Construction

The Civil Code (Law No 22/2004) – in particular, Part 3, Chapter 1, which governs general contract principles and sets out the obligations of the parties.

• The Tenders Law (Law No 24/2015);
• The Labour Law (Law No 14/2014) (as amended by Law No 18/2020);
• The Commercial Companies Law (Law No 11/2015);
• The Trade Regulation Law (Law No 27/2006); and
• The Commercial Code.

• The Ministry of Municipality and Environment;
• Kahramaa (the sole transmission and distribution system owner and operator for the electricity and water sector);
• The Ministry of Interior; and
• The Communications Regulatory Authority.

These bodies generally enjoy broad powers which are frequently amended – sometimes overnight.

The construction sector is regulated by legislation, industry standards, codes and guidance issued by the Ministry of Municipality. There is a focus on:

• design competence;
• health and safety;
• sustainability;
• structural integrity; and
• resolution of disputes.

This will depend on the nature, size and complexity of the project, rather than on the parties involved. The most common method is the traditional method, whereby the employer will engage a design consultant to design the project and then appoint a contractor to construct the design. Other methods include the following:

• turnkey;
• design and build;
• engineering, procurement and construction (EPC);
• build only;
• construction management; and
• design-build-operate-(maintain).

This will depend on the perspective of the parties involved in the overall project structure; but some of the advantages and disadvantages include the following:

• Turnkey:
• • Advantages: No owner involvement.
  • Disadvantages: All responsibility for the design, construction and equipment rests with the contractor.
• Design and build:
• • Advantages: Efficient and cost effective; ensures that the contractor is liable for the whole design.
  • Disadvantages: Requires owner involvement, particularly during pre-construction.
• EPC:
• • Advantages: Low degree of owner involvement; EPC contractor is responsible for implementation of the project.
  • Disadvantages: Owner passes the risk to the EPC company.
• Build only:
• • Advantages: Contractor builds only from the design produced and reduces its liability.
  • Disadvantage: Any change to design may result to increased claims for extensions of time and variations.
• Construction management:
• • Advantages: Accelerated programme management.
  • Disadvantages: Design change risk and consequential loss; lack of familiarity with construction management project administration in the Middle East.
• Design-build-operate-(maintain):
• • Advantages: Essentially an extension of a design and build, so advantageous from a design liability perspective; but also includes an operational and/or maintenance requirement which is generally run on a concession basis and allows the operator to generate significant income for a period of 20 to 30 years.
  • Disadvantages: Long-term needs and operability must be balanced against technology and equipment changes, which can result in excessive prices in the long term; but this is generally accepted as a key risk of this model.

• The complexity, size, value and nature of the project; and
• Employer involvement. Public sector employers that procure services or works generally award the services or works by way of tender in accordance with the Tenders Law and there remains a gearing towards the lowest-priced bids.

Typical structures/vehicles include limited liability companies (LLCs) and joint ventures (incorporated or unincorporated). However, the type of structure adopted for a project will depend on the applicable licencing and commercial requirements for that project.

For LLCs, the Foreign Investment Law (Law No 13/2000) states that the incorporation of a company in Qatar requires that a Qatari partner have a minimum 51% shareholding in the company. Article 2(2) allows for 100% foreign ownership (upon the minister’s decision), but not within the banking, insurance, commercial agency rights or real estate trading sectors.

In terms of joint ventures, it is common for local companies to partner with international companies to bid for projects in Qatar. Joint ventures are governed by the Commercial Companies Law (Law No 11/2015), which provides that unincorporated joint ventures can operate once they comply with the relevant laws and regulations, as they are not seen as a legal entity. An incorporated joint venture is recognised as an independent legal entity.

• LLCs:
• • Advantages: No minimum capital required; owners are not personally responsible for business debts and liabilities.
  • Disadvantages: It may be challenging to raise capital, particularly in current market conditions.
• Joint ventures:
• • Advantages: Companies can engage in construction projects in different geographic locations.
  • Disadvantages: The on-the-ground relationship with the partner company may be culturally challenging and costly.

• Size – mega project versus large, medium or small;
• Private sector or public sector;
• Complexity – number of contractors and specialist subcontractors involved;
• Project value;
• Type of project – for example, major infrastructure or building construction;
• Finance;
• End user requirements;
• Employer influence and ‘wasta’ (ie, degree of influential connections).

• Government funding;
• Public-private partnership (PPP) funding;
• Private funding – personal funding and local bank;
• International project finance; and
• Government to government.

