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Risk in Construction Contracts: FEED Endorsement/Variations

The State of Qatar is in the process of procuring a significant volume of infrastructure and reports indicate that Qatar will spend approximately USD 150 billion leading up to the FIFA World Cup 2022 and invest significant sums to fulfil its objectives set out in Qatar's National Vision 2030.

The key to success for those entities involved in the supply chain and those wishing to enter the market, is to identify, understand and manage the legal/commercial "risk/s", in the context of the law of Qatar, within the construction contracts that Qatar is using to procure the infrastructure.

In particular, Qatar is procuring, similar to other countries across the Middle East, its infrastructure using standard construction contracts (Contract/s), which are based loosely on the FIDIC standard form contracts. Generally, however, Qatar's Contracts are non-negotiable and if you fail to identify, understand and manage the "risk" in the same you may discover, at a later stage, that you have assumed unknown "risks" which become unmanageable and the project, very quickly, becomes "distressed".

The best approach, to mitigate the "risks" within Qatar's Contracts, is to formulate a flexible "risk management strategy", at any stage of the project, although the earlier it is created the greater the benefit, which identifies and defines the "risk" together with the optimal strategy to manage the same. In addition, you should engage an experienced project management team to administer the Contract, in accordance with the strategy, to enhance the prospects of obtaining the anticipated benefit from the project i.e. profit.

Also bear in mind that the law of Qatar applies and you may rely on the same to protect your position and advance any arguments.

For instance, at tender stage, an employer will generally provide a number of contractors with the project's requirements and request their tenders, including the contract price, to complete the same. 

FIDIC's Silver Book categorises the above as the "employer's requirements" and Clause 5.1 requires the contractor, following execution, to notify the engineer, within the period stated in the tender, of any "…error, fault or other defect…" within the same. Following such notification, if the engineer determines that "…an experienced contractor exercising due care…" would not have discovered the "…error, fault or other defect…", when it reviewed the "employer's requirements" prior to submitting its tender, it will constitute a variation.

In contrast, Qatar's Contracts categorise a project's requirements, depending on the type of project, using a number of different terms including "front end engineering design" (FEED) - and attempt to allocate the "risk" for any"…error, fault or other defect…" the contractor identifies within the FEED, following execution, to the contractor.

In addition, Qatar's Contracts may incorporate a letter, which the contractor was required to execute at the tender stage, confirming it reviewed the FEED and is satisfied with its content and quality (FEED Endorsement Letter). This renders it difficult, at best, for a contractor to claim a variation due to the FEED being deficient and/or inaccurate. The employer may categorise the contractor's work, to resolve the FEED's deficiencies and inaccuracies, as "developing the design", as opposed to a variation, for which the contractor has assumed the "risk".

If the employer adopts the above approach, including relying on the FEED Endorsement Letter, throughout the project's lifecycle the contractor may find itself "designing and building" a project significantly different to the project for which tendered - commonly known as "scope creep". This could cause significant delay to the project's completion and increase costs.

In our experience, however, those working under Qatar's Contracts may be able to rely on the law of Qatar to rebut the above and enhance their prospects of recovery.  Specifically, a detailed legal analysis of the contract/facts, including the FEED Endorsement Letter, may indicate that the contractor has not assumed the "risk" in question. Further, that the employer is deliberately misconstruing the Contract and mischaracterising the facts in an attempt to conceal the FEED's deficiencies and that the contractor's work to resolve the same, which it categorises as "developing the design", constitute a  variation for which it may recover the cost.

The contractor's contention would apply, among others, Articles 169 and 170 (contract interpretation)and Article 709 (variations) of Qatar's Civil Code. 

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

John Coghlan

Partner

I am a construction law specialist with over 25 years combined practical and legal experience in the construction and infrastructure sector. I adopt a pragmatic and commercial approach to procurement, project support and dispute avoidance and resolution in relation to high value and complex infrastructure and energy projects across the Middle East and internationally.

Gilbert Hakim

Associate

I specialise in international arbitration and work with clients from a broad range of industry sectors including real estate development, oil and gas, construction, pharmaceuticals and investment banking.