Prompt payments prop up Dubai’s construction sector

 

Dubai’s construction industry is at the healthiest it has been in almost 20 years, according to an executive from one of the city’s most established industrial groups. 

This resurgence is notable for its relative lack of payment delays – a common issue in construction projects globally and in the Gulf region.

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style="background-color: white; box-sizing: inherit; color: #333333; font-family: Jost, sans-serif; font-size: 1.125rem; line-height: 1.55556; margin: 1.25rem 0px;">“Delayed payments are not an issue in the current environment,” Navin Valrani, vice-chairman and group managing director of Al Shirawi Group, told AGBI.

Al Shirawi Group, founded in 1971, is one of the largest privately held companies headquartered in the UAE. It operates across 17 sectors including oil and gas, construction services and manufacturing.

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style="background-color: white; box-sizing: inherit; color: #333333; font-family: Jost, sans-serif; font-size: 1.125rem; line-height: 1.55556; margin: 1.25rem 0px;">Valrani said if payments are delayed, it is largely a function of something going wrong with the project, such as a quality issue. “It is definitely not due to a lack of liquidity,” he said.

Michelle Nelson, a partner at law firm Reed Smith, echoed the sentiment and said developers are benefiting from the UAE’s growing property market. She said contractor payments are, for the most part, timely. 

However, she warned that disputes over payments for variations of work and compensation for construction delays remain a significant issue on some projects in Dubai.

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style="background-color: white; box-sizing: inherit; color: #333333; font-family: Jost, sans-serif; font-size: 1.125rem; line-height: 1.55556; margin: 1.25rem 0px;">AGBI earlier reported on the region’s struggle with “unrealistic” project timelines, and the Middle East has been named among the worst regions in the world for construction delays.

Dispute resolution and risk consultancy HKA’s 2023 Crux Insight Report showed Middle Eastern projects being extended by an average of 22.5 months and contractors seeking a 35 percent budget increase to cover extra costs.

Despite these challenges, Nick Maclean of real estate services company CBRE said he saw “no evidence of delays in payment in UAE”, suggesting a separation between project delays and payment practices.

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style="background-color: white; box-sizing: inherit; color: #333333; font-family: Jost, sans-serif; font-size: 1.125rem; line-height: 1.55556; margin: 1.25rem 0px;">Maclean anticipated a busy period ahead for contract resolutions, especially as historic backlogs from 2008 to 2010 are due for adjudication at the Dubai International Financial Centre courts.

Although they are not yet popular in the region, Reed Smith’s Nelson said potential uptake of Dispute Adjudication Boards, which embrace the principle of “pay now, argue later” to keep projects moving, could contribute to a reduction in untimely payments.

Valrani also called for more nuanced regulations around final payments tied to project closures and snagging – the process of ensuring a new building meets specifications and quality standards. 

“If that process is evaluated and monitored, contractors will be in a better place,” he said.

While Dubai’s arbitration processes have expedited dispute resolutions, Valrani also suggested that mediation could offer a still quicker, more cost-effective and less-complex alternative to arbitration.

He pointed to mediation as part of Dubai’s collaborative and resolution-oriented business culture, recalling the efficacy of a previously lesser-known business desk for the process at the Dubai Chamber of Commerce and Industry. 

“We have to be careful when we want to copy-and-paste institutions from the West because I think there is a huge benefit to that style,” he said.

“We don’t need to just mimic international systems. We could take the international system and see how we could better it and bring an Emirati version to it.”