With Qatar gearing up to enter another construction boom with its successful World Cup 2022 bid, construction parties may wish to look beyond the type of construction delivery and relationships which commonly govern projects in the region to those which are often successfully used elsewhere.  This article looks at some of the advantages and disadvantages of both the common methods of construction delivery in the region and those less commonly used.

The most familiar types of construction contracts (and ancillary contracts) in the region are based on the FIDIC and NEC suites of construction documents. The terms of these documents are, of course, often heavily amended to redress risk and as such, the comments below are in respect of their standard terms as unamended.

The Conditions of Contract for Works of Civil Engineering Construction Fourth Edition 1987 and its more recent edition, the Conditions of Contract for Construction of Building and Engineering Works First Edition 1999 (known as the "Red Book") are known as the "traditional" methods of construction delivery. The works are generally designed by a professional consultant appointed by the employer. The works are then supervised on the employer's behalf by either the design consultant or another advisor, such as a project manager, who will act as "semi-independent" certifier. The employer places less reliance on the contractor's skill or judgment in relation to the design of the works, the choice of materials or the suitability of materials for their purpose. In its unamended state, the risk allocation in the Red Book is more favourable to the employer. Further, the contractor is required to manage and maintain responsibility for subcontractors and the supply chain.

The advantages to the use of the Red Book are well known; the lump sum or remeasurement basis provides a good comparison basis for competitive tendering and there is, to some degree, cost certainty (provided the design is complete and is not altered significantly). In addition, the professional skill and care of the engineer / project manager is brought to bear on time, cost and quality.

The disadvantages to the use of the Red Book are considered to be the often strained and adversarial relationship between the employer-appointed consultant and contractor and, in financial terms, the time and cost required to be expended in tendering and the uncertainty of tender prices against the budget, particularly in respect of non-accepted bids.

In another of the FIDIC suite, the Design and Build ("D&B") option can be found in Conditions of Contract for Plant and Design Build for Works Designed by the Contractor First Edition 1999 (known as the "Yellow Book") and the Conditions of Contract for EPC/Turnkey Projects First Edition 1999 (known as the "Silver Book). As the name implies, the contractor has the responsibility both to design and construct the works. The employer provides "requirements" on which the contractor bases a proposed design. The role of the employer's consultant is reduced to certifying payments and acting as the employer's representative. Not only is this method generally used when the employer does not have access to adequate design expertise (as is often the case with industrial plant and mechanical engineering contracts) but it is also used when the employer wishes to transfer to the contractor the risk of the completed work being suitable for its required purpose.

The recognised benefits to the employer are the risk allocation of the contract which is favourable to employer, the lump sum or remeasurement price, cost certainty (provided the design is not significantly interfered with) and, theoretically, a reduced amount of client management time. Design by the contractor should also act to maximise value engineering and limit costs.

However, problems can be encountered where the application of the D&B contracts are not properly understood or where contractors are not generally geared up with the appropriate design teams for this method. Further, it is often felt that the employer "loses control of the design" thereby making variations more common.

The method of Partnering involves the participants in a construction project undertaking to carry out the project in an open, trusting and co-operative manner which is mutually beneficial to all parties. Forms of partnering contract include, the PPC International ACA Standard Form of Contract for Project Partnering ("PPC"), the NEC3 Engineering and Construction Contract, published by the Institution of Civil Engineers ("NEC3") and the Australian Alliancing form of contract.

There is no universally accepted approach to the application of partnering principles. The pricing basis is usually on an 'open book' cost-plus basis with an element of pain / gain share. This form of procurement is generally used in long-term arrangements rather than shorter term ones due to the benefits to be gained from the built-up of goodwill between the parties or where the risks involved are so great that contractors would price them at an amount that would make the project uneconomic.

The advantages to partnering are often considered to be the early involvement of the contractor and specialist sub-contractors which can result in cost savings through value engineering. As there is no requirement for either a detailed design at the time of tendering or award or a requirement for competitive tendering, this often results in a saving of time in the tendering and implementation process. The collaborative approach allows parties to focus on acting in the best interests of the project. The risk allocation is generally more favourable to the contractor than in other methods though there is less price certainty than in traditional methods and, thus, limited opportunity for benchmarking commercial offers. Further, partnering is still fairly innovative in the region and, therefore, requires greater levels of legal and contractual input at the outset resulting in costs and potential delays in the procurement process. The often "looser" contractual arrangement can also create legal uncertainty and, thus, success of the relationship is very much dependant on trust and confidence between individuals involved in the relationship.

Two-stage tendering is a procedure typically used to achieve an early appointment of a contractor to a lump-sum contract. Contracts are often bespoke and may be derived from a form of "preconstruction agreement" for the design development phase of the project. The Red Book, Yellow Book, Silver Book and NEC3 contract (as amended) are suitable for the construction phase of the project. In two-stage tendering, the contractor essentially becomes part of the design team. Commonly, a preferred contractor is appointed early in the design/planning process to contribute to the maximisation of cost-certainty and time-certainty for the employer. This is generally done through further negotiation with the preferred contractor once the detailed design and planning work has been completed and is then followed by the parties entering into, typically, a D&B contract.

Generally the two-stage tendering provides better cost information during the design stage, reduces the risk of bids substantially exceeding budgets and consequent delays during re-design. This method also ties in a contractor and its resources, therefore assisting in avoiding a 'no-bid' scenario. Other perceived advantages are that it increases buildability and value engineering and it allows a contractor to mobilise and commit resources to a project earlier than conventional methods, thus, saving time.