• Government funding:
• • Advantages: Budgeted cash flow.
  • Disadvantages: Bureaucratic payment processes.
• PPP funding:
• • Advantages: Increased efficiency of government investment; allows for surplus funds to be redirected to other projects.
  • Disadvantages: Profits may vary depending on the risk, complexity and scope of the work and the parties involved.
• Private funding:
• • Advantages: Funding is generally available from the outset and allows the parties to reach out to the project owners when there are difficulties.
  • Disadvantages: Interest is payable on bank loans and claims will include finance charges.
• International project finance:
• • Advantages: Involves established international investors looking for genuine return on investment and with an interest in achieving project completion.
  • Disadvantages: Investors will each utilise several advisers and consultants to bring the transaction to completion which, coupled with the complexity of the process, increases the transaction cost.
• Government to government:
• • Advantages: Based on the political spectrum and diplomatic relationships, so funding is readily available from the outset, including from reputable entities such as UK Export Finance.
  • Disadvantages: Subject to national and regional social economic and political risks and relationships.

Generally, the key factor is the type of project. Large-scale public sector projects are usually funded by the government or through PPPs (following publication of the PPP Law (Law No 12/2020). Smaller private sector projects are financed privately, or by local and foreign investment funds where international parties are involved. Oil, gas, integrated water and power projects and petrochemical projects are often financed by project financing.

• Assignment of certain contractual rights to a third party;
• A mortgage on a commercial busines or on a registered freehold interest in land;
• Tender bonds, performance bonds and advance payment guarantees;
• Collateral warranties; and
• Parent company guarantees.

Law No 13/2012 on issuing the Law on Qatar Central Bank and the Regulation of Financial Institutions requires banks and other financial institutions to have simplified procedures and finance agreements. Each project finance agreement must set out the clear terms and conditions of the finance arrangement.

Qatar does not have a standalone bribery law. The Penal Code (Law No 11/2004) prohibits public officials, legal entities and private sector employees from engaging in bribery and corruption. The Procurement Law (Law No 24/2015) provides that a contract with the government will be deemed rescinded if it is proven that a contracting party has:

• committed fraud or other improper activities in the execution or acquisition of a contract;
• directly/indirectly bribed any state official; or
• colluded with a state official to inflict damage on the state entity which is party to the contract.

The legal consequences of being found guilty of bribery offences consist of imprisonment and fines.

The International Federation of Consulting Engineers (FIDIC) forms of contract (usually the 1999 version) are commonly used for local projects. The most popular standard forms used are:

• the Conditions of Contract for Construction (Red Book);
• the Conditions of Contract for Plan and Design Build (Yellow Book); and
• the Conditions of Contract for EPC/Turnkey Projects (Silver Book).

Public sector projects generally use their own bespoke contracts, including those of the Public Works Authority, Ashghal.

• FIDIC
• • Advantages: Internationally recognised and adaptable.
  • Disadvantages: Smaller local contractors may be unfamiliar with the FIDIC suite.
• Bespoke:
• • Advantages: Negotiated and adapted to the employer’s requirements in the market.
  • Disadvantages: Very little scope to amend the terms; international parties may not be accustomed to the terms of bespoke contracts or the terms may conflict with their internal policies.

• Familiarity with the content of the standard forms;
• The nature, scale and complexity of the project; and
• The employer and the end user.

Yes, FIDIC forms are rarely used in an unmodified form.

The parties are free to choose the law to apply to their contracts; however, certain mandatory provisions may not be excluded, even if the parties have agreed otherwise.

The Civil Code sets out the mandatory provisions, including:

• good faith;
• freedom to contract; and
• decennial liability.

Although there is no specific risk allocation for construction contracts, a high proportion of risk is commonly transferred to contractors/subcontractors. At the drafting stage, the parties should negotiate the terms to mitigate risk allocation.

The contract terms should be reviewed, as there may be express limitations of liability clauses which either cap, limit, exclude or pre-estimate damages. Consultants seek caps of between 100% and 200% of the contract price. Contractors generally are not permitted by employers to cap their liability.

The Civil Code provides exceptions, as follows:

• Article 259: Liability resulting from “deceit or gross mistake” cannot be limited or capped.
• Article 266:
• • Pre-agreed damages were “exaggerated to a considerable degree”;
  • No loss has been suffered by the innocent party; or
  • The obligation has been partially performed.
• Article 267: Where a creditor’s loss is greater than the pre-agreed damages, a higher amount cannot be claimed unless it is established that the loss arose as a result of the debtor’s “deceit or gross mistake”.
• Articles 711 and 715: Decennial liability cannot be limited or capped

Liquidated damages will apply in case of a delay in completing the works. Liquidated damages are usually capped at 10% of the total contract price. Damages are applied per day or part thereof and as against an agreed formula.

