Trends, developments and prospects
What is the general state of the construction sector in your jurisdiction, including current trends, notable recent transactions/developments and future prospects?
As the FIFA World Cup 2022 inches closer, Qatar is speeding up preparations, meaning that all major construction projects linked directly or indirectly to the World Cup are almost complete. Qatar Rail’s metro project is in its trial stage and is expected to be open to the public soon, and major football stadiums are either complete or at the verge of completion. Further, the Lusial expressway has been completed and is already open.
The economic blockade imposed on Qatar in mid-2017 posed a major challenge for the construction sector, but the country coped well. Supply lines have now been secured and new business partners identified within a short space of time, which enabled the construction sector to make a strong comeback. This has helped to build confidence among companies relating to the construction industry.
What primary and secondary legislation governs the construction sector in your jurisdiction?
The construction sector is mainly governed by Law 22/2004 (the Civil Code). Part 3, Chapter 1 of the code focuses on construction:
- Articles 683 to 686 regulate the supply and procurement of construction materials and the rights and obligations of suppliers and employers.
- Articles 687 to 691 set out the obligations of a contractor, while Articles 692 to 700 cover the obligations of an employer.
- Articles 701 to 702 set out the specific provisions applicable to sub-contractors.
- Articles 703 to 707 govern the termination of construction contracts.
- Sub-chapter 2, Articles 708 to 715 address various issues (eg, the variation of construction contracts, defective works, engineers’ liability and design defects).
Which authorities regulate the construction sector and enforce construction law, and what is the extent of their powers?
Several government authorities regulate the construction sector. The most prominent of these are:
- the Ministry of Municipality and Environment;
- the Ministry of Interior;
- Kahramaa; and
- the Communications Regulatory Authority.
What licensing requirements and procedures apply to construction projects in your jurisdiction (eg, planning consents)?
There are several licensing requirements in place that must be met depending on the nature of the project. The most common of these include:
- approval from the Ministry of Municipality and Environment (MME) for project planning and approval of file opening;
- approval from the MME for road design;
- approval from Kahramaa for the supply of power and water;
- approval from the Ministry of Interior regarding fire safety;
- approval from the Communications Regulatory Authority for telecommunications services;
- building permits from the MME;
- a public declaration regarding the construction project; and
- a certificate of completion from the MME.
Professional licensing and qualification
What licensing requirements and procedures apply to construction professionals, including any required qualifications?
Law 19/2005 regulates engineers and architects by:
- providing a register of engineers of local and international engineering consultancy firms;
- governing the rights and obligation of engineers; and
- regulating their practice.
Engineers and architects are not permitted to practise unless properly registered. The eligibility criteria for the registration of engineers states that an applicant:
- must be either a Qatari national or a Qatari resident;
- must not be a minor or mentally incapacitated;
- must hold a degree from a recognised university;
- must have no criminal record; and
- must pass a technical capacity test approved by the Body of Construction Planning and Development.
Do any special rules and restrictions apply to foreign construction professionals?
Foreign engineers and architects must meet the requirements of Law 19/2005 (as listed above) or be barred from practising in Qatar.
Project structures and relationships
What corporate/formal structures are available for construction projects in your jurisdiction? What are the advantages and disadvantages of each? Are any structures explicitly prohibited?
For many construction projects in Qatar, the clients are government departments or government-owned entities.
As there are several large construction projects underway in Qatar, special expertise and knowhow is required from:
- architects; and
Therefore, multiple international construction and consultancy firms have set up in Qatar, mostly in the form of joint ventures with local companies in order to bid for projects. Such joint ventures may be either incorporated or unincorporated joint ventures. In case of incorporated joint ventures, a foreign entity must ensure that it is compliant with the Foreign Investment Law 13/2000, which imposes a limit on the shareholding of foreigners (with some exceptions). Most commonly, foreign investors prefer to incorporate their joint ventures in the form of limited liability companies.
The main advantage of an incorporated joint venture is that the liability of venture partners is limited to their shareholding in the joint venture company. In contrast, liability in an unincorporated joint venture extends to each venture partner jointly and separately. Additionally, during a bidding process, the employer may require an unincorporated joint venture (which normally operates through a lead member) to prove its existence. A copy of the joint venture agreement must be submitted to the employer and can therefore expose certain confidential information.
