Contracts and insurance

Construction contracts

What standard contract forms are used for construction and design? Must the language of the contract be the local language? Are there restrictions on choice of law and the venue for dispute resolution?

The form of contract used for construction and design varies with every project and depends on the parties involved. Private sector projects have no standard form of contract; the parties usually rely on the International Federation of Consulting Engineers (FIDIC) as amended by the particular conditions of the contract or on the general conditions of contracts issued by the Public Works Authority (Ashghal) which are also amended by the particular conditions. Projects executed for government and public entities, such as Qatar Energy, Ashghal, General Electricity and Water Corporation and the Private Engineering Office, usually rely on their own standard contracts, which are based on the FIDIC set of contracts as amended pursuant to the particular conditions of contract.

Since January 2019, Arabic is the mandatory language to be used by the official and government bodies and all related institutions as well as the courts (except at the Qatar Financial Centre, where English is used). Notwithstanding this, the contracts are available in English. In the private sector, the parties are free to adopt the language of their choosing. The predominant languages are Arabic and English.

The parties are free to choose the governing law of their contract, which will be upheld by the courts provided that the provisions of such law do not contravene the public policy or morals of Qatar.

The parties are free to submit their disputes to a foreign court. However, as a matter of public policy, Qatari courts have in certain cases dismissed the parties’ agreements on foreign jurisdiction and retained jurisdiction over disputes filed before them.

Since January 2017, agreement to arbitration in administrative contract disputes is subject to the approval of the Prime Minister or the Prime Minister’s delegate.

The parties are also free to agree on alternative dispute resolution, including arbitration, for solving disputes. After Qatar enacted the Arbitration Law in 2017 and ratified the Singapore Convention on Mediation in March 2020, it subsequently issued Law No. 20 of 2021 on Mediation for the Settlement of Civil and Commercial Disputes.

Payment methods

How are contractors, subcontractors, vendors and workers typically paid and is there a standard frequency for payments?

Contractors, subcontractors and vendors are paid in accordance with their contract, which can vary. Payments are usually made by bank transfer or by cheque, whereas the cash payment method is not favoured, noting that subcontractors and some vendors are mostly paid on a back-to-back basis.

The Wages Protection System was established to secure payments for workers and employees by direct wire transfer from the employer’s account to the employee’s bank account to ensure adequate and timely remuneration. The penalties for violations of this article are imprisonment, a fine or both.

Contractual matrix of international projects

What is the typical contractual matrix for a major project in your jurisdiction in terms of the contractual relationships among the various construction project participants?

The typical matrix is: employer – employer's representative – engineer – main contractor. The main contractor will be the party signing contracts with subcontractors, as and when needed.

PPP and PFI

Is there a formal statutory and regulatory framework for PPP and PFI contracts?

On 31 May 2020, Qatar issued the Public-Private Partnerships Law No. 12 of 2020, which outlines how partnerships are regulated between the government and the private sector in Qatar. The PPP law includes the allocation of land through rent or use licence, for development by the private sector through build-operate-transfer, build-transfer-operate, build-own-operate-transfer, and operations and maintenance, among other provisions. This law is expected to lead to the launch of several investment projects in Qatar and to support projects connected to the Qatar National Vision 2030 and FIFA World Cup 2022.

Joint ventures

Are all members of consortia jointly liable for the entire project or may they allocate liability and responsibility among them?

Consortia can be established in the form of a joint venture between two companies or more that can be either:

  • incorporated in the form of a company: in this case, the responsibility of the shareholders will vary according to the type of the established company and the allocation of responsibility among themselves; or
  • unincorporated: in this case, the agreement executed with the employer will determine their respective liabilities towards the latter and the agreement executed between the members will determine their respective liabilities towards each other and the banks, taking into consideration their role, contribution and scope in the project. In most projects, the members will have joint and several liabilities towards their employer and such liability may vary towards the banks.
Tort claims and indemnity

Do local laws permit a contracting party to be indemnified against all acts, errors and omissions arising from the work of the other party, even when the first party is negligent?

The Qatari civil code makes a distinction between contractual liability and tort liability. The contractual liabilities of the respective parties can be freely determined between them, except for some cases where restricting or reducing any liability is considered by law as invalid and void, such as the contractors and designer’s decennial liability or any agreement that restricts or reduces any liability prior to the establishment of the right or due to an unlawful act.

Indemnification for damages incurred arises from the actions, omissions or negligence of the other party. In construction and design contracts, there are usually provisions for liquidated damages and the provision of an irrevocable, unconditional upon first demand, performance bond.

A contracting party can be indemnified against all acts, errors and omissions arising from the work of the other party, regardless of whether such party was negligent in any way, and such provisions will in most cases be binding, valid and enforceable, noting that a discharging from liability clause will be construed narrowly. Contractual provisions that expose one party to excessive responsibility are likely to be considered invalid due to violation of the principle of justice. The parties should, therefore, exercise caution when including such clauses in their agreements.

Liability to third parties

Where a contractor constructs a building that will be sold or leased to a third party, does the contractor bear any potential responsibility to the third party? May the third party pursue a claim against the contractor despite the lack of contractual privity?

Contracts are binding only on the parties that sign them: privity of contract prevents a person who is not a party to a contract from enforcing a term of that contract. This means that a third party (eg, buyer, tenant) will not be able to make a claim under the relevant contract, unless such contract was novated, or the rights and obligations thereunder were assigned. Notwithstanding this, a third party can rely on the tort responsibility, which imposes civil liability for breach of obligations imposed by law. In construction, the tort of negligence arises most often in addition to the decennial liability imposed at law on the contractor and architect or engineer for defects in the building or structure that are serious enough to make it unfit for its intended purpose, or that present a threat to its structural integrity and safety; this liability cannot be contractually limited or excluded, and any attempt to do so will be considered void.

Under the civil code, a third party may consider filing an 'indirect lawsuit' against both the contractor and owner who sold or rented the premise to the third party. Criminal action against the contractor or designer can be taken in case of criminal actions, and compensation against damages incurred can be claimed.

Insurance

To what extent do available insurance products afford a contractor coverage for: damage to the property of third parties; injury to workers or third parties; delay damages; and damages due to environmental hazards? Does the local law limit contractors’ liability for damages?

Insurance products in Qatar provide the contractor with a vast coverage area, including:

  • damage to the property of third parties;
  • professional indemnity;
  • fire incidents;
  • workers compensation policy, which includes workers compensation and employer’s liability;
  • delay in start-up; and
  • the loss of the anticipated or potential income in the event that a construction project suffers physical loss or damage during construction.

 

Coverage can be subject to negotiations between the insurance company and the insured to cover further areas.

Delay damages due to environmental hazards (eg, run-off of toxic liquids to adjacent lands) are usually excluded. However, sudden and accidental pollution coverage may apply.

Local laws do not limit contractors’ liability except in the case of circumstances beyond a party's control or fault of their clients or a third party, unless otherwise agreed by the parties.

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02 May 2022