The boycott of Qatar: a construction perspective

As has been widely reported, on 5 June 2017 a number of states broke off diplomatic relations with the State of Qatar, and severed a number of other links with Qatar; those states are the Kingdom of Saudi Arabia, the United Arab Emirates, Bahrain and Egypt. Subsequently, the Tobruk based government in Libya, Comoros, Yemen, the Maldives, and Mauritania have also joined in supporting the boycott [1].

The Kingdom of Saudi Arabia has closed the land border between the Kingdom and Qatar, thus severing Qatar's only land link. A number of air and sea links to and from Qatar have also been closed, or movements restricted.

Nationals from various boycotting countries must not now travel to Qatar, and Qatari nationals in certain of the boycotting countries must shortly leave those countries (although there are some exemptions, for example, in the UAE a Qatari married to an Emirati may remain).

That said, there are countries, including in the Arabian Gulf region, that are maintaining links with Qatar, Iran being a notable one.

As yet, there are no other formal prohibitions on doing business with Qatar, although there is some anecdotal evidence to suggest there is a 'reluctance' by some to be seen to engage with Qatari interests or enter into or perfect new contracts. As is usual in the region, government agencies take the lead and conduct themselves in accordance with government policy, and as such the absence of formal sanctions does not of itself mean that it is otherwise business as usual. We are not aware of restrictions on insurance.

But what of existing construction projects in Qatar? We take a high level view of certain considerations that may apply, taken from the contractor's point of view.

In 2016, the population of Qatar was estimated to be some 2.70 million people [2]. Statistics as to the percentage of the population of Qatar who are Qatari nationals are not easy to find, but one analysis suggests that the indigenous population of Qatar in 2010 was some 240,042 people [3]. On that basis, there are a considerable number of non-Qatari nationals residing in Qatar, most of whom will be there for the purpose of work, and some may have family accompanying them. Of course, many of those non-Qatari nationals will work outside the construction industry, but given the number and size of construction projects, the best that can be said is that the number connected with construction will be not insignificant.

Qatar has now been ramping up construction and infrastructure projects for a number of years, most recently as it focused on work needed to enable the hosting of football's 2022 World Cup. All those projects, and indeed the many other projects independent of the 2022 World Cup, have combined to attract the various elements of the construction industry to cash-rich Qatar. The Qatar construction market is not without its challenges, even for the better informed player, with payment continuing to be a particularly troublesome issue. Added to that, there is now boycott.

The implications of the boycott for those working on construction projects in Qatar are for the immediate moment likely to be of a practical nature.

People who are nationals of countries not involved in the boycott will be able to travel to and from Qatar, but the travel options are limited, with travel to and from Qatar being through states such as Oman, Kuwait, or Iran. Accordingly, non-Qatari nationals will be able to continue to service projects in Qatar. Telecommunication links to and from Qatar remain open.

Shipping by sea is still available, but now restricted, as is air cargo shipments. Given Qatar's oil and gas resources, fuel and electricity should not be an issue, and water should continue to be available through desalination and imported supplies. Perhaps of greater impact will be the ability to import necessary materials required for projects, and also the availability of food; if the food supply comes under threat or becomes too costly, then those people who can will leave Qatar, and people outside Qatar will not travel to it.

Leaving that aside, what are the legal consequences of problems obtaining the necessary materials or obtaining and retaining personnel for a project, which problems in turn delay the project?

The starting point will be the contract [4]. Contracts almost always place the onus on the contractor to procure the materials (whether plant, equipment, or goods) that are necessary to undertake and complete the works; except for free – issue materials, procurement and delivery of materials to site is a contractor risk.

Taking for present purposes the widely used standard FIDIC contract in an un-amended form [5], Clause 6.1 provides that the contractor is responsible for the engagement of staff and labour ("local or otherwise"), and for "their housing, feeding and transport". Again, another contractor risk.

Difficulties with personnel and material supply are thus likely to become apparent in the two principal pillars of risk found in construction projects; time (and in particular, delay), and money.

Delay has two potential consequences; first, the contractor's exposure to damages for delay (usually liquidated), and second, delay may cause the contractor additional cost by way of prolongation (usually, but not always, in the form of site overheads). The contactor's immediate remedy is to seek to obtain or be allowed more time to complete the works – provided the contract allows for an extension of time in the circumstances that have arisen.

Clause 8.4 (d) of FIDIC Conditions – assuming it survives un-amended – allows for extensions of time due to:

"Unforeseeable [6] shortages in the availability of personnel or Goods caused by …or governmental actions".

On the face of it, and subject also to compliance with Clause 20.1, the contractor may be able to bring itself within cl 8.4(d), provided it can establish that the boycott was unforeseeable (as defined), which in most cases will be the case, and results from 'governmental' action. In respect of the phrase 'governmental' action, does it have to be actions by the government of Qatar or some other government? A Qatari court called on to decide that issue may reach a different conclusion on that from that of (say) an international arbitral tribunal; we favour the broader view that governmental action is not restricted to action by the government of Qatar.

However, a contractor may have an entitlement to an extension of time, but it does not follow under the FIDIC form that the contractor also has an entitlement to more money.