Are there any special considerations for managing relationships with:
(a) Joint venture partners (where applicable)?
It is essential to have a detailed joint venture agreement in place which clearly sets out the duties and obligations of each venture partner. This is critical to the successful performance of construction agreements. The progress of construction is often disrupted and completion often delayed as a result of ambiguities in the roles and responsibilities of venture partners in a joint venture agreement. In such cases, venture partners have been exposed to greater liabilities, including retention of payment and back charging by the employer due to delays.
(b) Contracting government entities in public-private partnerships (or other construction projects with a public element)?
Public-private partnerships are extremely rare.
Sub-contractors should consider sufficient availability of funds for the performance of their works and, if necessary, should require the contractors to issue a letter of credit in order to arrange sufficient financing. Subcontractors (which are mostly medium-sized firms) often run out of funds which can result in delays.
(d) Architects, designers, engineers and any other related professionals?
Given the design liability of architects, designers and engineers post completion of construction projects, it is important for them to consider the accuracy of their designs before submission.
(e) Any other relevant parties typically involved in construction projects?
The employer may appoint a separate party as the supplier for the procurement of project materials. The supply of materials is fundamental to the progress of the whole project and any disruption to the supplies entitles the contractor to an extension of time and costs. Therefore, the role of supplier is often assumed by the contractor directly depending on the commercial terms agreed with the employer.
Contracts and performance
Standard contract forms
What standard contract forms are used for construction projects in your jurisdiction? To what extent do parties deviate from these standard forms?
The Public Works Authority has its own form of construction contract, which it uses for most of its projects.
Other government projects use several other forms of contract, such as the International Federation of Consulting Engineers yellow, silver or red book contracts and occasionally Joint Contracts Tribunal contracts, Association of Consultant Architects contracts or New Engineering Contracts. On most occasions, these contracts are heavily amended in favour of the employer.
Definition of ‘construction work’
How is ‘construction work’ legally defined?
The Civil Code does not define ‘construction work’. However, Article 682 of the code defines a ‘construction contract’ as an agreement under which either party undertakes to construct a structure or to perform any work for the other party against wages and without being an agent or representative of such party.
Are there any rules or restrictions on the governing law of construction contracts?
Qatari courts will normally uphold a governing law other than Qatari law regarding contracts. However, this does not apply to any provision of the law which the courts deem to be contrary to any mandatory provision of Qatari law or to public order or morality in Qatar.
Are construction contracts subject to any formal requirements?
Construction contracts do not require any formal attestation from government authorities. Although construction projects require certain approval and construction professionals require certain licences, construction contracts do not require any attestations; they become legally binding once validly signed by each party.
Are there any mandatory or prohibited provisions in relation to construction contracts?
There are no specific mandatory and prohibited provisions in relation to construction contracts as the law does not prescribe any specific form of contract. However, as a general principle, a construction contract should not carry any provision in violation of Qatari laws or against public order.
Can any terms be implied in construction contracts?
Under Article 169 of the Civil Code, where the language of the contract is clear, it may not be subject to interpretation regarding the parties’ intentions. However, if the language is unclear and requires interpretation, the contract must be interpreted by deriving the parties’ intentions based on the nature of the transaction and their good faith. During such interpretation, the literal meaning of words should not be taken into consideration.
How are risks typically allocated between parties to construction contracts?
Under the Civil Code, contractual liability is valid for 15 years. Additionally, Article 711 of the code holds the contractor and the designer jointly liable for the structural integrity of construction works. This liability lasts for 10 years and cannot be limited.
Limitation of liability
How and to what extent can parties to construction projects contractually limit or exclude their liability?
The Civil Code provides parties with freedom of contract; therefore, contractual terms which either exclude or provide damages are mostly binding on the parties. However, under specific provisions of the Civil Code (eg, Article 715), the design liabilities of contractors and designers cannot be excluded.
Under Article 266 of the Civil Code, where there are liquidated damages the agreed amount may be waived if:
- the defaulting party can show that no loss has been suffered by a non-defaulting party;
- the level of the pre-agreed damages was excessive; or
- the obligation has been partially performed.
How are liquidated damages typically calculated and to which liabilities are they usually applied?
It is customary in the construction sector to cap liability for liquidated damages at 10% of the total contract value. Since the law does not cap liquidated damages, the parties may fix the overall contractual liability up to full contract value. However, certain types of liability cannot be capped or limited, as explained above.
