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Time for Change

CONSTRUCTION IN THE GCC REACHES A TIPPING POINT

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FOREWORD

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ForewordThere are two sides to construction in the GCC. One is an industry that is known around the world for delivering some of the most ambitious and ostentatious projects ever seen. The other is an industry that has developed a reputation for being notoriously difficult to work in. Inequitable risk allocation has eroded industry profit margins; late payment has created a cash flow crisis; and an unparalleled level of scope variations by employers has resulted in a culture of chronic cost and time overruns, disputes, and mounting financial losses.

These growing pressures, combined with an ongoing recession in the region’s major projects market, have created an unsustainable situation that has pushed the GCC construction industry towards a tipping point.

Change is no longer optional, it is inevitable.

DLA Piper and MEED are delighted to bring you Time for Change, a report that examines the key pressures shaping the GCC construction industry; the underlying factors driving change; and the ways we expect change to materialise over the coming years.

The report is the outcome of a series of interviews and discussions with senior executives from the region’s leading developers, contractors, government bodies, financiers and consultants.

In publishing Time for Change, we hope to continue to highlight the challenges that exist within the industry whilst introducing fresh ideas and potential solutions for further debate and discussion.

By encouraging greater collaboration amongst participants, together we can bring about the change necessary to successfully deliver on the enormous opportunity that the region presents for the construction industry.

We hope you enjoy our report.

Suzannah NewboultPartner, DLA [email protected]

Colin ForemanDeputy Editor, [email protected]

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TIME FOR CHANGE: CONSTRUCTION IN THE GCC REACHES A TIPPING POINT EXECUTIVE SUMMARY

Executive SummarySome $3.1 trillion worth of projects are planned or underway in the GCC, giving rise to renewed optimism for a return to growth for the regional projects market. Behind this optimism, however, the GCC construction industry is an industry under pressure.

Tightening liquidity in the private sector and reduced capital spending by governments has resulted in fewer contract awards. This has significantly increased competition levels amongst contractors; reducing order books and eroding profit margins. At the same time, interim payments are slowing and project costs and time overruns are escalating, squeezing cash flow and leading to a rise in disputes. In such challenging market conditions, it is increasingly difficult for the GCC construction industry to deliver projects efficiently.

The industry has reached a tipping point and the message is clear - it is time for change.

Key Findings• Five key pressures are shaping

the GCC construction industry:

• Ambitious agenda: The construction industry plays a vital role in the delivery of the GCC’s economic vision.

• Tightening liquidity: Fluctuating oil prices have continued to strain the entire construction supply chain.

• Payment delays: Payment delays, variations and overruns resulting from a liquidity squeeze are increasing.

• Low barriers to entry: Lower cost players are challenging international contractors.

• Lack of innovation: There is a continued reluctance by the industry to change its procurement and project delivery methods.

• Industry participants have realised that the boom days in the lead up to the 2008 financial crash are not returning. Adversarial tensions between employers

and contractors are mounting. Contractors are becoming more selective, with many choosing to exit the market. The GCC is under increasing pressure to meet global standards and expectations. Both contractors and employers acknowledge that change is needed.

• Whilst it will not happen overnight, change is materialising in several ways:

• Increased impartiality of contract administrators, project managers and engineers (“consultant”): The role of the consultant is expected to evolve. We will see greater differentiation in the execution of those duties for which the consultant is purely an agent of the employer and those duties which see it act in a determinative capacity. Greater clarity in the new FIDIC contracts will assist in the recognition of these differing duties.

• A more mature funding environment: Increased reliance on external and international funding will bring a greater level of sophistication to the contracting process and delivery of construction projects in the region. Employers will need to show a greater return on investment resulting in a shift in priorities, away from “lowest price”, towards quality workmanship and requirement to meet realistic completion dates. By leveling the “playing field” for tenderers with more realistic contract prices and terms, we will see an improvement in payment conditions and a reduction in the volume of disputes.

• Global standard contracts, for global standard projects and locking in of resources: For large, complex schemes, the industry will be forced to adopt more attractive

tendering procedures and better contract terms. This will foster more collaborative and productive working relationships between employers and contractors. We expect to see an increase in two-stage tendering for niche areas of construction and landmark developments but continued one-stage open tendering for other government funded work and more standard developments. In addition, the need for quality will continue to drive investment companies and developers to secure resources by taking stakes in construction companies. Developers will continue to lock-in resource from specialist subcontractors in order to increase efficiency in procurement and ensure the timely delivery of projects.

• Game changing legislation, improved standards and increased barriers to entry:

Tighter legislation and stricter enforcement on the construction industry over the coming years is inevitable. With changes expected to the law in areas such as worker welfare, modern slavery, health and safety and corruption, barriers to entry will increase. It will be more difficult for lower-cost contractors to pre-qualify for projects, which will result in improved standards and a move level playing field for international contractors.

• Moving forward with quicker fixes: Whilst not changes that we can expect to see in the short to medium term, as the industry matures, it would benefit from the introduction of mechanisms such as statutory adjudication and legislation that outlaws pay-when-paid provisions. Such mechanisms would help to protect cash flow in the supply chain.

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TIME FOR CHANGE: CONSTRUCTION IN THE GCC REACHES A TIPPING POINT GROWING TENSIONS

Growing tensionsThe GCC construction industry is rich in opportunity and ambition. The drive to meet the needs of a rapidly growing population, coupled with the implementation of strategic initiatives by governments to diversify their economies away from oil, has seen over $951 billion of contracts awarded in the GCC over the past five years.

Currently, some $3.1 trillion worth of projects are planned or underway in the region. The volume of projects together with the improving outlook for oil prices has given rise to renewed optimism for a return to growth for the regional projects market, after three years of decline.

Beneath this optimism the GCC construction industry is under pressure. Tightening liquidity in the private sector and reduced

capital spending by governments has resulted in fewer project awards. This has significantly increased competition levels among contractors, reducing order books and eroding profit margins. At the same time, interim payments are slowing; squeezing cash flow. Certification of variations and extensions of time are being delayed; project costs and time overruns are increasing and disputes are rising. These tensions

are further compounded by a lack of innovation in procurement methods and the emergence of a two-tier market with low barriers to entry.

With such challenging market conditions, it is increasingly difficult for the GCC construction industry to deliver projects efficiently and effectively.

We explore five growing points of tension in further detail.

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2011 2012 2013 2014 2015 2016 2017

0

Bahrain

Year

Perc

ent

QatarOman

UAE

World average Kuwait

Saudi Arabia

$3.1 trillion of projects are planned or underway in the Gulf

An ambitious agenda The construction industry holds a strategically vital position in the GCC economy.

SOCIO-ECONOMIC FACTORS DRIVING INFRASTRUCTURE INVESTMENTWith the exception of the UAE, the region’s populations are growing at a faster rate than the world average and after three years of reduced spending on projects, the infrastructure deficit has widened.

Governments in the region know that critical infrastructure is required to improve the lives of their citizens and to support investment and job creation.

They also know that capital investment in projects will drive long-term economic growth.

These socio-economic drivers were recognised in the 2018 budget statements issued in December 2017 by Saudi Arabia and Dubai. Both budgets placed a heavy emphasis on infrastructure, with Dubai increasing spending by 43 per cent, and Saudi Arabia committing to an additional $90 billion of capital expenditure. Whilst the two governments have quite different priorities, both governments highlighted a significant commitment to spending on housing projects for nationals as part of these 2018 budgets.

STRONG REGIONAL AMBITION The low oil prices since 2014, has renewed the economic focus on diversification away from hydrocarbons revenues to stimulate non-oil GDP growth.

The new diversification drive can be seen most clearly in the economic visions, strategies and initiatives of each country.

The largest and most comprehensive vision is Saudi Arabia’s Vision 2030.

Launched in April 2016, Vision 2030 includes ambitions for a raft of strategic megaprojects that promise significant opportunities for the construction industry. These include:

• The $500 billion Neom project, a megacity and economic zone;

• The $4.8 billion Downtown Jeddah urban regeneration project;

• The Red Sea Project, a 34,000 square kilometre luxury island resort project;

• The $3 billion New Taif Project, a mixed-use development including an airport; and

• The $2.7 billion Al Qiddiya Project, a 334 square kilometre cultural, sports and entertainment city

DESERT VISIONSLong-term economic strategies under way in the GCC:

• Bahrain: The Economic Vision 2030

• Kuwait: New Kuwait 2035• Oman: Future Vision 2040• Qatar: Qatar National Vision

2030• Saudi Arabia: Vision 2030• UAE: Vision 2021 and UAE

Centennial 2071• Abu Dhabi Vision 2030

GCC population growth vs world average

1,600

Aug 2008

Aug 2009

Aug 2010

Aug 2011

Aug 2012

Aug 2013

Aug 2014

Aug 2015

Aug 2016

Aug 2017

Aug 2018

1,400

1,200

1,000

800

600

400

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0

$b

n

UAE

Saudi Arabia

Kuwait

Iran

Oman

Iraq

Bahrain

QatarSource: MEED Projects

Source: MEED Projects

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Together, these projects take the value of projects planned or underway in Saudi Arabia to approximately $1.5 trillion.

Outside Saudi Arabia, the primary markets for construction activity are Dubai and Qatar, fuelled by several large-scale infrastructure and real estate projects underway and the hosting of global events - Expo 2020 in Dubai and the 2022 FIFA World Cup in Qatar.