Money to compensate the contractor is a separate and difficult area; what provision in the FIDIC contract entitles a contractor to seek more money as a consequence of the boycott? As already noted, the risk of supply of materials and personnel is a contractor risk, and so it is not immediately apparent why the contract should then allow the contractor more money to compensate for delays or additional costs resulting from the boycott.

Thus, the challenge for the contractor is to identify a contractual entitlement to additional sums (for example, in relation to increased transport costs); in this regard, the prospects for the contractor are not good. It should be borne in mind that Clause 20.1 relates to claim procedures and notices, and does not of itself provide a contractual entitlement to a monetary claim.

Many contracts provide relief for what is known as 'force majeure' (for contracts governed by English law, force majeure must be expressly agreed and incorporated in to the contract). In the FIDIC form, clause 19 (Force Majeure) addresses circumstances where either party is prevented from performing any of its obligations by reason of force majeure; clause 19.1 defines force majeure for the purposes of the contract. It is necessary: 

  • First, to bring the contractor within the criteria set out in Clause 19.1(a) – (d), being matters which go to control, avoidance etc of the circumstances, 
  • and then consider the non-exhaustive list of events set out in 19.1 (i) – (v) which would constitute force majeure.

Whilst on the facts a contractor may be able to come within clause 19.1(a) – (d), none of the events in 19.1 (i) – (v) appear applicable here, and on that basis the standard FIDIC contractual force majeure provisions are not available to the contractor.

That said, if it were possible to bring the circumstances within the FIDIC contractual definition of force majeure then, for the contractor, Clause 19.4 not only provides a delay remedy for force majeure, but also to a remedy for "Cost" [7] incurred by reason of force majeure. Close study of clause 19, and indeed clause 20 which links to it and must also be followed, is well worth the time, as a failure to follow the contract procedural requirements may well mean an otherwise valid claim is lost.

Ultimately, it may be that for either party the preferred option as a consequence of the force majeure is termination, and in that case clause 19.6 will be of interest.

The final contractual provision that may apply under the FIDIC form is termination pursuant to clause 19.7 (release from performance under the law). This is not limited to a force majeure event, but can apply when it becomes: 

  • impossible or unlawful for either or both parties to fulfil its or their obligations. (Note, it should be borne in mind that just because something may become more expensive or complicated or troublesome, does not necessarily mean that it is 'impossible' to perform); or 
  • which under the law governing the contract entitles the parties to be released from further performance.

The use of the phrase 'impossible' perhaps has its roots in what is now clause 13(1) of the UK's standard form "Infrastructure Conditions of Contract"; there the phrase is, "legally or physically impossible"; in the context of the FIDIC form, it is arguable that the boycott may ultimately mean that it is physically impossible for the contractor to fulfil its obligations. There is an interesting issue as to whether it would be 'unlawful' to perform the contract; it may not be unlawful under the law of Qatar, but for a contractor resident elsewhere the imposition of sanctions may make it unlawful to operate in Qatar. This may be another issue where a Qatari court may take a different view to that of an international arbitral tribunal.

The application of (say) the law of Qatar is beyond this article, but by way of limited example only, we flag up briefly some of the provisions in the Qatari Civil Code which may merit further consideration and advice on Qatari law: 

  • Article 183, which states that where there are reciprocal obligations, and one of the parties fails to perform his obligation, the other party may, upon formal notice to the defaulter, demand performance of the contract or its rescission, and may claim any damages caused by such failure to perform. 
  • Articles 187 and 188, which concern force majeure; they are not, however, without important qualifications on their operation. 
  • Article 256, which provides that where a person does not perform his obligations or is delayed in doing so, he shall compensate the innocent party, unless it is proven that the non-performance or the delay was for extraneous causes for which the defaulting party was not liable.

It is to be hoped that the issues giving rise to the boycott are resolved speedily. For a contractor working in the Arabian Gulf region, these events bring home the challenges to be faced here. The rewards can be high, but the challenges are constant and many.

As is so often the case in construction, when the contract is eventually taken out of the filing cabinet or bottom drawer of the desk from where it has remained after being signed, the contractor finds that it does not address the circumstances and risks that have developed. That said, it is frequently the case in this region that the contractor's scope for negotiation of the contract is limited (if that), and if negotiation of the contract were possible the circumstances of the boycott may well not have been foreseen and/or could not be allowed for.

As history has shown, geo-political risk is, in the Arabian Gulf region, something not to be lightly forgotten. 

  1. In addition, another 6 states, including Jordan, have downgraded diplomatic ties with Qatar.
  2. Qatari Ministry of Development Planning and Statistics, as at May 2017: http://www.mdps.gov.qa/en/statistics1/StatisticsSite/Pages/Population.aspx.
  3. Middle East Quarterly, Spring 2015, volume 22, number 2, by Onn Winckler: taken from Middle East Forum, http://www.meforum.org/5081/how-many-qataris.
  4. The contractor should also check its insurance policies and consult its brokers. For example, is there political risk cover?
  5. The version of FIDIC used for the purposes of this article is the first edition, 1999, Conditions of Contract for Construction, for building and engineering works designed by the Employer. The use of the various FIDIC standard forms in the Arabian Gulf region is widespread, but they are invariably heavily amended by the Employer.
  6. Unforeseeable is defined in clause 1.1.6.8 as, "…not reasonably foreseeable by an experienced contractor by the date for submission of the Tender."
  7. See definition in FIDIC clause 1.1.4.3.