The Projects and Construction Review: Qatar
Qatar is a small peninsular country on the west side of the Gulf, with a population of about 2.66 million.2 The country is primarily composed of economic migrants – Qatari citizens make up only 11.6 per cent of the total population.3 Despite the covid-19 pandemic and the decline in international oil prices that has impacted global economies, Qatar was able to implement a strong policy response that mitigated the covid-19 effect on the economy. As a result, Qatar was able to withstand the covid-19 outbreak and the hardships it presented to the economy.
Qatar's economy is likely to continue to grow for the foreseeable future due to the end of the embargo on Qatar (which was put in place in 2017) by the Gulf Cooperation Council (GCC), Qatar's national vision for 2030 and the preparations for the FIFA World Cup in 2022.
As a result of Qatar's commitment to hosting the 2022 FIFA World Cup, its commitment to its National Vision 2030, and its ambition to host the Asian games in 2030, Qatar is undertaking an impressive array of infrastructure and industrial projects. The current Emir (in power since July 2013) is continuing to focus on the country's domestic welfare through implementing the Second National Development Strategy. Launched in March 2018, the Second National Development Strategy sets national priorities aimed at transforming Qatar into a knowledge-based economy through infrastructure investments, economic diversification, private sector development, natural resources management, human development, sustainable social development and sustainable environmental development.4 This Strategy is being driven by expectations of growth for the real economy through activities within the non-oil and gas sector, especially in the areas of merchandise and traded services.
There will be rationalisation of government spending to balance the public financial status of Qatar and it is hoped this will facilitate the creation of a wider space for private sector activities.5 These projects will be funded to some extent by government surpluses generated through Qatar's extensive liquefied natural gas (LNG), oil, gas and petrochemical exports. While Qatar's economic strength is highly impressive (Qatar has one of the highest gross domestic products (GDPs) per capita in the world),6 primarily because of having the third-largest natural gas reserves in the world, it is now planning on diversifying its economy to ensure its growth is sustained.
The year in review
The covid-19 pandemic has introduced a variety of economic struggles across the world. Qatar has faced a variety of challenges due to the pandemic, and needed to take swift and strong measures to deal with the pandemic and outbreak. Covid-19, coupled with a sharp fall in hydrocarbon revenues, caused a contraction of Qatar's economy.7 It is important to note, however, that Qatar was able to mitigate the economic impact of the covid-19 pandemic and sharp fall of hydrocarbon revenues through:
- a series of health and public measures;
- infrastructure-related spending ahead of the FIFA World Cup in 2022;
- continued expansion of LNG capacity; and
- a large and intensive fiscal and monetary response.8
Qatar has also re-shifted a portion of its economic focus towards its production of LNG. The breakthrough in GCC relations and the end of the embargo on Qatar are also expected to boost and strengthen Qatar's economy.
Qatar's construction sector up to 2022 will be primarily driven by public investment into the country's transport, commercial and construction sectors. There are a few key trends that Qatar is following to mitigate the hardships of covid-19 and the global economic recession:
- it has focused, and continues to focus, on developing its transport infrastructure;
- it has heavily invested in world-class sporting venues with the ambition of becoming a regional hub for world-class sporting events; and
- it has invested, and continues to invest, in residential and hospitality projects ahead of the FIFA World Cup 2022.