HIGH STAKES FOR FAILUREThis new wave of projects adds to an already sizeable backlog of schemes, with the total value of planned or unawarded projects across the GCC reaching $1.68 trillion. For the region's construction industry, the pressure to deliver is considerable, with the stakes high for everyone involved.

Even for a region used to multibillion-dollar schemes, the sheer size and scale of project announcements, particularly in Saudi Arabia, is unprecedented. To put this into context, the announcement of the $500 billion Neom scheme alone increased Saudi Arabia's project pipeline by almost 50 percent and the entire GCC pipeline by almost 20 percent.

For GCC governments, all eyes are watching as they attempt to translate their bold visions for diversification into reality. Proof will be in the number of projects to reach completion over the next few years, with the true measure of success being non-oil related GDP growth. The pressure will be felt most strongly in Saudi Arabia, where Crown Prince Mohammed bin Salman has been openly critical of the way projects such as King Abdullah Financial District have been delivered in the past.

In Dubai and Qatar, the pressure at the government level will be felt for slightly different reasons. While the hosting of global events provides the cities with the opportunity to showcase themselves on the world stage, equally, the reputational consequences for failing to deliver on time or to a high standard are significant. This pressure at the government level has a ripple effect throughout the entire supply chain.

1,200

1,000

800

600

400

200

0Kuwait Oman

Country

$bn

Qatar Saudi Arabia UAEBahrain

45

16594 90

997

295

Tightening liquidity, payment delays and reduced contract awards The lower oil revenues of the past three years have meant less cash is available. With less money to go around, the entire supply chain has been put under immense strain.

The rapid decline of crude oil prices in the second half of 2014, from $115 a barrel in June to just $50 a barrel by the end of the year, set in place a negative chain reaction of events that continues to impact GCC developers and contractors today.

As oil prices fell, GDP growth slowed and GCC governments hurriedly slashed spending and delayed the award of future contracts.

Between 2014 and 2017, the annual total of contract awards across the region fell by 34 per cent from $181 billion to $118 billion.

The impact of reduced government spending was most felt in Saudi Arabia, where fast-track programmes of work, such as the Mecca Metro and a Saudi Aramco-led project to build 11 stadiums across the Kingdom, were put on hold.

Across the industry, the spending reduction by government manifested itself in a number of ways:

• New contract awards have been delayed, deferred or put on hold;

• Projects are being redesigned or rescheduled to reduce the capital expenditure required;

• Payments to contractors have been delayed;

• Contractors are being asked to accept discounts on payments due; and

• Contractor claims for variations and prolongation costs are not being awarded.

Bahrain Kuwait Oman Qatar Saudi Arabia UAE

2014

60

$ bn

50

40

30

20

10

0

2017

GCC contract awards 2014 - 2017

Value of planned, unawarded GCC projects by country

“The reform programme will take time to kick in and while we can expect to see key projects moving forward this year, there is still considerable uncertainty about delivery timelines.”

— MEED



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Add to this a reduction in liquidity by the region's banks, and cracks in the supply chain have emerged.

Margins are being eroded through constant price wars, we are seeing cash flow issues, and contractors and developers are finding themselves increasingly in disputes. This is leaving projects at risk of being completed late, running over budget, and becoming mired in litigation and arbitration.

Contractors in particular are struggling. In Saudi Arabia, Oman, Qatar and the UAE, delays in payments have caused huge problems, affecting the cash flow of contractors and forcing thousands of layoffs.

The region’s largest contractors are the most exposed to the vagaries of the market. We have seen many public examples over the last few years of contractors in financial distress, their poor performance highlighting the challenges that the GCC construction industry as a whole now faces.

These public examples are not unique. Speaking privately, most local construction companies admit to having difficulties completing projects. According to a report released by Ubhar Capital in 2017, construction companies across the GCC witnessed a further three

per cent increase in their losses in 2016, with five out of eight listed construction contractors in the GCC in loss, and the ones in profit either very well-diversified or predominantly operating in a country that can break even on their budget with a lower oil price.

As the larger contractors suffer, these problems have been passed down to subcontractors and suppliers.

The squeeze in market liquidity is also being felt by private sector developers. A decline in government deposits with the local banking sector has meant less liquidity for the private sector to tap into for new projects.

In addition, private developers have found it more difficult to sell real estate with property prices weakening, forcing developers to become more competitive when selling properties off-plan and thereby reducing margins.

Even in Dubai, which is widely regarded as the GCC’s best-performing property market, property prices have declined for 12 consecutive quarters, with large volumes of new supply coming onto the market imminently.

While oil prices have improved and are easing budgetary pressures, the situation for contractors in the region may get worse before it gets better. Government reform initiatives will take time to materialise and regional economists are urging to proceed with caution, citing the current period as a time of relief, rather than recovery.

“It is not untypical for four or five of our suppliers or subcontractors working on any major project to stop trading while construction is still being carried out, jeopardising the scheme’s completion”

— International Contractor

“There is a lot of optimism, but nothing is moving… there are not enough jobs for the market and people are still hungry”


“Delivery risk is a major concern. Contractors are struggling to survive because paymasters on other projects are not paying. We don’t want them going bust on our projects”

— Local Developer

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TIME FOR CHANGE: CONSTRUCTION IN THE GCC REACHES A TIPPING POINT

Delayed certification of contract variations and time overrunsClosely linked to the issue of market liquidity is the issue of payment delays and in particular, payment for contract variations and prolongation costs.

In a 2017 survey of contractors conducted by MEED, 30 per cent of respondents reported that the payment situation had worsened over the previous year. The majority said the situation had stayed the same, and just 15 per cent said it had improved.

Companies working for government and semi-government entities are most likely to be paid on time, while firms working for private sector companies are more likely to experience payment difficulties.

Many of the contractors interviewed, however, said that the larger issue lay within their ability to recover costs for contract variations.

In the survey of contractors, 74 per cent of respondents said variations are not being certified in a timely manner. Similarly, 84 per cent said extensions of time are not

received until the end of the project. Contractors say this is due to their requests for extension being held by the employer to the end of the project and used as a bargaining chip when settling the final account against any cost overruns.

Variations have become a more difficult issue for contractors since the global financial crisis.

In 2008-09, many client bodies in the region were lumbered with spiralling costs from projects that had not been properly managed, and in some cases money had also been lost from corrupt practices.

Keen to avoid the mistakes of the past, client bodies responded by introducing extra layers of governance to their organisation bringing in audit and project management departments to track and control spending on projects in order to prevent costs from spiralling out of control.

The challenge for contractors with this new approach by employers is that the extra layers of bureaucracy slow down decision-making, which delays formal variations being issued and paid. When it occurs throughout

Improve Stay the same Worsen

15 15

70

Yes No

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the contract period, it can have a major impact on the contractor’s cash flow. This is exacerbated by contract administrators not acting independently where they have a decision-making function.

The problem of variations not being processed is further compounded when project completion is delayed.The statistics for the region highlight the scale of this problem. A 2015 report by PWC found that more than 95 per cent of projects in the GCC were delayed and 71 per cent were over budget. About 44 per cent were delayed by more than six months and 6 per cent of projects were more than 50 per cent over budget.

A two-tier market with low barriers to entry and fewer projects requiring top-tier expertiseThe region’s construction market is traditionally structured in tiers. The top tier has been dominated by international contractors bringing their expertise to major projects such as airports, ports, bridges and high-rise towers.

The second tier has comprised a small number of larger local and regional contractors capable of taking on larger building projects.

Tier three is made up of a significant number of smaller, local contractors working on lower-profile building and infrastructure projects.

ENHANCED CAPABILITIES OF LOCAL AND REGIONAL PLAYERSOver the past decade, the market has changed considerably. As the region started to take on an increasing number of sizeable projects, larger local and regional players gained valuable experience, creating future opportunities to work on larger-scale, high-value projects.

At first, these contracts were typically completed in joint ventures with an international partner, but increasingly these local contractors have been using their experience to prequalify to bid on major projects on their own, negating the need for their larger, more experienced joint-venture partner.

An example of this phenomenon can be found in relation to the construction of high-rise residential and commercial towers in Dubai. At the beginning of Dubai’s real estate boom, international contractors dominated the market for high-rise construction. As the volume and size of projects increased, however, local and regional firms gained the experience required to build the towers by themselves.

Today, these larger local and regional contractors have completed more tower projects in the GCC than many of their international competitors.

GROWING TENSIONS

Over the coming year, do you expect payments to improve, remain the same or worsen?

Are variations certified progressively and in a timely manner?



“Variations are part of construction; change is part of construction and that is part of our life. So you have to learn to deal with it. The problem is it doesn’t get dealt with.”

— Major Local Contractor

“We have a lot of change in this region. This is the crux of the issue at the moment. We are getting paid on time, but we are not getting paid for change”.


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FEW OPPORTUNITIES FOR TOP-TIER EXPERTISEIn addition to regional and local players enhancing their capabilities, the market is offering fewer opportunities that require top- tier construction and engineering expertise.

Data from the past few years demonstrates how the market is now moving forward with fewer major contracts.

According to regional projects tracker MEED Projects, the number of contract awards valued at more than $500 million has declined significantly since reaching a peak in 2014, when there were 38 contract awards valued at more than $500 million. In contrast, by late December 2017 there were just 15.

LOW PRE-QUALIFICATION STANDARDS WITH A FOCUS ON COSTS Many public procurement laws in the GCC require government entities administering procurement processes to award contracts to the lowest bidder that meets the minimum requirements of the request for proposals.

Like many international jurisdictions, project procurement in the GCC often includes a pre-qualification stage, which contractors must pass prior to being invited to submit bids for the project.

