Qatar is a relatively small peninsula in the Persian Gulf, rich in natural gas, measuring approximately 11,521 km2 with a population of 2,659,000, mainly comprised of expat workers. In 2008, the Qatar 2030 Vision was published setting out the Emir’s vision based on four pillars: human development, social development, economic development, and environmental development.
This initiated significant investment across a range of industries and sectors, which was dramatically increased following the historic moment in 2010 when Qatar was awarded the FIFA World Cup 2022. These two key events led to significant opportunities in the construction industry with significant funds allocated for national projects; the national budget in 2020 for major projects was USD25 billion and USD20 billion for 2021 excluding private developments.
Like many other gulf nations, Clients tend to be risk averse and prefer cost certainty from the outset, which until recently, favoured the most popular traditional lump sum procurement route. However, it is well documented that many projects in the middle east run late, with significant claims and counter claims from both parties, all of which tend to lead to significant cost overruns.
Given the significant and immovable start dates for the FIFA World Cup, as well as other international sporting events, which have been awarded to Qatar in recent times, this appears to have forced a change in procurement and delivery approach, with time becoming of the essence.
The reputational risk of not delivering with the world watching closely cannot be under-estimated.
This will be the first world Cup held in the Middle East and internationally, for various reasons, has been met with significant negativity. This only increases the pressure for successful delivery.
The luxury of a fully designed project, a lengthy tender and construction stage is no longer viable, however, the need for cost certainty has remained paramount, particularly as the government is the key source of funding. This provides the backdrop for the recent shift towards the Design and Build (D&B) approach. For clients that want a contractor appointed early, with cost certainty, reduction in programme duration, whilst maintaining a risk averse approach the uptake is not surprising. This procurement route also allows clients to maintain some control over the design by setting out robust employer’s requirements and making novation provisions for the design team.
This, however, has not all been plain sailing, particularly in a market that is so engrained with the traditional approach. What is immediately obvious is that making changes can be very expensive. Luckily though, the time critical nature of the projects has meant that there have been fewer client initiated changes post-award and client decisions are being made faster than before.
Contractors have historically been set up for the traditional route with a set up that relies on the client’s design team to coordinate and iron out any conflicts in the design. This transfer of obligations has proved challenging for many Contractors, witnessed right from the tender pricing stage – previously being used to pricing complete drawings and specification, and now having to fill in gaps for design development risk allowances. Furthermore, Contractors are finding it difficult in the post-contract stage to navigate the murky and at times subjective nature of design development, leading to unwarranted notices of variations, or stretching the interpretation of design development to incorporate changes to their benefit.
Clients are also not fully geared up to this approach and in many instances taking the design to a level of detail which can at times be too prescriptive with considerably detailed specifications written. Whilst it is the Client’s prerogative to develop the requirements to any level, too much detail hinders the Contractors ability to enhance the design and limits the flexibility to seek design solutions within their internal price targets. The Contractor can take this approach with some suspicion that the Client is effectively trying to adopt the traditional approach but transferring the design risk to the Contractor under the guise of “design and build”. Such approach gives the Client’s post-contract team ammunition to reject the Contractor’s proposals which are being developed with an eye on the Contractor’s profit and loss, leading to Contractors becoming claims conscious.
Another important issue is the level of amendments that Clients make to the standard forms which can be prohibitive to the maturity of the D&B market as Contractors face varying terms and conditions and risk transfer from one project to the other.
For now, D&B appears to be in trend and working “successfully” for clients who see the benefits of clear risk transfer of design to the Contractor. We see this approach continuing for the foreseeable future and given there is more work to be done to achieve the Qatar 2030 vision, the anticipation is that the local market will learn and mature in D&B. What remains to be seen is if the level of trust between Client and Contractor improves which, can open the possibility to take this procurement a step further and adopt a two-stage approach where the Contractor can be brought on board early to provide input on buildability challenges and de-risk the project leading to lower construction costs.