Usually, parties apply for liquidated damages where there has been a delay to the agreed timeframe. This is applied to both contractors and consultants.
How are force majeure clauses treated in your jurisdiction? Is there a legal definition of force majeure events?
Under Article 188 of the Civil Code, ‘force majeure’ is a reason beyond the control of a party which makes it impossible for it to perform its obligations under the contract. Although Article 171(1) of the Civil Code relieves a party from performing its obligations in the event of an unforeseen event beyond its control, such provisions should be referred to as ‘difficulty’ provisions, rather than force majeure. The main difference between difficulty and force majeure is the element of impossibility associated with force majeure.
In the event of force majeure, the affected party is relieved from performing only that part of its obligation which is impossible due to reasons beyond its control. Any other contractual obligation not affected must be performed. As soon as the cause of force majeure ceases, the corresponding obligation must be performed.
General performance obligations
What are the general performance obligations of contractors and employers?
The general obligations of contractors and employers are provided in Articles 687 to 700 of the Civil Code. On the one hand, a contractor must conduct works as per the provisions of the contract and within the agreed timeframe without any defects. On the other hand, an employer must perform its part of the contractual obligations, including:
- supplying materials (if agreed);
- supplying designs (if not under the contractor’s scope);
- inspecting works before the handover; and
- making payments by the agreed deadlines.
How are project delays typically handled? Do any set rules, restrictions or procedures apply in this regard?
Construction contracts usually specify the events that entitle a contractor to an extension of time in case of delay. These mostly relate to events out of the control of the subcontractor. Further, the Civil Code identifies force majeure, as well as events which may cause difficulty, and entitles the subcontractor to an extension of time or termination of contract if such extension is onerous to the employer. In cases where force majeure does not apply, contractors are normally penalised for any delay in completing a job. The penalty may be based on a pre-agreed amount for each day that the project is delayed. Employers usually liquidate the performance bonds to cover any losses cause by the delay.
To what extent can the parties make variations to the contract? Do any set rules, restrictions or procedures apply in this regard?
Since no specific form of construction contract is universally applicable in Qatar, parties often design the contracts in a way to vest substantial powers with the client regarding, among other things:
- price variations;
- time extensions; and
- extension of scope.
In contracts based on estimated measurements, Article 708 of the Civil Code entitles a contractor to request the employer to increase costs if the actual costs exceed the estimation. In response, the employer is entitled to terminate the contract if the difference in costs is significantly high.
Under Article 709 of the Civil Code, in case of amendment in designs, a contractor is not entitled to demand increase in payment if the contract is based on a lump sum.
What are acceptable grounds for the termination of a contract?
Under Article 704 of the Civil Code, a construction contract can be terminated if its performance becomes impossible due to an external reason beyond the control of either party. Further, under Article 705 of the code, a contract can be terminated on the death of a contractor, provided that its heirs are unable to take over the work due to the contractor’s specialist knowledge.
Remedies for breach
What remedies are available for the breach of construction contracts?
According to Article 707 of the Civil Code, if the employer breaches the contract by unilateral termination, the contractor is entitled to payment for:
- the work completed;
- expenses incurred; and
- the loss of profit that the contractor could have made had the employer not terminated the contract.
In contrast, where there has been a breach of contract by a contractor (eg, non-completion of work within the agreed timeframe, poor quality of work or defective work), the employer’s remedies may include:
- liquidation of performance bonds;
- taking over the contractor’s work;
- back charging the contractor at the market rate; and
- retaining the contractor’s payments.
Types of financing
What types of financing are used for construction projects in your jurisdiction? Which are the most common? Are there any restrictions on available financing methods?
Most construction projects are government-funded, although bank loans and foreign investment are also used to finance many projects. Financing can be either conventional or Islamic financing provided by international and local banks.
With the exception of public entities, corporate funding from banks licensed by the Qatar Central Bank must be guaranteed by the shareholders of the borrower.
What forms of security are used in construction project financing?
Security can be in the form of:
- a traditional mortgage (eg, land mortgage);
- a letter of credit issued by the employer in favour of a contractor; and
- in many cases, the assignment of contractual rights, including receivables in favour of the lender.