The pre-qualification stage in many international jurisdictions will often require information on, and an evaluation of, the contractor's health and safety records, environmental compliance records and related policies and procedures that are in place. By the time bidders get to bid submission, procurers may often also require bespoke health, safety and environment plans that have been tailored to the project.

In contrast, for the pre-qualification stage in many GCC projects the primary emphasis is on the contractor's track record and experience in completing previous projects, and their financial strength. The contractor's prior health, safety and environmental performance on similar projects is typically not considered as a pre-qualification requirement that must be passed in order to bid on projects.

Even if a contractor can differentiate themselves due to exemplary health, safety and environmental record for example, GCC public procurement laws often prevent this from being considered by the government procurer where the contractor's bid is more expensive.

As a result, many procurements in the GCC are structured so as to promote a race to the bottom, with the lowest price generally winning and being awarded the contract.

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20170

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Lack of innovation in procurementA general reluctance by the industry to change its procurement and project delivery methods is a growing point of tension.

Table 1on pages 18 and 19 highlights the advantages and disadvantage of traditional or established procurement models in further detail against four key project objectives: time, quality, cost and bankability.

Over the last decade, more established markets such as the United Kingdom, Australia and Canada have seen a move towards more collaborative procurement models such as partnering and alliancing.

Such models are designed to create long term relationships with clear measurements of performance and promote sustained improvements in quality and efficiency.

Widespread adoption of partnering and alliancing models, however (whether in the form of project partnering, strategic partnering, framework agreements or 'pure' alliancing), would require a fundamental shift in attitudes and relationships from all sides within the GCC construction industry. The industry would need to move away from a focus on risk allocation, legal obligations and contractual recourse to a focus on collaboration and project management.

Such a change is therefore unlikely to be forthcoming in the GCC in the near future, especially in the absence of government policies designed to promote these structures and appropriate industry standard form contracts that have been drafted with partnering principles in mind.

Number of $500m+ construction and transport contracts award in GCC “Unfortunately it is going to be business

as usual…Clients don’t learn. They want to award to the lowest bidder, even if going to other contractors [new players] may cost them more. Due to tight budgets, the market is moving more and more into lump-sum bidding.”



“What we have also seen over the period is that a lot of work has been at the lower end of the market. Yes, there are plenty of cranes up in the air, but they are being operated by developers that contractors like us would prefer not to work for.”

—International Contractor

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“[We] carefully choose the best contractors according to their ability to meet the requirements of a specific project. To succeed when developing an effective procurement strategy, the contractor should fully understand the project characteristics, the market and the client’s priorities. The contractor should be able to identify opportunities for packaging work and contracts – for example, splitting contracts where speed is a high priority, such as enabling and main works.”— Major Local Developer

Even incremental and modest developments in the tendering process within the GCC's existing procurement models have proven difficult to implement. The region's preference for single-stage, open market tendering, together with fixed-price, lump sum contracts awarded to the lowest bidders can be contrasted with the two-stage and selective tendering policies commonly seen in other jurisdictions.

Two stage tendering is rarely used in the GCC, despite the multitude of projects with programme

constraints, which would benefit from an early start on site and greater contractor involvement at the outset.

The reasons cited for this include: the additional fees incurred by the employer for the pre-construction services; projects which are insufficiently well defined for

programme and preliminaries to be prepared at the initial pre-construction tender stage; concern as to the competitiveness of the preferred contractor's bid at the conclusion of the pre-construction stage; and a lack of sophistication in the market.

TWO-STAGE TENDERING DEFINEDUnder two-stage tendering the contractor is appointed at the conclusion of the first stage of the procurement or tender process based on an outline scope of work under a pre-construction services agreement (PCSA) (or similar). They then enter into the construction contract at the conclusion of the second stage. In this way it achieves the early appointment of the contractor on a provisional basis to undertake pre-construction services. This approach offers several benefits:

• It seeks to shorten the pre-construction period by overlapping design and procurement, and allows for contractor input into programming and sequencing issues.

• It gives contractors the ability to pre-order materials and equipment such as long-lead in items under the PCSA, further assisting to minimise delays.

• It allows contractors to price more realistically by eliminating some of the risk premiums and contingencies which would be introduced into a single stage tender and reducing the need for future contract variations, since pricing can be undertaken on the basis of more complete information.

• Employers may benefit from pre-contract value engineering during the second tender stage, as contractors can start developing solutions to anticipated problems in advance of the construction phase.

• It allows greater contractor input into planning and buildability issues at an early stage (which should also contribute to cost economies) and allows the design team to influence sub-contractor selection.

• Collaboration between the employer, contractor and design team during the pre-construction phase may create a more productive, less adversarial relationship during the construction phase.

“Generally, all our tenders are open and public. I think it is better to give everybody a chance. You create more competition and you open the door for newcomers.”

— Local Developer

Open versus select-list tendering has also contributed to the industry's increasingly low barriers to entry and eroding profit margins. Whilst some government agencies in the region are bound by tendering laws stipulating that contracts must be publicly tendered, many private clients also choose to publicly tender their contracts.

Operating on a competitive public or open tender basis allows new entrants the opportunity to compete for upcoming work. While the resulting competition means better pricing for project owners, it can often lead to a race to the bottom, with new

entrants not always capable of delivering projects as planned and ultimately compromising the ability for a project to be delivered on time, within budget and to a high standard.

Select-list tendering, on the other hand, shifts the procurement emphasis away from cost. By only opening the tender to a limited group of pre-qualified contractors, the employer is provided with greater certainty surrounding the contractors experience and ability to deliver. Selective tendering also expedites the procurement process as it reduces the need for evaluation.

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TRADITIONAL/ CONSTRUCT-ONLY

DESIGN & BUILD/EPC CONSTRUCTION MANAGEMENT

KEY

CHAR

ACTE

RIST

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Employer appoints its professional team (including design consultants) to prepare the design for the project. Once the full design, specification, and pricing documentation is complete, contractors are invited to quote their price and programme for carrying out the works. The selected contractor enters into a construct-only contract and does not assume liability for the design of the works.

Employer invites contractors to quote for the design and construction of the works. The selected contractor will enter into the design and build contract and subcontract the design of the works, thereby remaining fully responsible for both design and construction and providing the employer with a “single point of responsibility” for defects in the works (whether due to defective design or defective workmanship).

The employer enters into separate appointments with members of its design team and other professional consultants in the same way as traditional procurement, however rather than entering into a single construction contract with the selected contractor, the work is divided into a number of different specialist packages and the employer enters into a separate “trade contracts” with specialist “trade contractors” who carry out defined packages of work. The employer also enters into a construction management agreement with a “construction manager” who is responsible for the organisation and management of the project (but not for the performance of the trade contractors or breaches of the trade contracts).

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Traditional/construct-only procurement with single-stage tendering is very widely used in the real estate sector where the majority of large complex projects are procured using contracts based on the FIDIC Red Book.

Design and build procurement with single-stage tendering is widely used on PPP schemes and for works relating to mechanical and electrical plant, as well as for less complex projects in the real estate sector.

Very unusual.

TIM

E

Contractor builds to a complete design, reducing the probability of delays. Programme certainty is possible if design and other contract documentation are accurate and complete prior to the tender.

Not generally suited to “fast-track” projects which require an early start on site: a significant period of time may be required for the preparation of the full design and other contract documentation before tender, giving a long lead-in time before construction work can start. This can be mitigated by two-stage tendering.

Programme certainty is possible as the contractor is responsible for design and construction (this may be easier to achieve if the employer procures the initial design and novates the design team to the contractor).

Because the work is divided into a number of different packages, construction management does not usually provide programme certainty: the knock-on effect of delays caused by one trade contractor may result in claims from subsequent trade contractors.

Can reduce the length of the construction phase as it allows for an early start on site by some trade contractors: since the work is divided into packages, early packages can be designed, priced and commenced before the design of the entire project is complete.

Appropriate for use on “fast-track” projects.

TRADITIONAL/ CONSTRUCT-ONLY

DESIGN & BUILD/EPC CONSTRUCTION MANAGEMENT

QU

ALIT

Y

Detailed design prepared by professional team prior to the contractor commencing works.

Employer can retain control of design quality by direct engagement of and interface with the design team.

Late involvement of the contractor means that the project is unlikely to benefit significantly from the contractor's expertise as to the “buildability” of the design. Contractor not incentivised to identify errors or omissions in the design pre-contract (more profitable to claim variations in respect of errors and omissions post-contract). This can be mitigated by two-stage tendering.

The employer can lose control of design quality as the contractor engages and interfaces with the design team and may seek to 'design-down' to save costs.

Employers can attempt to ensure that their design intent is preserved by engaging the design team to prepare the initial design under the employer's supervision, and when the contractor is appointed, novating the design team appointments to the contractor.

The employer retains control over design and construction by contracting directly with the consultants and trade contractors.

Employer can retain control of design quality by direct engagement of and interface with the design team.

COST

Provided tender documentation is accurate and complete, pricing should be relatively certain.

Cost of any design changes lies with the employer.

No price premium for contractor's assumption of design risk.

Lump sum pricing can be relatively certain but contractors will typically charge a price premium to factor in the assumption of a greater level of risk and the need to control and manage the design team.

Payment can be made quickly and directly by the employer to trade contractors undertaking the works: the direct relationship between the employer and trade contractors eliminates main contractor's mark-up, thus reducing the overall cost of the project. However since the work is divided into a number of different packages, construction management does not usually provide cost certainty: the employer will not know the total price for the works until the last trade contract is let.

