Defence contract disputes and risk allocation in Qatar

Disputes and risk allocation

How are disputes between the government and defence contractor resolved?

Owing to the confidential nature of the issues involved, arbitration agreements are usually included in contracts between state entities and international defence contractors. The arbitration is usually conducted under the rules of the International Chamber of Commerce, the London Court of International Arbitration or the Qatar International Center for Conciliation and Arbitration. It is important to ensure that state entities are authorised to enter into an arbitration agreement.

Most disputes are resolved before formal arbitration proceedings are commenced.

Contracts will generally be governed by the laws of Qatar, but there are precedents of state entities accepting a foreign law (such as Swiss law) as applicable to a defence contract.

To what extent is alternative dispute resolution used to resolve conflicts? What is typical for this jurisdiction?

As above, most contracts include an arbitration agreement. Other forms of alternative dispute resolution, such as mediation, conciliation and expert determination, are relatively unusual in Qatar.

What limits exist on the government’s ability to indemnify the contractor in this jurisdiction and must the contractor indemnify the government in a defence procurement?

The term ‘indemnification’ is not specifically recognised under Qatar law, and there are no statutory provisions limiting the state’s ability to indemnify contractors or specifically requiring defence contractors to indemnify the state.

Can the government agree to limit the contractor’s liability under the contract? Are there limits to the contractor’s potential recovery against the government for breach?

Most contracts in the defence sector include both a total cap on liability (this is often the purchase price or total fee) and an exclusion of indirect and consequential loss and loss of profit.

These limitations and exclusions are generally enforceable but must be carefully drafted because article 170(2) of the Qatar Civil Code (Law No. 22 of 2004) provides that they will be interpreted narrowly (ie, to limit the scope of the exclusion).

On the basis that most significant defence contracts will not be subject to the Tender Law (see questions 1 and 2), there will be no statutory or regulatory limitations on the liability of the state or of the defence contractor.

Is there risk of non-payment when the government enters into a contract but does not ensure there are adequate funds to meet the contractual obligations?

State entities need to agree a budget with the Ministry of Finance before entering into a contract. Payment delays can occur where that budget is exceeded, for example, because of variations.

Under what circumstances must a contractor provide a parent guarantee?

For major contracts, the state will likely insist that a parent company guarantee is provided. A performance bank guarantee (payable on demand) will also be required for almost all contracts.