With the world’s fullest pipeline of construction projects, the Middle East holds many alluring opportunities for contractors, along with significant risks. The scale and nature of those risks are made clear in the CRUX analysis of claims and disputes. A better understanding of the factors driving these conflicts can guide project stakeholders toward better project outcomes.

CRUX, HKA’s integrated research programme, now covers more than 2,000 infrastructure and capital projects worldwide with a combined capital expenditure (CapEx) value of $2.25 trillion. CRUX reveals the common causes of conflicts and notable differences between regions.

There are some stark lessons from the Middle East, where overruns on the 480 projects analysed were far longer than on distressed projects in any other region. Contractors claimed extensions of time that averaged 80.9% of planned schedules, against a global 66.5% average. Sums in dispute were higher, but by a narrower margin. Claimed costs amounted to 34.0% of budgeted CapEx, compared with 32.9% across the rest of the world.

Change in scope may be the most common cause of claims and disputes worldwide, but more projects in this region were affected than elsewhere (52.9% versus 31.8%). Focusing on other top-ranking causes (see Figure 1 below), Middle Eastern projects were also more likely to be impacted by late or incomplete design information, late approvals, and cashflow and payment issues.

Pronounced disruption patterns in Saudi Arabian construction projects

That pattern of disruption was, if anything, generally more pronounced in Saudi Arabia. Here, the extra time sought by contractors almost doubled programmes (stretching to 97.2% of the average schedule) on the 133 projects analysed. The cost of claims, by contrast, tended to be lower at 27.9% of budgeted CapEx.

Late or restricted access to sites or workfaces – which triggered more claims in the Middle East than other regions – was even more prevalent in Saudi Arabia, disrupting 30.8% of projects. Cashflow and payment disputes (31.6%) caused bigger problems in the Kingdom, while late approvals were also commonplace (30.1%).

Key principles for contractors to guide risk mitigation

The rationale for analysing the underlying drivers of budget and schedule overruns (and of CRUX) is to mitigate these risks on current and future projects. Based on our evidence, there are some key guiding principles that contractors, in particular, need to consider:

• Risks have to be identified if they are to be priced in or managed during construction. Competitive bids must still be realistic – when work opportunities are plentiful, it becomes more irrational to engage in a race to the bottom.

• Resolve as many design issues as possible before construction starts. Early contractor involvement (ECI) – as increasingly seen on Public Investment Fund projects – provides valuable opportunities to stress-test designs; check coordination, clashes and constructability; resolve interface problems; and ensure that programmes are achievable.

• Contractors, like project owners, should procure carefully, choosing subcontractors based on experience, capacity and financial stability – not lowest price. Teams at all levels need the right skillsets for the project. Promoting collaboration between stakeholders encourages a ‘one team’ problem-solving approach.

• Be clear on the contract and its proper application, especially to extensions of time (EOTs), variations and change orders, and the resolution of claims and disputes. Walk away from an unbalanced, risk-laden contract. And remember, written instructions and record keeping are crucial for avoiding and defending disputes (see below).

The importance of proper claim procedures

The complexity of construction projects gives rise to multiple risks, along with grounds for entitlement, depending on the form of contract.

Following the proper claim procedure is crucial. To be successful, a claim must be notified in a timely fashion and well prepared, based on appropriate contractual clauses and fully substantiated particulars. The causal link between cause and effect has to be clearly demonstrated.

Extension of time is highly important. A contractor may be subject to liquidated damages or penalties for delay, lose the right to recover costs incurred for prolonged execution of the project, and may face the risk of termination. Although most contracts set a limit on liquidated damages, that cap is often very high and may be exceeded if there is gross negligence, wilful misconduct or intentional breach by the contractor.

How effective programme management manages risk and avoids claims

Projects frequently run into problems and overrun due to poor estimation during the construction planning phase, and when schedule management is neglected. It is essential to understand the requirements of the contract, so they are reflected in the master programme.

Having created a robust baseline programme, this must be audited and checked to identify any oversights (see box below). Updating and reporting procedures enable monitoring and timely actions to mitigate delays and exploit opportunities to speed up works. A three-stage time impact analysis is recommended:

1. Baseline the programme, showing the ‘data date’.
2. Enter the progress achieved during the reporting period (‘window’).
3. Reschedule the programme: all completed work remains before the data date; all incomplete work is re-forecast after it.

The rescheduled programme should give an accurate, updated forecast for completion and planned sequences incorporating any changes to logic (to mitigate delay).

