An Overview of Standard Contractual Forms Modifications in the Construction Industry - The Middle East Sadek Samer University of Salford, United Kingdom email: [email protected] Udayangani Kulatunga University of Salford, United Kingdom email: [email protected] Abstract Despite the fact that there exist several construction forms of contract that aimed at standardizing the contractual clauses in relation to the construction industry, the adoption of the same was being subject to major modifications and alteration endangering the overall spirit and consistency of the contractual forms. Knowing that the middle East region is and will be subject to major construction projects during the upcoming years, it is of major importance to consider that well figured contractual clauses would play major role in simplifying part of the complexity associated with the construction environment. The problem is that the project parties would be focusing on the contractual aspects governing the project rather than technical and execution issues which would eventually flag hindrance in the project original schedule and certainly an escalation to the project original budget notwithstanding the project works atmosphere. Furthermore, and if the contractual clauses were not drafted clearly, contracts negotiation and signature would be a time consuming challenge and would take considerable time from the total originally allocated. During project execution, the problem may become worse if the contractual terms and conditions were not clear enough i.e. the contracting parties do not have a clear understanding of what they have agreed upon, accordingly, any claim may be considered as a fertile ground for contractual disputes. The above issues represent a challenge to any project manager whose aim is to finish his project within the given time frame and allocated budget constraints. Hence, it would be of great importance to have the conditions of contracts responsibly drafted. The same would assist in alleviating disputes that do relate to contractual terms and would support the contracting parties to jointly read from the same book. This paper focuses on Standard construction contracts current practices in the Middle East with their corresponding conditions. The final section of this paper highlights the major modifications being witnessed to the Standard contractual clauses. Keywords: Standard contractual forms, Middle East 1 Introduction The General Conditions of Contract are of major importance since the same do play a main regulatory role at the various project interfaces during project execution which mandates a particular attention and proper tuning during project award through its corresponding Particular Conditions of Contract. Particular Conditions needs to be introduced, as per FIDIC Fourth Edition reprint 2011, for the following reasons: 1. Where the General Conditions of Contract requires further information to be included in the Particular Conditions without which the conditions are not complete. 2. Where the General Conditions of Contract requires supplementary information to be included in the Particular Conditions without which the conditions would still be complete. 3. Where the locality and circumstances of the scope of works necessitate additional clauses to the General Conditions of Contract. 4. Where the law of the country in which the works to be executed necessitates introducing modifications to the General Conditions of Contract. If the particular contractual clauses were not drafted responsibly, or falsely tuned, Contracts, even those with Standardized general conditions, negotiation and signature would be a time consuming challenge and would take considerable time from the total originally allocated (Tatarestaghi, 2011). During project execution, the problem may become worse if the contractual terms and conditions were not clear enough i.e. the contracting parties do not have a clear understanding of what they have agreed upon, accordingly, any claim may be considered as a fertile ground for contractual disputes (Murdoch and Hughes, 2008). In 2006, Fenn et al developed and published a summary of the studies of the sources of disputes (Fenn et al., 2006). His study showed that disputes do relate to contract interpretation, misunderstandings, extension of time, variation to scope, payment, administration, contract terms…. Etc. For instance: Lee (1994), noted that unfair contract clauses, vague definition of contract documents in terms of performance period, payment, variations do contribute to disputes from contract problem. Jones (1994), highlighted that inadequate contract drafting is a factor that would contribute to disputes. Lo (2002), noted that differences in contract interpretation between project parties would lead to construction conflict. Yan (2002), marked that contractual factors do form one of the sources of dispute. Within the Middle East region, the situation is not different, Al-Hammad, (1993), noted that there exists “interface problems” in the relationship of a main contractor and his subcontractor. The problems do relate mainly to contract progress payment, lack of construction quality work, execution errors, and delay in shop drawings and/or sample material approval, which do mandate clear contractual responsibly to deal with the same and avoid problem escalation. The above issues represent a challenge to any project manager whose aim is to finish his project within the given time frame and allocated budget constraints. Hence, it would be of great importance to have the particular conditions properly drafted. The same would alleviate the disputes that do relate to contractual terms and would support the contracting parties to jointly read from the same book. The Aim of this paper is to evaluate the mostly being modified Standard Form of Construction Contract clauses in the Middle East Area. Accordingly, the paper is structured as follows: firstly, the literature review is presented by providing an overview of the Construction Industry in the Middle East Region and a review of the Construction Contracts Standard Forms with a highlight on the importance of General Conditions and Standard Forms. Secondly, the research method used for the paper is explained. Finally the Research findings are presented with the way forward. 2 Literature review 2.1 Overview of the construction industry in the middle east region The Middle East region connects the continents of Africa, Asia, and Europe. The definition of the countries forming the Middle East is not well defined to the extent that not everyone agrees as to what countries can be labeled "Middle Eastern”. The countries that are normally referred to being middle Easterns are: Bahrain, Cyprus, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia KSA, Syria, the United Arab Emirates, and Yemen (Gunderson 2003). Comprising some of the spectacular skyscrapers to artificial floating island homes, state of the art large retail malls, major residential and commercial developments, the construction industry continues to remain at the top of Middle Eastern countries agenda in their quest to create an alternative to the predominantly oil based economy. During the third quarter of 2011, the value of construction contracts awarded reached USD 36.78 billion awarded in the second quarter of the same year (Ventures Middle East, 2011). To identify the distribution of construction projects by countries, Figure 1 indicates Projects by Country and Status of Construction. From a different perspective, within the Middle East region, the construction market in Saudi Arabia comprises the largest construction market with multibillion dollar projects under way and many more being still in the planning stage by the private and public sectors, (Mohammed Al-Nagadi, 2011), which is in line with Figure 1. During 2011, the Saudi Arabia's construction sector indicated a double digit growth of 11.6% in 2011 if compared to 7.8% in 2010, (Bank Audi Saradar, 2012), reflecting a positive increasing trend in the construction market which implies additional use of construction contracts and imposes additional challenges to the contractual forms. A major key driver in Saudi Arabia's construction industry is the shortage of supply and escalating demand in the housing market. In March 2011, King Abdullah released a plan to build 500,000 affordable homes within the Kingdom worth US$ 66.7 billion (Bank Audi Saradar, 2012). Figure 1: Projects by Country and Status of Construction (US$ Million) September 2012 (Ventures Middle East, 2012) Another new dimension added to Saudi Arabia construction projects is the concept of economic cities with currently four are being constructed (King Abdullah Economic City, Jazan Economic City, Prince Abdul Aziz Bin Musaed Economic City, Knowledge Economic City being) with a value of around USD 50 Billion, and two More under the design and planning stage (North Economic City, Easter Province Economic City) (Saad Al Adhami, 2011). 2.2 Construction disputes observation According to EC Harris 2013, an International Built Asset Consultancy, the construction disputes in the Middle East are more than double the global average, the same was attributed to the a failure to properly administer the contract, failure to understand and/ or comply with the parties own contractual obligations, its contractual which indicate additional urgency to further investigate the Conditions of Contracts being used (EC Harris, 2013). 2.3 What is “Standard General Conditions