Adjudication a critical factor in implementing Dubai PPP law

Zane Hedge, the head of construction and real estate disputes at Deloitte Corporate Finance in Dubai, on what the new PPP law will mean for construction dispute resolution.

The Government of Dubai has recently introduced a new public private partnership (“PPP”) law (Law No. 22 of 2015) which indicates a desire to use private sector finance to deliver strategic infrastructure projects. But what will this new PPP law mean for construction dispute resolution in Dubai?

We should see a reduction in progress payment-related disputes as the project special purpose vehicle (SPV) will most likely not be receiving payments until such time as the asset is operational. We may see a reduction in disputes related to variations, but those we do see may be larger, and more complex, as change can have a significant financial impact under PPP arrangements especially if it results in critical delay to the operational date.

We may also see an increase in consortia internal disputes where there are culpable delays resulting in financial loss, especially given the fact that the new PPP law allows the Government to take an equity stake in an SPV. PPPs can also result in disputes related to the unitary payments, and to issues such as fitness for purpose or failure to comply with service level agreements.

What we will see is greater responsibility being placed on SPVs to improve the way they deliver projects so as to ensure timely completion as well as operational reliability and availability. By necessity SPVs will need to resolve disputes with their supply chain in a timely manner. It is the latter which creates an opportunity for construction professionals as it opens the door for alternative dispute resolution (ADR).

Those coming from jurisdictions such as England and Wales will be familiar with adjudication. The added benefit of the new PPP law is that it provides a blank sheet of paper for SPVs to re-draft their supply chain contracts as more traditional contracts are unlikely to be fit for purpose. This is where adjudication could be introduced into tiered dispute resolution clauses.

There is no shortage of lawyers with the relevant experience to draft such contracts and there are some off-the-shelf adjudication rules which could be utilised in lieu of having available specific Dubai adjudication law. If PPP is going to be a success it will require the SPVs to proactively drive change. What better place to start than at the outset of the relationship with those in their supply chain by explicitly demonstrating a desire to resolve disputes amicably and quickly?

It is disappointing that the use of ADR, such as adjudication, is not being mandated by the new PPP law. This is, one might argue, a lost opportunity given the major strategic infrastructure projects which are in the pipeline. However, as we have seen previously in Qatar, with the Q-Construct scheme, regional governments continue to prefer local law and domestic arbitration and the new PPP law is no different. It remains to be seen whether the Dubai courts would provide judicial support to adjudication, however, this risk could be reduced by selecting the Dubai International Financial Centre Courts.

In terms of those involved with the adjudication process during the construction stage, there are many lawyers and consultants in the region with adjudication experience. The adjudicator could even be based overseas as a hearing is often unnecessary and the electronic transfer of documents is now commonplace in other dispute forums.

Given the fast-track nature of adjudication, it should be easier to control costs and those involved are better placed to ensure that professional fees remain proportionate. There may also be an opportunity to negotiate fixed price or contingency- based fee arrangements.

Adjudication is a cost-effective form of ADR which, if approached correctly, maintains relationships and ensures that disputes are resolved amicably and quickly, thus allowing the parties to focus on putting the asset into operation, something which will be essential if the new PPP law is going to be a success.

Zane Hedge is the head of construction and real estate disputes at Deloitte Corporate Finance in Dubai