Yes. The contract terms will define what constitutes a force majeure event and what relief will be available to the parties. In the absence of any contractual provisions, the Civil Code provides for provisions dealing with force majeure, as follows:

• Article 188: This provides that force majeure is something beyond the control of a party which makes it impossible for the party to perform its obligations under the contract. The effected party is relieved from performing only that part of its obligation. All non-affected obligations must continue to be performed.
• Article 204: Unless agreed otherwise, if a party can show a loss has arisen due to a cause not of its making, that party will not be liable to pay damages.
• Article 258: The parties can agree that the contractor/consultant bears the contractual risk and consequences of the force majeure.
• Article 171(2): The contractor/consultant can apply to the court or arbitral tribunal to adjust or reduce the obligation under Article 258 to a reasonable margin in case of certain force majeure events.

Contract provisions outline the procedure as to how material variations may be made. Depending on the type of contract and the parties to the contract, certain parties may have greater rights than others when it comes to variations and the claims that can be made for the same.

The contract provisions will outline the procedure for completion and taking-over, including any testing and commissioning. Certain licences or consents may need to be obtained from the municipality or other government authorities before the project can complete.

Termination provisions may be negotiated and included in the contract. Although a contract can be terminated for a variety of reasons, the most common grounds to terminate a contract are as follows:

• breach;
• non-payment;
• convenience; or
• the occurrence of a force majeure event.

If there are no express contractual provisions relating to these matters, the Civil Code provides as follows:

• Article 183: A contract can be terminated as a result of breach of an obligation.
• Article 184: A contract can be terminated without the need for a court order.

Interpretations of Qatari law are geared towards a strict interpretation of termination provisions and requirements for a court order in the absence of express provisions.

The contract provisions prescribe penalties for delay despite many parties insisting on the use of liquidated damages language. Either way, they will apply if expressly included in the contract. The law does not cap penalties for delay or liquidated damages, but it is industry practice to include a cap of generally 10% of the contract price.

The biggest issue when dealing with subcontracts/subcontractors is the allocation of risk. Usually, subcontracts are on a back-to-back basis with the main contract, which means they must comply with the provisions of the main contract, including for liability, payments, damages, insurances and indemnities.

Yes. Nominated or ‘approved’ subcontractors are common.

Generally, payment provisions in construction contracts dictate payment in arrears via the parties’ Qatari bank accounts. If a contract is on a back-to-back basis, the subcontractor will not get paid by the contractor until the contractor has been paid by the employer. However, Article 702 of the Civil Code allows the subcontractor to seek payment directly from the employer.

Yes. Paid when paid clauses are commonly used in subcontracts in Qatar and considered as enforceable contract terms.

Generally, the employer will retain 10% of the value of the contract price until such time as prescribed by the contract. Of this, 5% is released to the contractor at taking-over and the other 5% is released at the end of the defects liability period.

There is no standalone Health and Safety Law in Qatar. Part 10 of the Labour Law (Law No 14/2004 as amended by Law No 18/2020) imposes some health and safety obligations on an employer, including the following:

• First aid facilities must be provided and periodical medical check-ups should be carried out for all employees;
• At the start of the project, employees must be provided with details of any occupational hazards; and
• Employees should be provided with details of the health and safety measures to mitigate any work-related injuries or diseases

Law No 22/2021 mandates that employers must provide health insurance cover for expatriates and their families.

The National Committee of Occupational Health and Safety within the Ministry of Administrative Development, Labour and Social Affairs implements health and safety policies. The Ministry of Public Health has an occupational health safety and health policy.

Chapter 11 of the Labour Law requires employers to immediately report any death or occurrence of a worker suffering an occupational injury to the police and the Ministry of Labour.

Various criminal and civil penalties for non-compliance with the health and safety law, as detailed in Chapter 16 of the Labour Law.

All contractors must have policies and procedures in place to minimise risks of injury or death. Training must be provided to inform all employees of the updates in procedures, policies and laws.

• The Ministry of Labour;
• The Ministry of Public Health; and
• The Ministry of Administrative Development, Labour and Social Affairs.

The approach is to ensure that the laws, regulations and policies are implemented and adhered to. Breach or failure is penalised. Projects may be issued with a stop order pending rectification.

The Environmental Protection Law (Law No 30/2002) and Ministerial Decision 4/2005 empower the Supreme Council for Environment and Natural Reserves (SCENR) to decide whether projects are to be given environmental approval. Depending on the nature of the project, the authorities may also require the parties involved to carry out an environmental impact assessment.

The Ministry of Municipalities and Environment (MME) provides an online service via Hukoomi (Qatar’s e-government portal) for applications for environmental permits. The application form to be completed should include details of:

• the project;
• the project location;
• the project type;
• waste disposal methods; and
• the potential environmental impact of the project.