BAN

KABI

LITY

Risk is divided between the contractor and employer as the latter assumes responsibility for the design: no single point responsibility for design and construction.

Since the contractor is fully responsible for design, the client achieves a single point of responsibility for design and construction.

The covenant strength of the contractor is of prime importance and employers and funders are more likely to require warranty protection from key design subcontractors, funder step-in rights as well as security against contractor default and insolvency.

In general not as bankable as design and build or traditional procurement. Multiple points of responsibility for both design and construction - work is divided into a number of different trade packages so appropriate warranty protection and security against trade contractor is critical.

TABLE 1: ADVANTAGES AND DISADVANTAGES OF EXISTING PROCUREMENT ALTERNATIVES

GROWING TENSIONS

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TIME FOR CHANGE: CONSTRUCTION IN THE GCC REACHES A TIPPING POINT THE TIPPING POINT FOR CHANGE

The tipping point for change

tipping point

noun

noun: tipping point; plural noun: tipping points

1. the point at which a series of small changes or incidents becomes significant enough to cause a larger, more important change.

Oxford Dictionary Online

With employers and contractors finding the market increasingly difficult, appetite for change is mounting. Continuing contractual and cash flow challenges, combined with a three-year recession in the region’s projects market, has created an unsustainable situation.

There are clear signs that the GCC construction industry is close to its tipping point. Change is now inevitable.

A realisation of a new normGlobally, construction is regarded as a low margin business with low barriers to entry and a relatively low number of projects and clients. This has not always been the case in the GCC.

From 2003 to 2008 a region-wide projects boom led to too much demand for the GCC construction industry to supply. International

contractors were able to negotiate contracts with employers and charge higher margins, and employers had to agree to carry greater project risk in order to attract the contractors. For contractors, life was good, but it also provided an environment fuelled by operational inefficiencies and unrealistic expectations.

This period of superior profits came to an abrupt end in 2008 with the onset of the global financial crisis, leaving contractors with few new work opportunities. The market swiftly changed to a buyers’ market and with it came a return to competitive tendering. Seemingly overnight, contractors found themselves in a race to the bottom, bidding for contracts with meagre returns in order to win work.

Today, as private sector clients curtail their ambitions in line with weaker economic outlooks and

GCC governments adjust their capital expenditure programmes, delaying, cancelling, or repurposing future projects, there has been little respite.

Volumes have never been great enough to force a rebalance of the employer/contractor relationship and tendering continues to become more protracted driving prices and margins down even further.

Expectations of a market return to the glory days have now faded and there is a growing acceptance that the current environment – an environment characterised by high competition and low margins – is here to stay. This acceptance of a new norm is forcing contractors to seek reform in other ways in an effort to protect margins from being further eroded and ultimately survive in a difficult market.

Adversarial tensions mounting, disputes pose greater risk As project delays, cancellations and cost overruns become far too common, tensions between employers and contractors rise. The GCC construction industry has reached an unhealthy point whereby more and more projects are falling into dispute and employers and contractors are caught in a sea of arbitration and litigation.

In a 2017 report by Arcadis, the Middle East ranked second in the world in terms of the average value of construction disputes. Whilst the report showed positive signs that the situation was improving, with the average value falling 30 percent from the previous year and the average length of disputes decreasing by 9.8 percent, the volume of claims submitted in the region overall was reported to have increased.

Anecdotally the evidence suggests that a spike in disputes is also coming. With disputes tending to trail contract awards by two to three years, problems on projects over the past two years may only now start to move into the formal dispute processes. The majority of large construction companies report that they already have at least one major legal case underway, and in many cases large

legal teams have been engaged to deal with multiple arbitrations and court cases.

Yet, whilst disputes have always been a common feature of the region’s construction industry, draining cash flow and tying up resources, as the trading environment worsens, they now pose an increased threat. Project completion is made all the more challenging, putting employers under pressure by key stakeholders, and the financial survival of businesses throughout the entire supply chain is being put at risk.

Contractors remain the most frustrated by the situation. Already struggling to deliver on contracts having committed to low prices, their frustrations are compounded by the issue of payment delays and in particular, the inability to recover payment for variations introduced by employers. While they accept change and variations as part of the creative process during construction, contractors interviewed stressed that it is the way that variations are currently being dealt with that is jeopardising projects.

The problems are most severe on large projects, where the value of potential losses to the contractors involved threaten their very existence. Contractors speak of a “danger zone” on projects when the value of unapproved or unpaid variations increases, while at the same time the works are delayed and the contractor runs the risk of the employer levying liquidated damages for delay.

“Super normal profits can’t persist, so eventually the market will [need to] become more sophisticated, more grown up.”

— Local Developer

“The global financial crisis was a difficult period, but when you face difficult times this is when you have to change the way you play the game. Otherwise you are not going to get what you are aiming for.”

— Local Developer

“The big risk for us, as contractors, is when jobs overrun we enter what we call the danger zone. Costs on a big project could be upward of AED10 million a month and we have to service everyone else [on site] as well. We haven’t allowed for it because the project has started to overrun and then [on top of this] we have variations that are not being paid. Those two things compounded together is a massive problem for contractors and subcontractors.”


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Both employers and contractors agree, however, that prevention is the best way to deal with the issue and reduce the potential for disputes in the long run.

Contractors spoke openly of the need to have an employer that understands the importance of assembling a collaborative project. Equally, some of the larger developers acknowledged the importance of better preparation and planning at the outset to finalise designs and clarify the variation process in order to prevent overruns from occurring down the line.

This view was further supported by the Arcadis report, which cautioned the industry against making rushed decisions around contract and procurement strategies in an effort to get projects underway.

“Minimising and effectively managing overruns comes with great preparation and planning, which is the most important component and most efficient tool in preventing overruns.”

— Local Developer

Whilst their underlying drivers differ, reputation is important for both public and private sector employers. For public sector employers, it is important to deliver projects on time in order to meet government budgets and policy objectives, whilst for the private sector, employers need to complete projects within budget and on time to satisfy their investors.

Not all client bodies have been able to maintain a reputation for delivery, however, and organisations that have treated contractors badly in the past are now finding it difficult to attract bids from leading contractors. Instead, they are being forced to engage second-tier firms or new market entrants to complete their projects, putting their reputation at risk of being undermined through poor workmanship and coordination.

Employer reputations are damaged most when they liquidate performance bonds1. Over the past decade, several high profile employers have made demands on contractors’ bonds, and their reputations have been severely tarnished within the sector. Whilst the reputational damage sustained has not been sufficient to mean that contractors will refuse to work for them, it has meant that many of the top-tier contractors have declined to participate in tenders for new projects offered by such employers.

The composition of the project team is also increasingly influencing a contractors’ decision to bid. With a limited number of external contract administrators, project managers and engineering

consultants in the market, most major contractors have worked with the pool of consultants and based on their previous experience have formed a clear view as to who they will and will not work with.

Rising tensions between contractors and contract administrators or engineering consultants are underpinned by the growing issue of impartiality. There is a widespread view amongst contractors in the region that consultants act on behalf of the employer rather than impartially, with some even claiming that property developers go so far as to draft the correspondence between the consultant and the contractor.

The problem of impartiality appears to be more acute in the GCC, with international contractors saying that they work with the same consultants in other markets without any cause to doubt their impartiality.

The consultants privately acknowledge the issue exists. Many commented on the “with us or against us” mentality held by employers and accompanying expectation for them to act on the employer’s behalf rather than impartially. In addition, in contrast with other markets such as the UK, no laws currently exist in the region that require consultants to act fairly and impartially in their administration of the contract.

In addition to the project team influencing a contractors decision to bid, contract conditions are also being scrutinised more closely. On large-scale projects many contractors have started to ask

employers for cost-plus contracts and other more favourable conditions. So far this has yielded little change from employers, with second-tier contractors still typically prepared to commit to the traditional conditions tabled. It does, however, illustrate increasing concerns about risk and the willingness of major contractors to decline work if they feel that the contract conditions are unfair.

The combination of these factors means that business development executives in the region are saying that it is becoming increasingly difficult for them to get senior management approval to bid on projects due to concerns about the project itself or the particular employer developing the scheme.

Without change, the impact of this will be felt increasingly by employers who will be faced with a more limited pool of bidders from which to choose. This impact will have a more profound impact on projects requiring specialist expertise, such as airports and healthcare infrastructure.

1 financial instruments guaranteeing the contractor’s performance

Contractors becoming more selective. Employer reputation growing in importance. As acceptance of the new norm grows, contractors are being more selective when it comes to choosing the projects they work on and the employers they work for. With this, the need for employers to maintain a good reputation in order to attract quality contractors is becoming increasingly important.

When projects are tendered there is now far greater effort being made by contractors to understand the employer, their record for payment and delivery on previous projects and their ability to fund the project before bidding starts.

THE TIPPING POINT FOR CHANGE

“We are saying no more often than we did before. We are getting more and more respectfully honest. Our risk profile in the region has significantly changed.”


“We try to put our energy into how we prevent overruns from occurring. If we can get a project team in place that is making decisions at the right point in time and you can avoid overruns. That is the best solution for everybody. The client has to create an environment that allows all the project participants to do their work effectively and succeed.”


“We try to get to know clients better than before… try to understand more about the organisation and the structure, who is behind, who is funding. We prefer to decline than be involved if we are not convinced the money is there.”


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International contractors exitingThe call for change is further escalated by the increasing number of international contractors withdrawing from the region.