Methods and timing
What are the typical methods and timing of payment for construction work? Are there any restrictions on ‘pay when paid’ and ‘pay if paid’ provisions? Do any other rules, restrictions or procedures apply?
Most contractors are paid in advance subject to an advance payment guarantee, and payments are often based on the contractual provisions as per the agreed deadlines. Usually, payment is due once the client issues a payment certificate. A fixed percentage of advance payment and retention amount is deducted from each payment. Half of the retention money is released at the time of the hand-over, while the remainder is released at the end of the warranty period.
The Civil Code does not impose any restrictions on ‘pay when paid’ and ‘pay if paid’ provisions. However, under Article 702 of the code, sub-contractors have a right to demand directly from the employer payment which is due from the main contractor.
How can the contractor secure itself against non-payment by the employer? Under what circumstances can the contractor suspend work for non-payment?
Contractors usually secure payment through letters of credit to be issued by the employer in their favour and equal to the value of the contract (unless any advance payments have been made).
Contracts are often drafted to prevent contractors from suspending their work even if payments are withheld by the employer. However, if that is not the case, the Civil Code imposes reciprocal obligations on the parties under which one party can stop performing its part of the contractual obligations if the other party has failed to perform theirs.
How can subcontractors secure themselves against non-payment by the contractor? Under what circumstances can subcontractors suspend work for non-payment?
Subcontractors secure payment in the same way as the main contractor – through a letter of credit.
Article 702 of the Civil Code entitles the subcontractors to demand directly from the employer payment which is due from the main contractor. With regard to suspension of works, the rights are the same as those of the main contractor (see above).
On what grounds can payments be withheld?
Construction contracts often entitle the employer to withhold payments in the event of defective work or a delay in completion. Contracts are designed to suit employers, so they often have the upper hand in such situations.
What recourse is available to employers in the event of the contractor’s insolvency?
According to the Commercial Law of Qatar, any contract entered into by a company before a declaration of bankruptcy remains valid. Therefore, in the event of a contractor’s bankruptcy, the employer can terminate the contract and have recourse against the contractor and its assets for any claims under the contract or the law.
What mandatory insurance coverage applies to parties involved in construction projects? Is any additional coverage recommended?
Architects and engineering consultancy firms must maintain professional indemnity insurance while registered in Qatar.
Additionally, insurers offer many policies to cover the various risks associated with construction projects, including:
- employers' liability insurance;
- third-party liability insurance; and
- contractors’ all-risk insurance.
Parties should use such policies to prevent liability. However, they must use only insurers approved by the Qatar Central Bank, as foreign insurers cannot directly operate in Qatar. Therefore, overseas insurers appoint local insurers as a fronting company through which they provide insurance policies. However, it is recommended to use insurers approved by the Qatar Central Bank.
What tax liabilities arise in relation to construction projects?
Generally, 10% corporate tax is applicable to all construction companies unless they are fully owned by Qatari nationals; no industry-specific tax is applicable. Further, a withholding tax of 7% is applicable on non-resident companies deriving:
- brokerage fees; and
- other payments for services carried out partly or wholly in Qatar.
Are there any tax incentive schemes to promote construction and development in certain areas?
Income tax exemption can be granted to projects which meet certain criteria and is applicable for 10 years. The main criteria is that the project supports:
- transport; or
- any other activity from which Qatar will gain economic and social benefits.
What environmental protection legislation and regulations apply to construction projects in your jurisdiction?
The main legislation governing environmental protection is:
- Law 4/1983 concerning Exploitation and Protection of Aquatic Life in Qatar;
- Law 30/2002, the Law of Environmental Protection; and
- the Executive Regulations under Ministerial Decision 4/2005.
These laws require that the projects for public and private development be submitted to the authorities for approval. It is prohibited to discharge any waste or substance which is harmful to aquatic life into fishing water or internal water without the written approval of the relevant authorities. The main authorities enforcing these laws are the Supreme Council for Environment and Natural Reserves and the Ministry of Municipality and Environment.
What environmental authorisations and certifications are required for construction projects and how are they obtained?
Environmental authorisations are not universal and can be project-specific, depending on their nature. The authorities may require those involved with a project to conduct an environmental impact assessment. Therefore, applications are on a project-by-project basis.
‘Green’ regulations and incentives
Are there any regulations or incentive schemes in place to promote the construction of energy-efficient and low-carbon buildings?
