightforward, it is telling that, in many of the construction disputes that have crossed our desks, these issues were routinely neglected or poorly executed.


  • It is useful to engage legal advice at the outset, in order to understand and set contract risk allocation and exposure limits.  Keep in mind that under Omani law exposure limits (including liability limitations, liquidated damages and penalties) may not be enforceable as contemplated, even in FIDIC or other tried and trusted forms of contract.
  • Ensure the agreement between the parties is recorded accurately in writing, and that any instructions, consents, variations/amendments are also in writing.  Get legal assistance when needed in drafting variations.  Minutes of meeting on site may not suffice, or accurately bind the parties, as intended or at all.
  • The parties should notify each other at the earliest if a discrepancy in the contract is discovered.
  • Ensure any referenced documents form part of the contract and are readily identifiable.  Disputes often arise many years after contract execution, and putting together contract documents can be difficult and costly.
  • Set a realistic, thorough and workable Schedule of Works/Comprehensive Program.
    One often-overlooked way of avoiding disputes is for the parties to agree at the outset which records will be kept, who is responsible for these, and what level of detail is required.
During Works

Maintaining good records throughout the project is key to avoiding disputes, and economically resolving any problems that arise.  Good records can save hundreds of thousands of Rials if a problem escalates into a dispute. Keep in mind that if everything works well, most disputes will be resolved by the parties, or the Project Engineer, and do not result in arbitration and termination of contract.  The key to obtaining a successful and early resolution of a dispute between the parties, or by way of Engineer’s decision, is to keep accurate, appropriately detailed and contemporaneous records.
  • Have one person responsible for managing project documentation and especially variations to the contract.  If that individual moves on, ensure there is a well-managed handover of the role to another appropriately experienced individual.
  • Ensure that necessary progress inspections are undertaken, and properly documented prior to works being covered up.
  • Carefully monitor the tone and language of notices and contract-related correspondence.  Many disputes are caused or aggravated by the tone of language used. This is especially important when English is the contract language, but not the first language of the parties.
Key records which will assist in the avoidance of disputes, and help bring about early and economical dispute resolution include:
  • Carefully maintained (by key site personnel) file of all correspondence.
  • Properly signed and contemporaneously completed timesheets and daily work sheets, supported by daily allocation sheets, site diaries, and note books.
  • Accurate records of material/component deliveries and timings.
  • Work progress and milestone photos/video.
  • Written records of key phone calls and accurate and signed minutes of any meetings.
  • All verbal agreements recorded by email/letter sent to the other party.
  • Records of progress vs. planned programme (photos and video are of great assistance).  Regularly updated progress records are key evidence which may prevent disputes escalating.  These records should be made contemporaneously.
  • As-planned and as-built records are essential for asserting or defending delay claims.  It is far more economic and accurate to compile these records contemporaneously, than to try and have experts re-create the same after a dispute has arisen.
If problems arise:
  • Involve lawyers early.  Legal advice can prevent the escalation of disputes and assist with appropriate interparty correspondence and any request for an Engineer’s decision.  It is a false economy and potentially damaging to the case to delay seeking legal advice.
  • Collect and marshal necessary evidence early, and before key employees move to other projects. Obtaining legal advice early will assist with this, and avoid wasted time and cost.
  • Alert other party of dispute/issues at the earliest.  Remember that under Omani Law there is an onus on parties to mitigate loss.
  • Ensure any necessary notices have been issued.  This is particularly important if there are multiple heads of claim, each arising under separate requests for an Engineer’s Decision.
The above is necessarily a brief summary only, and we would be happy to assist with any specific construction-related queries.