Over the past three years, we have witnessed the decision by several leading international construction companies to exit the GCC. The first was South Africa’s Murray & Roberts. In 2016, the company announced that it intended to close down its operations in the UAE, Oman, Qatar, Saudi Arabia and Egypt. This decision was followed in early 2017 by the UK’s Balfour Beatty, which announced it was selling its 49 per cent shareholding in its Dubai-based joint venture Dutco Balfour Beatty. Later in 2017, UK contractor, Carillion, announced it was withdrawing from the Saudi, Egypt, and Qatar markets and that it had sold 50 per cent of its business interest in Oman-based contractor Carillion Alawi. In early 2018 Carillion went into liquidation in the UK and its shares were sold in Al Futtaim Carillion.

One reason that international contractors are finding it increasingly difficult to compete with local and regional players is the higher overheads they carry.

International contractors are often committed to upholding standards that their local and regional competition do not have to satisfy.

In some circumstances, legislation in force in their home country may extend to their other foreign

operations. For instance, contractors carrying out operations in the UK may still have to prepare a slavery and human trafficking statement for the Slavery Commissioner in accordance with the UK Modern Slavery Act (2015), relating to their subsidiaries' operations in the GCC.

In other circumstances, pressure from international shareholders is the driving factor, with many large institutional investors, such as pension funds, choosing to avoid any reputational risk associated with investing in firms that operate in the Middle East out of concern that these firms may not provide adequate worker welfare in the region.

Compliance with international legislation coupled with a commitment to “best practice” globally has led to international contractors formulating world-wide policies for their operations to adhere to. The result is that standards are raised across their entire global operations to meet the highest standard of the countries in which they operate. This is true of many international firms operating in the GCC.

The most noticeable area has been health and safety, where there have been considerable efforts by international contractors and some local contractors to improve construction records in the region. Flagship projects, such as Dubai Expo 2020, Qatar World Cup 2022 and The Louvre, Abu Dhabi, have helped to advance efforts with

health, safety and environment provisions inserted into the contracts by the procuring entities.

These commitments to higher standards come at a cost, however, and as a result, many international contractors' operations are more expensive to implement in the region compared to their regional competitors, who are not subject to such high standards and have little incentive to change.

If the trend towards international contractors withdrawing from the market continues, the fear is that the pressure required to drive critical reform and fundamentally trigger a universal shift towards higher standards within the GCC construction industry will be further reduced. With that, the GCC construction industry will fall further behind international standards.

Meeting global expectations At odds with the fear of falling behind, is the GCC's desire to retain its competitive edge. Over the past two decades, the GCC has developed into an international

destination for business and leisure. As the GCC plays a more active role on the world stage, it will be forced to meet certain global standards and expectations.

For business, the region has established itself as a hub for finance, trade, transport and logistics that serves the broader Arab world, Central Asia, South Asia, and Africa. The development of quality infrastructure such as ports, roads and airports, in addition to commercial districts and residential communities, has made it attractive to businesses looking to establish a regional base.

For leisure, the region, led by Dubai, has established itself as an international tourism destination with an abundance of luxury resorts, retail, leisure and entertainment options. In doing so, the GCC construction industry has earned a reputation for delivering some of the most challenging and ambitious projects in the world. Despite the market being less lucrative than it once was, contractors in the region have still competed for contracts to build the world’s tallest structure, the world’s largest shopping mall, and designs are being prepared for major infrastructure schemes

including the world’s biggest airport, a range of causeways, bridges and tunnels, metros, railways, and highways.

As other cities and regions around the world pursue similar ambitions and aim to become regional centres of excellence, competition for foreign investment will intensify and the GCC's current competitive edge will become more difficult to maintain.

Unlike in the past, where the region was building almost everything from the ground up, in the future it will need to build upon what already exists. As the market shifts towards upgrading its infrastructure rather than just building something new, greater consideration will need to be given to what is needed. Once decided, projects will need to be completed with a higher degree of quality to improve on what they have already created.

The changing landscape will bring with it different requirements. Projects of the future are likely to be more technologically complex and will command a higher degree of expertise to deliver. The GCC construction industry must ensure it can continue to attract the brightest and best talent worldwide to deliver its ambitious pipeline of projects.

Yet with the region fast developing a reputation for being a difficult market in which to work, especially for international contractors, it risks losing out to more sophisticated markets that offer more collaborative procurement practices and regulatory frameworks that are more in line with international standards.

Regional ambition to further support the business and leisure sectors by winning the hosting rights for international events like Expo 2020 and Qatar 2022 is also forcing changes to the way projects are delivered.

Intended for a global audience, these projects carry much higher expectations regarding the adherence to international best practice than ordinary projects in the region. For example, Qatar has come under global scrutiny for its treatment of foreign workers. This has led to Qatar implementing new regulations to improve workers’ welfare in ahead of the 2022 World Cup event. Aware of the criticism that Qatar has received, Dubai has been keen to ensure that the welfare of its workers is also protected on its Expo 2020 projects, and contractors competing for work on the scheme have had to meet far higher levels of regulation than what they have become accustomed to on other projects in the region.

Desire to change from both sides While contractors are undoubtedly more vocal when questioned about the need and degree to which the GCC construction industry must change, the argument for change is not completely one-sided. Employers also recognise that the current situation is unsustainable and that change is required in order for the industry to prosper.

Essentially, both employers and contractors want the same thing. Employers want to deliver good quality projects on time and on budget. Meanwhile, contractors want to complete projects for

THE TIPPING POINT FOR CHANGE

“This is a region that is rightfully proud of its projects. It should also be proud of the way they are delivered”


“All contractors are going to have to change over the next 10 years or leave the market. If they can’t operate on lower mark-ups, they are going to go out of business or leave.”


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their employers to the quality specifications required, on time and within budget in order to win future work, while at the same time making a reasonable profit.

Employers are under increasing pressure to deliver their projects more effectively. In the public sector particularly, there are numerous examples over the past decade where major projects have run years beyond their scheduled completion date. These include some of the region’s most high profile projects such as the Hamad International Airport in Qatar, the Midfield Terminal Complex at Abu Dhabi International Airport and the Muscat International Airport.

Even where schemes have been completed within an acceptable period, legacy issues remain with some of the region’s best known pieces of infrastructure, mired with court cases, arbitration proceedings and allegations of late or delayed payments. These disputes are costly and absorb valuable resources that could be better deployed to other construction projects in the region.

Private sector employers are equally feeling the pressure, having also encountered problems with projects across the region stalling as rising

construction costs mean that they have insufficient funds to complete the project.

While many contractors remain skeptical that the employer's desire to change will result in real action, there are some positive signs and developments in the market, indicating a willingness by employers to consider new approaches in an effort to change the current situation.

Across the UAE, some employer bodies have looked at how they procure contractors’ services and are seeking to set up contractor-led framework agreements with selected firms. These agreements are aimed at reducing the time spent tendering and in addition, by working with a set panel of contractors, achieve benefits from the development of more consistent working relationships. Whilst none of these frameworks have been established yet, if they are successful, they could become more commonly used.

More radical solutions are also being considered by client bodies in Saudi Arabia. Saudi Aramco and the Public Investment Fund is planning to establish a super contractor vmade up of local and international

contractors that will collaborate to develop the capabilities and resources needed to deliver future projects within the kingdom.

At the same time, contactors are recognising that they too must improve their own processes to better ensure that their interests on projects are safeguarded. Contractors are often guilty of failing to manage the contract properly once the project has started, leading to disputes and significant losses on projects. Again, the impact of this failure has been amplified in recent years as margins tighten.

With the desire for change growing on both sides and positive developments being made by employers, the undercurrent for change is moving the industry closer to its tipping point.

“Change is in the interest of all parties. As stricter governance and an expectation of transparency is put in place for employers, both public and private, they will not be able to risk delays and disputes”

— DLA Piper

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New horizons: What will change look like? These challenges and pressures will not be solved overnight, but we can expect change.

Change 1: Increased impartiality of contract administrators, project managers and engineers (“consultants”)Contractors will force greater impartiality of consultants and in doing so the reversal of the trend for late and non-payment for variations and project overruns. In turn releasing the pressure on supply chain cash flow.

In common law jurisdictions (such as the United Kingdom and Australia) the impartiality of consultants is legislated, meaning the manner in which contract administrators, project managers and engineers are obliged to fulfill their duties fairly does not only arise out of a contract, it also arises out of the law. The GCC region does not currently have any laws imposing overriding duties for consultants acting in determinative roles.

As a result, consultants are only bound to act in accordance with their own contracts with the employer. This means that whilst there is an important role to play

in a determinative capacity under the main construction contract, ultimately, the contractor can do nothing to challenge the consultant. The contractor has no contractual relationship with the consultant and therefore can make no contractual claim against them. In theory, it may be possible to bring tortious claims against consultants but the initial threshold for bringing such claims is high and will involve proving matters such as fraud, crime and/or gross mistake. In short, the contractor is impotent to hold the consultant to account for its actions in administering the contract, short of referring a determination to dispute resolution, which could result in lengthy litigation or arbitration.

FORCING THE CHANGEWith major contractors having worked with most contract administrators, project managers and engineers in the past, they have clear views formed based on their previous experience. These views may lead them to decline to tender for future projects where certain consultants are involved, or alternatively, if they do bid, lead

them to price the risk. Over time, as employers become aware that they are losing quality contractors from the tender list and seeing prices rise, they will be forced to vet their consultants or require a change in their behaviour.