The application form must then be uploaded with the required documents.

• Complying with the systems and measurements of the environment protection prescribed by the law;
• Keeping records to demonstrate the actual impact of its activities on the environment; and
• Ensuring that whoever in charge of producing, handling and transporting hazardous substances takes all precautions to prevent any damage to the environment

Part 5 of the Environmental Protection Law outlines the civil and criminal sanctions.

Qatar has adopted a policy of sustainable and ‘green’ development in line with its 2030 plan. Qatar’s Construction Specification has established minimum environmental performance standards which derive from the Global Sustainability Assessment System and apply to all new buildings. Minimum requirements relate to:

• energy;
• water;
• the indoor environment;
• cultural and economic value;
• management and operation; and
• materials.

Building owners, designers and contractors must provide reports showing how the minimum environmental standards have been met.

The SCENR and the MME.

To ensure that operators in the construction sector comply with all of the environmental requirements set out by law and that any breach is penalised.

Qatar has launched a national climate change plan and aims to cut its greenhouse gas emissions by 25% by 2030.

• Workmen’s compensation insurance;
• Professional indemnity insurance (taken out by engineers and architects);
• Contractor’s all risk insurance;
• Property all risk;
• Third-party liability insurance;
• Motor vehicle insurance;
• Comprehensive general liability insurance;
• Employers’ liability insurance; and
• Marine works insurance.

The insurance clause in the construction contract will identify whether insurance is to be obtained within Qatar by a local insurer or internationally. Reinsurance policies are common in Qatar.

Most professional indemnity insurance policies will only cover a contractor/designer for its failure to exercise reasonable skill and care.

• Electronic equipment insurance;
• Machinery breakdown insurance;
• Contractor’s plant and machinery insurance; and
• Erection all risks insurance.

• The Labour Law (Law No 14/2004, as amended by Decree-Law No 18/2020); and
• Law No 21/2015 (as amended by Decree-Law No 19/2020) regarding entry, exit and residency of expatriates in Qatar.

The Income Tax Law (Law No 21/2009) states that:

• for non-residents, a final withholding tax of 7% must be applied to the “gross amount of interest, commissions, brokerage fees, director’s fees, attendance fees and any other payments for services carried out wholly or partly in the State”; and
• a rate of 5% will apply to “technical fees”.

Tax at a rate of 10% applies to all companies unless they are 100% owned by Qatari nationals.

Qatar has not implemented value added tax (VAT).

No VAT is applicable in Qatar.

An income tax exemption may be granted to projects that meet certain criteria.

Using reputable auditing and accountancy consultants, who in turn adopt correct accounting methodologies and ensure that parties can properly utilise any applicable tax exemptions.

BIM is not currently prevalent in Qatar. There are no government mandates or other requirements in this regard. Parties are free to utilise BIM if they choose to do so.

Smart contracts are not currently used in Qatar.

Developments in digital technology such as 3D printing are increasingly being used across the industry. These reduce the time for production, which saves on costs, and are more sustainable.

• The Qatari courts;
• Arbitration at:
• • the Qatar International Centre for Conciliation and Arbitration;
  • the Qatar International Court and Dispute Resolution Centre; or
  • the International Chamber of Commerce;
• Mediation; and
• Expert determination.

Claims for:

• delay and/or damages;
• non-payment;
• breach of contract;
• suspension; and/or
• termination.

The construction contract will stipulate what the process is and the mechanism for resolution of the dispute, which is generally a multi-tiered approach.

Arbitration is common in Qatar and is widely encouraged as an alternative to litigation in the Qatari courts. The Arbitration Law (Law No 2/2017) is largely based on the UNCITRAL Model Law. Mediation is also becoming a popular forum for dispute resolution; and expert determination is also relied upon.

No. They are viewed as ‘quasi-arbitrations’ from a time and cost perspective.

No.

The COVID-19 pandemic presented several challenges to resources, health and safety, causing project delays and cancellations. However, Qatar acted swiftly to mitigated any significant negative impact on the construction sector by implementing technology-based health and safety measures as well as government assistance. COVID-19 has resulted in increased claims for extensions of time, relief and enforcement of rights.

Qatar’s construction market continues to grow. A primary driver of this trend is the FIFA World Cup 2022. Beyond that, Qatar is looking to build additional infrastructure to achieve its National Vision 2030.

The successful completion of projects depends on a combination of many things, beginning with the strength of the contractual basis on which the project is executed. Clients should strive to maintain clarity in their contractual provisions and avoid drafting contracts from scratch or amalgamating those from other projects. Standard form contracts such as the 1999 International Federation of Consulting Engineers suite are useful in this respect. They are easily adaptable to various project structures and are deemed reliably bankable from a finance perspective.