Qatar is heading towards sustainable development, with certain projects such as Msheireb adopting US Leadership in Environmental Energy and Design-standard energy efficient buildings. The country may issue more energy-efficient and low-carbon regulations.
Employment and labour law
What employment and labour legislation applies to construction projects in your jurisdiction? What rights and protections are provided to construction workers?
The Labour Law (Law 14/2004) governs employer-employee relationships and is applicable to most employees in the construction industry. The HR Law (Law 8/2009) is applicable to government entity employees; therefore, its scope is far narrower than the Labour Law.
Law 21/2015 relates to issues of the residency of foreign nationals and affects employer-employee relationships.
Occupational health and safety
What occupational health and safety regulations apply to construction projects?
The issues of occupational safety are covered by Article 10 of the Labour Law, which addresses:
- the issue of information on precautionary measures regarding work-related injury or disease;
- the provision of information to employees at the start of their employment regarding occupational hazards; and
- the provision of first aid and regular medical check-ups.
Additionally, employee safety and workplace safety systems are covered under Ministerial Decision 20/2005.
What types of employment contract are typically used for constructions work? Are there any mandatory or prohibited provisions in relation to employment contracts?
The main types of employment contract under the Labour Law are:
- limited contracts, which are fixed for a particular period; and
- unlimited contracts, which are not subject to a specific time limit.
In order to ensure safeguards for employees, the Ministry of Labour requires all employers to adopt its employment contract templates. An employer may supplement the template with an additional employment contract, but this must not violate the Labour Law in any way. An employee cannot waive its rights provided under the Labour law in such a contract.
What rules, restrictions and considerations apply to the hiring of foreign workers?
Under the Labour Law, when hiring a new employee, an employer should give preference to a Qatari national. Further, employers are given a quota of different nationalities from which it can hire, but which must not be exceeded.
What regulations and procedures are in place to combat corruption, bribery, fraud, collusion and other dishonest practices in the construction sector in your jurisdiction?
The main legislation preventing corrupt business practices in Qatar is Decree 17/2007 and the Public Tender Law. Under these laws, it is a serious criminal offence to bribe a public official for business gain. The laws also enable the appointment of contracts for public projects under a free and fair process without any fraud or deceit.
The Qatar Penal Code specifically deals with bribery-related offences committed by public officials.
What best practices are advised to ensure compliance with the relevant anti-corruption rules?
Parties should strictly avoid doing favours for or giving gifts to any public official, regardless of whether it is intended for commercial benefit. When deciding on such offences, the courts do not take motive into consideration.
What courts are empowered to hear construction disputes in your jurisdiction? Are there any specialist construction courts?
There are no specialised construction courts to adjudicate such disputes. As such, construction-related claims are filed before the civil courts. During adjudication, the court appoints a construction expert to provide their report and such reports are heavily relied on by judges.
What issues are commonly the subject of construction disputes?
The most common issues involved in construction disputes are:
- delays to the completion of work;
- defective work;
- defective designs;
- delayed payments; and
- excessive back charging.
Statute of limitations
What is the statute of limitations for filing construction-related claims?
The law does not provide a limitation period for all construction claims. Therefore, a limitation period is governed by several laws depending on the circumstances. If the claims are against architects or engineers, the limitation period will be 15 years as per the Civil Code, while a claim by an architect or engineer will have a limitation period of five years under the same law. On the other hand, claims between a contractor and an employer are treated as commercial claims and therefore, under Law 27 of 2006, the limitation period is 10 years.
Is pre-litigation mediation required or advised for construction disputes?
Pre-litigation mediation is not mandatory under law. In some cases, parties will keep a mediation clause in their contracts; however, the chance of reaching a resolution through this process is limited. Therefore, parties should include a mediation clause in their contract, which should be subject to a limited timeframe.
How often is arbitration used to resolve construction disputes? What arbitration forms and institutions are typically used?
There has been a rising trend of resolving construction disputes through arbitration proceedings. Bearing in mind that a significant number of construction companies are mainly owned by foreign entities, arbitration seems to be a popular choice. Most parties choose either the International Chamber of Commerce or the Qatar International Centre for Conciliation and Arbitration; Doha is the seat of arbitration and proceedings are conducted in English.
However, arbitration is seldom used by public sector entities due to certain approvals that they must obtain.