Anecdotally, the industry talks of one major developer who is alive to the issue: the additional costs they may incur as well as the impact on the supply chain and threat to project completion dates. They know it is not in their interests to have consultants acting in a partisan role and have started to put steps in place to enforce change.

WHAT CHANGE MAY LOOK LIKEAs appetite grows for greater clarity in the role of the consultant, we expect to see changes to the main construction contract documentation, with provisions for a prohibition on employer interference where the role is determinative.

Contracts commonly used in the region (most of which are based on the FIDIC forms) tend

Figure 1: The New FIDIC contracts In December 2017, over 17 years after the publication of its 1999 first editions, FIDIC published the second editions of its “Rainbow Suite” of contracts (the Red, Yellow and Silver books). The FIDIC forms of contract are firmly established as the pre-eminent standard forms of construction contract in the Gulf, so the publication of new editions is of particular interest to the industry.

The new FIDIC Red Book provides greater clarity between and management of the “agent” role and the “decision making” role of the engineer. The clauses are lengthy but the following extracts illustrate the new approach. Clause 3.2 (Engineer’s Duties and Authority) and clause 3.7 (Agreement or Determination) (with emphasis added):

“Clause 3.2 – Engineer’s Duties and Authorities

Except as otherwise stated in these Conditions, whenever carrying out duties or exercising authority, specified in or implied by the Contract, the Engineer shall act as a skilled professional and shall be deemed to act for the Employer

‘The Engineer may exercise the authority attributable to the Engineer as specified in or necessarily to be implied from the Contract. If the Engineer is required to obtain the consent of the Employer before exercising a specified authority, the requirements shall be as stated in the Particular Conditions. There shall be no requirement for the Engineer to obtain the Employer’s consent before the Engineer exercises his/her authority under Sub-Clause 3.7 [Agreement or Determination]. The Employer shall not impose further constraints on the Engineer’s authority.

“Clause 3.7 Agreement or Determination

When carrying out his/her duties under this Sub-Clause, the Engineer shall act neutrally between the Parties and shall not be deemed to act for the Employer. Whenever these Conditions provide that the Engineer shall proceed under this Sub-Clause to agree or determine any matter or Claim, the following procedure shall apply:

“3.7.2 Engineer’s Determination

The Engineer shall make a fair determination of the matter or Claim, in accordance with the

Contract, taking due regard of all relevant circumstances. Within the time limit for determination under Sub-Clause 3.7.3 [Time limits], the Engineer shall give a Notice to both Parties of his/her determination. This Notice shall state that it is a “Notice of the Engineer’s Determination”, and shall describe the determination in detail with reasons and detailed supporting particular.”

Although it is clear that the Engineer is deemed to act for the Employer, this is qualified by the requirement for the Engineer to act as a skilled professional; and by expressly stating that the consent of the Employer is not required for the Engineer to carry out functions requiring determinations.

In addition the clauses specify if the Engineer is carrying out a determination function:

• he is required to act “neutrally”; • is not deemed to be acting for

the Employer; AND• shall make a fair determination

taking due regard for all relevant circumstances.

to specify that the engineer or Project Management Consultant is “acting for the employer”. With the introduction of the new FIDIC contracts, we will begin to see greater clarity around the differentiation of those duties

for which the engineer or PMC is purely agent for the employer and those duties which see it act in a determinative capacity. Figure 1 explains the changes bought by the new FIDIC contracts in greater detail.

Placing an obligation on the employer to not interfere or constrain the engineer will introduce a new, albeit not without its difficulties, avenue of recourse for the contractor faced with a partisan engineer.

Change 2: A more mature funding environment The pressure caused by the tightening of liquidity will be relieved by new sources of funding. At the same time driving more favourable contract terms and raising standards to create a more level playing field for international contractors.

An increased reliance on external and international funding will shift employer priorities away from “lowest price” towards higher quality workmanship and an ability to meet a realistic completion date. This in turn will create a more level playing field for tenderers ensuring more realistic contract prices are set and reducing payment issues and disputes caused by variations.

There have been several examples of local banks demanding fairer contract administration practices. In an interview first appearing in a MEED Business Review, Abdul Aziz Al Ghurair, CEO of Mashreq Bank, is quoted as saying “Contractors have suffered in the past due to late payments by clients... We expect every client and government once in [an agreement] with a contractor, to honour their commitment. It is not good that paymasters withhold money. Contractors not getting paid can trigger a big chain of defaults, which is not acceptable.”

Main contractors are also optimistic in relation to the ability of international funders to bring a greater level of sophistication to the contracting process and delivery of construction projects. International financiers are subject to a higher level of governance and standards (including the Equator Principles – see Figure 2) in relation to anti-bribery and corruption and modern slavery. Their very involvement in the funding of construction projects may therefore automatically disqualify some of the “lower tier” contractors from the tender list, making it easier for international contractors subject to the same level of governance and standards to compete again.

PROJECT BANK ACCOUNTSWith greater financier control we can also expect greater measures to be put in place to protect the supply chain in order to ensure successful project delivery. One such measure may be the express requirement by financiers for project bank accounts to be put in place. Project bank accounts ensure that payments to contractors are used on that

project only. They also provide greater payment security as the funds can be drawn down directly from the bank or escrow agent upon completion of contractual milestones.

GREATER USE OF EXPORT CREDIT FINANCEWhilst export credit finance has been common in power and water projects around the GCC, there is now a trend for its use in major real estate and infrastructure projects. This trend will also assist in reducing payment delays and keeping international contractors in the market.

The UK has been at the forefront of the provision of UK export credit support for projects in the UAE and also Oman. It has supported winning bids for construction work on various real estate projects that include stipulated levels of UK goods and services. UK Export Finance (UKEF), the UK’s export credit agency, has also offered

“If a contractor has greater visibility or greater confidence about his payments then it reduces the risks and everyone is a winner. Export financing enables the project when a project might not otherwise be done. It maybe gives that contractor an edge against competitors that may not be able to provide that same kind of financing. It gives that contractor and the supply chain security, so they are able to deliver a better faster project, and maybe even the contractor reduces his margins because some of the risk is not there.”— Major Local Contractor

“Change needs to be driven by banks. Banks should take a greater role in reviewing and vetting both the contractor and the contract terms.”— International Contractor

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to provide $2 billion-worth of export guarantees for the expansion of Al-Maktoum International Airport.

Other countries have made similar moves. Italy’s SACE is providing funding support for a shopping mall project in Dubai, and has signed an agreement with Dubai Aviation City Corporation to provide $1.14 billion of credit for the Dubai South development, which includes Al-Maktoum International Airport and the Expo 2020 site.

From a contractor’s perspective, there are several benefits to be derived from arranging funding guarantees. Firstly, it differentiates the contractor from the competition by bringing access to funding that would not otherwise be available in the region. Secondly, it provides greater certainty that the project will not fail due to a lack of funding. Thirdly, it regulates the payment process by typically ensuring timely direct payments to project participants at all levels of the supply chain without the employers interference.

Funding procured from Europe and North America where high levels of political scrutiny exist, will also require the project to adhere to strict standards on health and safety and worker welfare, and also corruption, a primary area of concern for foreign governments when supporting projects overseas. Again, such standards will further assist in rebalancing the focus by employers away from lowest cost, back to a focus on highest quality and fairer margins.

Figure 2: The Equator Principles explained The Equator Principles (EP) is a risk management framework adopted by financial institutions for determining, assessing and managing environmental and social risk in projects and is primarily intended to provide a minimum standard for due diligence to support responsible risk decision-making.

The EP apply globally, to all industry sectors and to four financial products 1) Project Finance Advisory Services 2) Project Finance 3) Project-Related Corporate Loans and 4) Bridge Loans.

Typically international funders (including many of the major local banks in the GCC) impose the Equator Principles on large power, energy and infrastructure projects. The contractual obligation to comply is invariably passed down by borrowers to EPC contractors.

Currently 92 Equator Principles Financial Institutions (EPFIs) in 37 countries have officially adopted

the EPs, covering over 70 percent of international Project Finance debt in emerging markets. EPFIs commit to implementing the EP in their internal environmental and social policies, procedures and standards for financing projects and will not provide Project Finance or Project-Related Corporate Loans to projects where the employer will not, or is unable to, comply with the EP.

EPFIs also apply EPs to the expansion or upgrade of existing projects where changes in scale or scope may create significant environmental and social risks and impacts, or significantly change the nature or degree of an existing impact.

The EPs have greatly increased the attention and focus on social/community standards and responsibility, including robust standards for indigenous peoples, labour standards, and consultation with locally affected communities within the Project Finance market. They have also promoted convergence around common environmental and social standards.

Multilateral development banks, including the European Bank for Reconstruction & Development, and export credit agencies through the OECD Common Approaches are increasingly drawing on the same standards as the EPs.

The EPs have also helped spur the development of other responsible environmental and social management practices in the financial sector and banking industry (for example, Carbon Principles in the US, Climate Principles worldwide) and have provided a platform for engagement with a broad range of interested stakeholders, including non-governmental organisations (NGOs), clients and industry bodies.“We are involved in every stage of the procurement process.

We have a team that works with the contractor that knows how to manage the supply chain. For paying contractors, we implement a project account where funds are ring-fenced for our project only.” — Financier


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Change 3: Global standard contracts, for global standard projects and the locking in of resourceWe will see more attractive tendering procedures and more appropriate contract terms for larger, more complex schemes.

Whilst it is likely that one-stage open tendering will remain as the preferred procurement method for small to medium sized government funded projects and standard developments, we can expect to see an increase in two-stage tendering for niche areas of construction and landmark developments.