Qatar's economic strength, despite the difficulties and negative economic impacts of covid-19, remains strong. Further, and despite a fall in revenues, the production of hydrocarbon remains a significant definer of the country's economy. Qatar's decision in 2019 to scale up LNG production is among the major strides the energy sector has made, and it has positively benefited its economy. Qatar continues to aim to become the world's top transhipper and producer of LNG.9
While 2020 was a difficult economic year globally, Qatar was able to continue to hold onto its position as the number one global LNG exporter. 10 The discovery of North Field (a natural gas field) in 2013 has been a significant factor in Qatar's economic growth. North Field lies off the north-east shore of the Qatar peninsula and covers an area of more than 6,000 square kilometres, equivalent to about half the land area of the state of Qatar. It holds approximately 900 trillion cubic feet of natural gas (roughly 10 per cent of the world's known reserves), and the gas produced is processed to produce LNG, gas-to-liquids, natural gas liquids and other gas-related industries, in addition to pipeline gas for export.11 The first gas is expected to be produced by the end of 2023, which ties in with Qatar's National Vision 2030 for more sustainable development by 2030.12
On 8 February 2021, Qatar Gas awarded a US$13 billion contract for the main package of the first phase of its North Field expansion megaproject to a consortium of Japan's Chiyoda Corporation and France-based Technip Energies.13 This is considered to be the biggest single engineering, procurement and construction contract ever awarded in the region. The North Field expansion will increase Qatar's LNG production capacity from 77 million tonnes per annum (Mtpa) to 110Mtpa, which accounts for an LNG production capacity increase of approximately 43 per cent.14 Qatar expects to produce 126Mtpa of LNG by 2027, an increase of about 64 per cent.15 The expansion is considered one of the world's largest and one of the energy sector's most lucrative projects.16
The slowdown of hydrocarbon growth is attributable to the large expansion of extraction and the processing of these resources coming to an end. Part of the evolution of Qatar's hydrocarbon sector is Qatar's transfer from a phase of expansion into one of mature stability and lower growth. This is something that has been articulated in the Second National Development Strategy as Qatar aims to move to a less volatile and more sustainable economy. Although this is the long-term ambition and Qatar has reduced the rate of growth of its LNG exports in previous years, it also wants to ensure that revenue from these industries remains as high as possible so as to continue developing infrastructure for the World Cup in 2022 and to meet Qatar's National Vision by 2030.17
Covid-19 has affected Qatar's economy through its impact on global demand and price channels as well as its direct impact on Qatar's domestic health sector. Qatar has had the second-highest exposure rate in the GCC, with up to 120,000 of covid-19 positive cases reported by September 2020.18 Due to this, Qatar has implemented stringent containment measurements, and installed aggressive testing and tracing policies that, coupled with Qatar's advanced healthcare system, have led to one of the lowest death rates in the region.19
Qatar's economy shrank 3.9 per cent from the previous year in the final quarter of 2020. This followed a 4.5 per cent contraction in the previous quarter.20 2020 also saw a decrease of 3.3 per cent in the mining sector and 4.2 per cent decrease in the non-mining sector. Transportation and storage activity was down by 32.8 per cent, construction decreased by 5 per cent and the manufacturing sector retracted 2.4 per cent.21 In December, the International Monetary Fund (IMF) projected Qatar's GDP total contraction would be 2.5 per cent for 2020. These decreases and declines were expected due to covid-19 and its global impact. Despite these statistics, the IMF has projected a strong rebound of 2.7 per cent growth in GDP for 2021. The IMF praised Qatar's policy response to the economic downturns of covid-19. Qatar's policy response centred around a 75 billion Qatari riyal package to support the economy and Qatar Central Bank's zero per cent repo facility, which enabled ample liquidity in the banking system. Qatar Central Bank also lowered its policy rates to assist in supporting credit for the private sector.22
Further, Qatar Development Bank's credit guarantee scheme of 5 billion Qatari riyals assisted small and medium-sized enterprises and businesses and helped to protect jobs. Many businesses and households were able to delay and defer their loan repayments until the end of the year. They also benefited from rental and utility waivers. These policy decisions along with reducing custom tariffs on important critical supplies instilled economic confidence and helped alleviate the economic shocks of covid-19 on households and businesses.
In terms of the makeup of Qatar's economy, oil and gas extraction accounts for more than 50 per cent of GDP, 85 per cent of export earnings and 70 per cent of government revenues.23 Although much of the impetus and investment in infrastructure has been led by the central government, Qatar is seeking to attract more private investment in forthcoming years, as shown in the Second Qatar National Strategy.