The disadvantages are the costs and time associated with negotiation of the preconstruction agreement and the costs of contractor's fees for the pre-bid stage. As there is currently no standard form preconstruction agreement, this sometimes requires significant negotiation and, thus, legal / contractual costs can be high.

The Guaranteed Maximum Price ("GMP") method of construction contract is a cost-type, or 'open book' contract where the contractor is compensated for the costs it incurs (plus a fixed fee), subject to a maximum price. The NEC3 contract works on this premise though projects are sometimes procured on the basis of a Red, Yellow or Silver book which has been converted into a GMP by substantial amendment to the contract terms. The contractor is responsible for cost overruns unless the maximum price has been increased in accordance with the variation mechanisms contained in the contract. Any savings resulting from under-expenditure can either be returned to the owner or shared by the owner and contractor rather than becoming extra profit for the contractor.

The main advantages to the GMP method is the maximum price certainty and, thus, the avoidance of excessive profit margins due to transparency of costs. Often there is a higher commitment from the contractor due to the guaranteed profit margin and it allows for an early start where design information is not complete or fully detailed.

The common disadvantages are that the concept of GMP is often considered to be illusory in the event of substantial variation by the employer. Further, the employer must rely on co-operation and openness by the contractor on his costs though the contractor may have little incentive to achieve savings.

The method of Target Price contracts relies on the price being dependent on the quantities used, but the profit margin of the contractor is increased if the total price remains below the agreed target price. Conversely, if the target price is exceeded, the contractor must bear a certain proportion of the additional cost itself. This can also often be combined with agreeing an upper limit for the total price such as in GMP contracts. Again the NEC3 contract is drafted to be able to adopt this method.

This method is often attractive to contractors and, thus, improves the employer's chance of getting a quality contractor getting involved. The operation of painshare/gainshare is considered to provide incentives to both parties to achieve the targets promoting a co-operative approach between the parties. However, the downside is that the employer must rely on the co-operation and openness by the contractor on his costs. Further, there is often a reduced certainty as to price. Generally Target Price contracts are difficult to negotiate and consequently this method is not in common use.

Under a Management Contract, the contractor is required to sub-let all of the building works and essentially manages construction of them for a fee. Pursuant to this method of procurement, of which the Joint Contracts Tribunal ("JCT") (United Kingdom) forms of contract are an example, the contractor directly appoints the subcontractors. An essential feature of management contracting is that the contractor is treated, to a large extent, as a provider of professional or managerial services rather than as a builder. He is engaged in advance of a start on site and is treated as a member of the developer's team of consultants.

The main advantages are that the technical and organisation skills of large, experienced contractors can be of benefit to the employer in the early design phase. In addition, the method is considered to be less adversarial than traditional contracting and, thus, promotes a co-operative relationship between the parties. Further there is reduced administration and internal resource requirements on the employer. However, this method adds an extra tier of cost to the overall project costs.

Under the Construction Management method of procurement, the works are split into a number of 'works packages'. The employer then engages a 'construction manager' ("CM") who advises the employer in relation to the 'works contractor' with whom the employer then enters into contracts for the completion of each of the packages. The CM is then responsible for the day-to-day organisation and co-ordination of each of the works packages, however contractual liability in relation to those contracts remains only between the employer and the individual works' contractors.

This method is generally used for large, highly complex projects, where the employer lacks either the man-power or the necessary experience to interact with the works contractors in a detailed manner. The employer, therefore, receives the benefit of CM's management experience and technical expertise though is able to retain control of the works. Generally there is reduced administration and internal resource requirements on the employer. However, as the employer is very dependant on the CM it is, therefore, exposed to risk of CM's failure to perform. Again as with Management Contracts above, there is an additional tier of cost to the overall project costs.

The Build, Operate, Transfer ("BOT") and Build, Own, Operate and Transfer ("BOOT") methods of construction delivery are becoming more familiar in the region. Examples of contracts which operate in this way are the Silver Book and the Conditions of Contract for Design Build and Operate Projects Pre-Press Seminar Edition 2007 (the "Gold Book"), though there may be some circumstances where the D&B procurement option (as above) could be extended to cover maintenance and operation of the facility for a substantial period.

Further, there may be some circumstances where the D&B procurement option could be extended so that the ownership of the facility/building is transferred to the contractor for the construction phase for a substantial period (i.e. 20 years). This option is more common in government projects in the UK and Australia and often can involve a requirement for the contractor to become involved in the financing risk of a project. Generally, the contractor has an increased incentive for adopting innovative solutions that provide greater value for money when considering the whole-life costs. However, the BOT and BOOT systems are not widely used and, therefore, not well understood in the region and as with the D&B contracting method above, contractors may not be generally geared up with appropriate design teams to implement the BOT/BOOT methods. Another concern to employers is that it loses control of design and operation of the building.

A Framework Agreement is an arrangement between an employer and one or more contractors which establishes the terms (in particular, terms concerning price and where appropriate, quantity) on which contracts will be awarded during the period of the framework agreement. Any of the above procurement methods can be incorporated within a framework agreement as the agreement setting up the framework is usually a bespoke form of agreement.

During the framework period, contracts are then awarded to the relevant contractor(s) without the requirement for renegotiation of the terms which have already been agreed.

The perceived benefits are the reduced administration for repetitive work, the ability to deliver best value and resources by making a long term commitment and insulation against market factors. The downside to framework agreements are that they can initially be difficult and time consuming to negotiate. Further, parties may factor in an uncertainty in price escalation into bids. Another possible concern is that giving a party long term security may encourage complacency in the performance of the works.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.