Two-stage tendering has been seen in several examples of such projects recently, including contracts being tendered at Dubai Expo and Dubai Creek Harbour, as well as selected projects in Abu Dhabi. Whilst reports of its success (and failure) have been mixed, with the increase in pressures from external and international funding, we can expect it to be introduced with more rigour.

Similarly, we can expect the continued growth and evolution of two separate construction markets, with a clear segregation of the companies that compete in each market, as employers increasingly prize quality, cost certainty and the achievement of their published completion dates.

Nakheel is an example. The prominent UAE based developer, which usually operates open tenders, has, in recent times, used selected tender lists where it felt it was important to ensure a certain level of quality. In 2017, it tendered the contract to build the Gateway Towers next to the Palm Jumeirah to a limited group of prequalified contractors.

At the same time, we expect to see a continued trend towards major developers using framework agreements with a pre-selected list of contractors. Dubai Properties have already taken this route. In 2017, they invited selected consultants and contractors to submit proposals for framework agreements covering

construction work on upcoming projects, including apartment buildings, villas, hotels and infrastructure.

Framework agreements designed to build more collaborative, long-term relationships and encourage ownership will force a relaxation to the often one-sided, developer friendly contract terms.

As real estate prices have fallen, developers’ margins have been cut, and the timely delivery of projects becomes more important, some developers are starting to see the benefit of more appropriate contract terms. Some developers even spoke of projects whereby they elected to retain an element of risk, rather than pass it on to contractors, in order to secure better pricing for their projects.

One such developer is Abu Dhabi-based Eagle Hills. When it began developing its international projects, it reviewed its conditions and instead of passing on all the risk to the contractors – as is the typical practice in the UAE – it chose to retain some of the risk where it was capable of doing so.

In an effort to further lock in contracting resources for projects and retain control over quality, we have also witnessed a move by some investment companies and developers to take stakes in contracting companies.

In 2017, Binaa, a subsidiary of the Investment Corporation of Dubai (ICD), purchased a majority stake in Dubai-based contractor ALEC. The contractor was subsequently awarded the contract to build the

One Zabeel project, a complex project that involves building towers around an existing elevated section of highway, for another ICD subsidiary Ithra.

The Alec acquisition followed an earlier move by ICD to take a stake in South Korea’s SsangYong Engineering & Construction. Since 2015 the company, along with its joint venture partners, has been awarded contracts to build the extension to the Atlantis hotel on the Palm Jumeirah in addition to the ICD Brookfield Place at Dubai International Financial Centre. Both of these schemes, like One Zabeel, are complex schemes that require significant construction expertise.

Other similar acquisitions have been made elsewhere in the region. Most notably, Saudi Arabia’s Public Investment Fund which acquired a stake in South Korea’s Posco Engineering & Construction.

Employers are also looking to lock in resource from further down the supply chain in order to protect against delays in bringing projects on-line and secure key elements of the supply chain to ensure timely delivery. This is a long-standing trend with real estate developers such as Emaar, through its subsidiaries, taking strategic stakes in companies ranging from cladding and curtain walling suppliers, to development and project management firms.

“We started using these contracts outside the GCC and the pricing was encouraging. With the risks we took on, we did not pay any mitigation costs for dealing with those risks, so we prevented money from being lost. In the end, this was reflected in a very competitive selling price for our end-users. This is what efficiency in construction is all about.

We then had the opportunity to test conditions in the UAE. For this contract, we have set a new benchmark on the cost per key for hotels in the UAE. So it was also very good to see the commercial benefit of sharing the risk with the contractor and supply chain.” — Local Developer

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Change 4: Game changing legislation and increased standards and barriers to enter the market Legislative changes will raise standards and force higher barriers to entry, stemming the flow of top tier international contractors exiting the region.

The region's construction industry has variously been the subject of global criticism relating to worker welfare, modern slavery, health and safety, and corruption. The preparations for the 2022 World Cup in Qatar and projects such as the Louvre Museum in Abu Dhabi, have attracted international spotlight and generated a renewed focus by media and human rights groups.

As the Middle East continues to embark upon more high-profile global projects and position itself as a serious player on the world stage, the pressure on GCC governments to improve standards through legislative change and a more rigorous enforcement of existing laws will only continue.

We have already seen considerable progress made in the area of legislative reform, with tighter legislation and stricter enforcement expected to manifest in two ways:

1. Barriers to entry will be raised. Companies will find it more difficult and costly to enter the market as those unable to meet the new legislative requirements will not be granted a licence and/or will fail to pre-qualify for projects; and

2. The gap in tender prices will narrow creating a more level playing field between international and local contractors. Universal compliance with health and safety, worker welfare and environmental protection will be a cost that every contractor will have to price. Legislative change at the local level will therefore remove one of the main disadvantages currently faced by international contractors who are already forced to accept higher operational costs as they seek to abide by governance from other countries.

Legislative Reform Since 2015UAE

1. In May 2018, the UAE issued Federal Law No.6 of 2018 on Arbitration (Arbitration Law). The Law came into force on 16 June 2018 and applies to all on-going and future arbitrations in the UAE.

2. As of March 2018, Emiratis and foreign workers can be hired by multiple employers without first having to obtain approval from their primary employer.

3. The UAE ratified the Strategic Cooperation Agreement on Combating Serious Crimes

and Terrorism between the State and the Europol in March 2018. If successful, it should help with tackling priority areas such as financial crime, money laundering and counterfeiting.

4. In January 2018 Dubai announced an amendment to their engineer licensing procedures, with a central electronic system to be used to carry out technical tests of engineers working in the construction sector and to issue approval certificates. The Dubai Municipality's Buildings Department will approve the technical standards for the qualification of engineers,

and will establish the conditions and requirements for the registration of assistant engineers and other employees in similar positions, in the electronic system.

5. The UAE's new bankruptcy law came into force on 29 December 2016. It provides, amongst other things, a new minimum threshold for creditor-initiated insolvency proceedings and a new balance sheet insolvency test.

6. The UAE formally ratified the Paris Climate Agreement on 6 September 2016.

“We’ve seen a raft of new legislation across the region raising the standards in respect of a number of global priorities. This appetite for legislative reform is promising” — DLA Piper

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NEW HORIZONS: WHAT WILL CHANGE LOOK LIKE?

SAUDI ARABIA1. In February 2018, the

Minister of Labor and Social Development for Saudi Arabia approved the Labor Laws New Schedule of Violations and Penalties, which has increased and amended fines for various violations in an attempt to regulate the labour market. Notably, this has increased fines against those who fail to comply with work regulations, upload wages files on the wage management system each month, give entitled vacation periods, comply with occupational safety and health regulations, and those who hold passports, residence permits or medical insurance cards without workers' permission.

2. Saudi Arabia's anti-corruption drive, which began in November 2017, is coming to an end with 56 individuals potentially facing trial.

3. In 2017, Saudi Arabia’s Shoura Council approved a new bankruptcy law as part of its reform under Vision 2030.

QATAR1. A new law ratified in October

2017 in Qatar established a fund for workers support and insurance, under

the jurisdiction of Qatari cabinet with an independent mandate. The fund will be used to pay the workers' dues ordered by dispute resolution committees before collecting the same from employers. It will also provide sustainable financial resources for the support and insurance of workers.

2. Qatar has introduced a new set of labour welfare standards, developed in line with the International Labour Organisation. Contractors must set up bank accounts for workers and adhere to minimum standards of cleanliness, hygiene and living conditions. In the absence of sufficient improvement, the committee may step in and make improvements at the contractor's expense.

3. Law 1 of 2015 amended certain provisions of the Labour Law 14 of 2004, making it compulsory for employers to transfer employees' wages to their bank account, in Qatari currency. It further provided that employees recruited on annual or monthly wages must be paid at least once a month, and all other employees at least once a fortnight.

BAHRAIN1. In January 2018, Bahrain

amended its Penal Code by increasing penalties for bribery, extending the definition to include bribery offered to employees and public officials of foreign countries in relation to 'international projects', and widening the jurisdiction of its courts to cover crimes committed outside of Bahrain.

2. Bahrain amended the requirements for Entry Visas and Residency Permits of Dependents of Foreign Workers in January 2018. The requisite minimum salary was raised, with foreign workers required to earn BHD250 to BHD400 a month.

OMANThe Oman Penal Code issued in February 2018 and promulgated by the Royal Decree 7/2018, stipulates three to five years’ imprisonment, dismissal from employment and a ban on public officials from performing public duty if they are found to have embezzled public or private funds. This development is in line with the stricter stance on and increasing penalties for corruption, being enforced across the Middle East.

Change 5: Moving forward with quicker fixes As the market matures, we can expect to see mechanisms such as statutory adjudication introduced to help protect cash flow in the supply chain. This is not likely to happen immediately however and so in the short term we expect to see the market moving forward with quicker fixes.

The Construction Act 1996 saw the introduction of statutory adjudication and payment rules within the UK's construction industry. Described as a “pay first, argue later” mechanism for resolving disputes, statutory adjudication helps to protect cash-flow and minimise project delays by offering a 28-day legally binding tribunal procedure between contracting parties. Statutory adjudication schemes have been used successfully in markets such as the UK and Australia for decades.

Whilst not a change we can expect to see introduced in the region in the short to medium term, the introduction of such a mechanism would provide welcome relief to contractors. It would go a long way to relieving pressures in relation to payment delays, non-payment or underpayment of variations and the failure of employers to recognise entitlements to additional time and associated costs. Statutory adjudication would also help to sidestep any perceived blockage caused by a contract administrator, project manager or engineer.