PROGRAMME CHECKS

Checks on the baseline programme’s integrity and quality should cover: logic, leads, lags, relationship types, hard constraints, high float, negative float, high duration, invalid dates, resources, missed tasks, critical path tests, critical path length index (CPLI), baseline execution index (BEI). Software / manual checks: Acumen Fuse, Oracle Primavera risk analysis Critical path review: Primary critical path and critical path activities; also sub-critical paths and activities.

Proving the cause of delay for a successful Extension of Time claim

When progress falls behind programme, the cause of delay must be proven and impact quantified to support a successful Extension of Time (EOT) claim. The contract may specify the method for analysing a likely or actual delay to completion, (commonly Time Impact Analysis).

Given a choice, the decision depends on the information available, but beware of over-complicating the analysis. The most sophisticated impact analysis will not compensate for missing or poor data, as established in English case law.¹ Other factors to consider include time and budget, type of project, which party is performing the analysis, and its purpose. Always consider the message you wish to get across and the audience.

Each method of delay analysis has its own particular requirements. The Impacted As-Planned method, for instance, is normally applicable to the early stage of a project when little progress has been achieved. Time Impact Analysis is typically adopted during the execution of a project. At the end of a project when the facts are known – or during a formal dispute resolution process – Time Slice Windows or As-Planned vs As-Built tend to be most useful.

Understanding concurrent delay: what it is and how it works

Often misunderstood, concurrent delay has long been an area of contention in the Middle East. Concurrency occurs when the contractor and employer are each responsible for delays that coincide, and their effects are also felt at the same time. True concurrent delay is rare.

Agreements or awards that allow contractors extra time but not money for concurrent delays can be a significant financial risk. There is an increasing trend for employers in Saudi Arabia to include punitive clauses expressly extinguishing any entitlement to an extension of time or financial compensation for periods of concurrent delay. The contractor faces both damages and having to pay for their own indirect costs during the period when the employer is also in delay.

In most cases, however, on inspection of the facts, concurrent delay is not occurring. One party is generally responsible for the critical delay to the project and the discussions on concurrency become academic. However, contracts do not typically define concurrency, and disputes over concurrency often arise even in circumstances where the facts point to a single party being responsible for the critical delay to the project completion.

Why record keeping and notices are crucial in delays, disruptions and costs claims

Records are essential to prove delays, disruptions and costs, but we often find that the evidence is not sufficient to support claims. Records must always be kept on the assumption that a dispute over delay and disruption will happen at the end of the contract.

Even when their record keeping is sound, contractors sabotage their claims by failing in their duty to give the notice specified in the contract. Under FIDIC 1999, for example, failure to do so within 28 days forfeits entitlement to a time extension and additional payment as the employer is discharged of all liability.

Notices of claim must not only be submitted on time, but also drafted properly (including all details required by the contract) and served in the proper manner – to the stipulated address, copied to and signed by the authorized persons. A log needs to be maintained as a register of all notices served and proof of delivery.

Contractors should remember that this advice applies equally to subcontractor claims, which also need to be dealt with in a timely manner.

Also, all claims have to be updated within the periods stated in the contract. Do not wait until the end of the project. The consequences of waiting may be that your entitlement is lost.

¹ Skanska Construction UK Ltd v Egger (Barony) Ltd (2004)

About the Authors

Benjamin Highfield is a chartered engineer with extensive experience in representing clients in the resolution of complex disputes. He has over 20 years of experience in the construction industry, where he has managed disputes on a wide range of projects from the infrastructure to energy sectors. As a trusted advisor, Benjamin specialises in commercial, delay and engineering matters, with a focus on claims management and dispute resolution. His leadership has been crucial in navigating complex projects and disputes, particularly in the oil, gas, water, and power sectors.

Baoqiang Zheng (Bao) is a professional consultant with over 20 years of experience in construction dispute avoidance and dispute management. He has been involved in claims for major infrastructure schemes around the world and has acted as a delay expert. Baoqiang specialises in project planning and forensic delay analysis. He has been directly involved in a variety of major international projects across Africa, Asia, Australia, Europe and the Middle East; regarding the preparation and defence of claims, disputes and arbitrations on behalf of contractors, subcontractors, clients and legal counsels.

This article is based on a presentation titled Risk and Claims Management of Engineering and Construction Projects in Saudi Arabia hosted by HKA in 2024 with support from COCC and in conjunction with leading construction law firms.