To properly promote cash flow throughout the supply chain, statutory adjudication would have to go hand in hand with outlawing pay-when-paid provisions in contracts, a step which may look more appealing to developers and contractors alike where the ownership blurs through developers locking-in contractor and sub-contractor resource.

A leap to a statutory adjudication scheme is much greater in the GCC, however, than in markets such as the UK and Australia.

Two of the key principles behind the UK and Australia's statutory adjudication schemes are (1) that a party can refer a dispute to adjudication and expect a decision within 28 days (or slightly longer); and (2) that decision is then binding and enforceable but not final. This essentially means that a decision is likely to be made on limited information and that for the scheme to work, the courts have to accept “rough justice” and be prepared to enforce adjudication decisions regardless of whether they are right or wrong.

Courts in the UK and Australia are prepared to do this because it is a method of preventing a project becoming mired in dispute or, worse, the insolvency of a supply chain where cash is not flowing. Crucially, because the decision, although enforceable with immediate effect, is not final; justice can be later provided through due and proper process in court or arbitration should either party deem it necessary in the future. But most

do not. In the majority of cases the subject matter of the adjudication decision is never revisited.

Embracing adjudication and enforcing a temporary decision in the Middle East will require a considerable change in mindset with the courts in the Middle East traditionally taking a long time to accept arbitration as displacing their jurisdiction.

Steps towards adjudication have, however, been taken before and we believe, as industry pressures continue to mount, they will be again. Evidence of reason for optimism can be found across several GCC markets. The Qatar International Court and Dispute Resolution Centre prepared a draft scheme a number of years ago. It was “opt in”, rather than a statutory right, but had the potential to promote significant change for the region. Unfortunately, it stalled at the enabling legislation stage, the crucial step to ensure enforceability required to underpin the scheme.

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“Statutory adjudication would sort it out overnight.”

— Local Developer

Dubai has also now created an ideal environment to support an adjudication mechanism through the DIFC courts earning confidence in the enforcement of both its court and arbitral awards. September 2017 also marked the establishment of the Technology and Construction Division of the DIFC courts. The establishment of a specialist construction court headed by a former English judge, Justice Sir Richard Field, opens a potential avenue for enforcement of contract-based adjudication decisions by judges familiar with the concept. From there it is only a short step to a statutory based mechanism.

We can expect to see more examples of softer methods of dispute resolution or dispute avoidance being advocated and facilitated by the DIFC and potentially in other markets across the GCC.

We are encouraged by the anticipated introduction of the new Government Tenders and Procurement Law in Saudi Arabia for example. The draft of which (released last year for consultation) radically shifts the position for government projects. Formally, a contractor would not be able to raise a dispute as to payment until after the final certification of a project, in the future such challenges will be capable of being raised contemporaneously. It is a small step but a step nonetheless.

Statutory Adjudication ExplainedKEY FEATURES OF ADJUDICATION The key features of statutory adjudication schemes in the UK and Australia are:

1. that a party can refer a dispute to adjudication and expect a decision within 28 days (or slightly longer);

2. the decision is likely to be made on limited information and so for the scheme to work the courts have to accept “rough justice” and be prepared to enforce decisions regardless of whether they are right or wrong;

3. that decision is then binding and enforceable but not final (which means it can be immediately enforced as a judgment in the court);

4. challenges to adjudicators' decisions rarely succeed because of the court's robust approach to enforcement; and

5. crucially, because the decision, although enforceable with immediate effect, is not final, justice can be provided through the same subject matter being heard in a due and proper process in court or arbitration should either party be dissatisfied by the outcome.

ADJUDICATION AND SHARIA LAWSharia principles make the leap to a statutory adjudication scheme in the region much greater.

Sharia law does not object to the idea of appointing a neutral, qualified, third party adjudicator to determine a dispute. Nor does it object to the right of the parties to choose an adjudicator in a contract to determine a construction or civil action dispute. It may be difficult, however, to enforce a temporary decision in a Sharia jurisdiction where that decision might cause irreparable damage to the person against whom the decision is given even if the decision is subsequently overturned by the court.

The administration of such an adjudication scheme is likely to cause the most difficulty in the region as it will require a statutory law that governs the adjudication procedure, together with the possible establishment of a construction division of the local courts to specifically enforce adjudications decisions.

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“The Dubai International Financial Centre (DIFC) has already established a more suitable environment for the resolution of construction disputes. A ‘quick fix’ resolution such as statutory adjudication is not such a big leap from there.”— DLA Piper

The crucial role of the employer – driven by the funderThe construction process itself is highly collaborative with thousands of professionals and hundreds of companies coming together to deliver major projects. It is the industry employers, however, that are in the ultimate driving seat when it comes to change.

As project sponsor and construction paymaster, the employers are responsible for assembling the teams that work on projects, and for determining how the many project entities work together. While effective reform will help to force a change in habits from all industry stakeholders, it is only the construction employers that have the power to make change really happen.

If the right environment is established at the outset, then the other components of the project team have the opportunity to play their part, raise their standards and deliver the project successfully. Conversely, if a project is structured poorly, it is inevitable that even with the best efforts of the construction supply chain, project delivery will be poor.

Whilst many employers are taking steps to improve the way things are done in the GCC construction industry, the overwhelming view held by contractors is that employers have little appetite for change.

Yet, whilst a lack of appetite on the part of the employers may slow the pace of change, fundamentally, it will not prevent the series of small incremental changes that we expect to see in the shorter term from driving a much larger change overtime.

As financial liquidity in the region continues to contract, employers will have no choice but to explore alternative ways of funding projects. New sources of project finance, such as export funding by international governments, and the use of private financing for government projects through Public Private Partnerships (PPP), will become more prevalent, resulting in a return to more collaborative procurement and delivery models.

Where ‘lowest price wins’ or ‘cheapest is best’ are currently seen to be the mantras driving the decision making of construction employers in the region, these new models, which provide funding for the whole life

of a scheme rather than simply for the construction of a project, will shift the focus towards output value. With this shift, project delivery will be measured against a broader set of key performance indicators through the whole life of the project rather than simply the cost and time targets set during the construction phase.

Additionally, the international institutional funding used in these models will drive improvements to industry standards and create a more level playing field as they bring with them stringent requirements for upholding international standards on welfare issues such as health and safety and environmental protection.

As these requirements are introduced at the inception of projects, they have the potential to transform how projects are procured and delivered in the GCC, creating the ideal a opportunity for the construction industry to change.

“If the GCC construction industry can work collaboratively to seize the opportunity, the rewards will be substantial. With a $3.1 trillion pipeline of large-scale, world-class projects to deliver, the GCC’s construction industry can become a world leader that exports expertise rather than imports it.” — MEED

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About DLA PiperDLA Piper is a global law firm with lawyers located in more than 40 countries throughout the Americas, Europe, the Middle East, Africa and Asia Pacific, positioning us to help clients with their legal needs around the world.

We strive to be the leading global business law firm by delivering quality and value to our clients. We achieve this through the delivery of practical and innovative legal solutions that help our clients succeed.

In the Middle East we have over 100 lawyers operating from offices in each of the GCC countries. Our lawyers are fully versed in their local and cultural business communities and bring a deep understanding of the laws of the countries in which we operate – understanding that

is informed by international insight and an appreciation of global best practice.

Home to one of the largest construction teams in the region, we advise developers, contractors, government bodies, financiers and consultants on all aspects of their projects. Our market-leading experience extends across all sectors including energy, infrastructure and development.

From identifying project risk, to selecting the best type of delivery method, to agreeing terms

and conditions, we devise and negotiate agreements that focus on delivery and reward in demanding construction schedules and balance the needs of various stakeholders.

Our team is also there for you when things go wrong, helping you to minimise disruption to your business whilst resolving claims and disputes that arise on any aspect of your project.

To find out more visit www.dlapiper.com

About MEEDMEED has been integral to delivering business information, news, intelligence and analysis on the Middle East economies and activities for over 60 years.

Attracting a key senior management audience through its content and activities, MEED is a media brand, publication and data business that covers a spectrum of services which inform, engage, connect and ultimately support our subscribers and partners in their business development and strategic growth.

Recently acquired by GlobalData Plc MEED is now part of one of the largest data and insights solution providers in the world with the capacity to build global communities for our clients. Our purpose is to support the region’s companies make better and more timely decisions through our innovative

data solutions and grow through our comprehensive and world class marketing solutions.

To find out more email: [email protected]

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List of authors

Acknowledgements

Colin ForemanDeputy Editor, [email protected]

Suzannah NewboultPartner, DLA [email protected]

Trevor ButcherHead of Finance & Projects, Middle East, DLA [email protected]

We would like to acknowledge and thank the industry participants who openly shared with us their views making this report possible.

Sarah WilsonHead of Business Development – Middle East, DLA [email protected]

Peter AnagnostouSenior Legal Consultant, DLA [email protected]

Adam HaqueSenior Legal Consultant, DLA [email protected]

Hasan RahmanSenior Legal Consultant, DLA [email protected]

Ahmed HammadiLegal Consultant, DLA [email protected]

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DLA Piper is a global law firm operating through various separate and distinct legal entities. Further details of these entities can be found at www.dlapiper.com.This publication is intended as a general overview and discussion of the subjects dealt with, and does not create a lawyer-client relationship. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. DLA Piper will accept no responsibility for any actions taken or not taken on the basis of this publication. This may qualify as “Lawyer Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.Copyright © 2019 DLA Piper. All rights reserved. | JAN19 | 3335055

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