Prior to the covid-19 pandemic and the decline of oil and gas prices, it was estimated that Qatar's national debt was going to fall gradually until 2023, from 58.3 per cent in 2019 down to 45.9 per cent in 2023.24 Qatar recorded a government debt equivalent to 48.4 per cent of the country's GDP in 2018. This was expected to reach 59 per cent by the end of 2020.25 However, due to covid-19, the global decline in prices of oil and gas, and the need to implement strong economic policies, Qatar's national debt in 2020 was 68.06 per cent of GDP. This is expected to decrease between 2020 and 2025 to reach 34 per cent of GDP by 2025.26
Until March 2020, the fiscal deficit had narrowed from 8 to 4 per cent of GDP. This was a significant decrease from 10 per cent in 2019.27 The fall had reflected government expenditure restraints in the face of slowing revenue growth.28 In a statement regarding Qatar's 2020 budget, the Finance Ministry confirmed that the budget allocated to major projects in Qatar increased by 1.9 per cent from the budget plan for 2019, to US$58 billion. The statement said the increase in budget '. . . highlights the country's commitment to timely complete the projects in leading sectors, including healthcare, education, and transportation, along with those related to the hosting of the FIFA World Cup in 2022'.29 The 2020 Qatar state budget allocates 22.6 billion Qatari riyals for healthcare, representing 11 per cent of the total expenditure, and 22.1 billion Qatari riyals for education, representing 10.5 per cent.30
The main public projects that the government is currently undertaking include:
- sports sector and 2022 FIFA World Cup stadiums: construction costs to amount to between US$8 billion and US$10 billion. In addition, up to US$200 billion is being spent on wider infrastructure required to host the 2022 World Cup. This is primarily focused on the completion of stadiums in Lusail, Qatar Foundation, Al Rayyan, Al Wakrah and Al Khor in addition to other sport and facility projects. Qatar completed the Khalifa International Stadium, its first stadium, in May 2017;
- Qatar Integrated Railway: a new US$40 billion railway and metro system, including urban metro, high-speed passenger railway and freight line;
- Ashghal expressway programme: the public works authority's US$20 billion project to develop a number of major motorways to relieve traffic congestion. These include the Al Bustan Highway, Orbital Expressway, Al Rayyan–Dukhan road and the Al Khor Coastal Road;
- Ashghal local roads and drainage programme: the US$14.6 billion project under which Ashghal will complete a network of roads, drainage, utilities and related infrastructure;
- Hamad International Airport expansion: the project budget is US$15.5 billion for an additional 400,000 square metre extension of the existing airport terminal;
- Lusail city development: a residential and commercial waterfront development valued at US$45 billion;
- Msheireb downtown Doha regeneration: a project valued at US$4.5 billion. Msheireb will be the first fully sustainable downtown regeneration project, conserving yet modernising the historical downtown of Doha in a mixed-use development;
- New Port: design and construction of food security facilities and warehouses valued at US$439 billion;
- Bul Hanine Oilfield redevelopment: the US$11 billion Qatar Petroleum project to boost crude oil production in Qatar through new facilities, which is expected to double the capacity of the Oilfield;
- Barzan gas development: the US$10.3 billion Ras Gas project to increase gas supply to the domestic market;
- North Field expansion: a US$35 billion project that will increase Qatar's LNG production by approximately 43 per cent;
- Al Kharasaah solar photovoltaic power project: a US$462.3 million project with a net capacity of 800 megawatts, which will reduce 26 million tonnes of CO2 during the project's lifetime; and
- Ashghal design, build, finance, operate, maintain and transfer tender: the public works authority's project to provide approximately 4,000 parking bays for vehicles.
Of these projects, Qatar Integrated Railway is perhaps the most significant in terms of its size both financially and from an engineering perspective. It is understood to be one of the largest civil engineering projects underway in the world: 21 of the world's largest tunnel boring machines on its underground metro development were used for the construction of the tunnels and stations of the initial phase of the Doha Metro, with 103 kilometres of the Railway constructed.31 The metro system will be built in two phases: the first will see the construction of three of the four lines (red, gold and green) and 37 stations.32 These metro lines opened to the public on 10 December 2019.33
The future phases involve an expansion of phase one, initially with the introduction of an additional line (blue) and the expansion of the existing ones, with more than 72 additional stations connecting the capital and the suburbs of Doha. The first expansion is due to be completed by 2026.34 The first phase of the Lusail Light Railway project was completed in November 2020.35
All these projects are being funded directly or indirectly by the government. Qatar is committed to addressing growing demand for public services, and in doing so it is seeking innovative ways in which to deliver infrastructure. Qatar has recently turned its attention towards the private sector as a potential partner in developing infrastructure. To help achieve the objectives of encouraging wider private sector participation in developing Qatar's economy, the government has adopted a public-private partnership (PPP) programme for public infrastructure projects.36 Implementing projects through a PPP is a continuation of Qatar's efforts to increase the participation of the private sector in development projects and to support projects connected to the Qatar National Vision 2030 and the FIFA World Cup 2022.37 While several PPP projects have already been launched in Qatar, studies show that having well-defined PPP policies and legal framework are crucial to the success of implementing PPP initiatives.38 It is possible that this move has been prompted by the enactment of new PPP legislation in Dubai in November 2015. Qatar has announced tenders for the development of eight new schools (by Ashghal) following the PPP model. Expressions of interest were submitted by potential sponsors in the first quarter of 2019.
The remainder of this chapter concentrates on forthcoming government-funded projects rather than project financing. The deadlines for delivery of many of the projects referred to above were set in December 2010, when Qatar succeeded in its bid to host the 2022 FIFA World Cup. Most of this infrastructure is promised and necessary for that event, some of which has already been delivered. Meeting the deadlines will be very challenging given the covid-19 pandemic and the global decline of prices in 2020. However, the projects relating to the health and education sectors are part of the Qatar National Strategy, which aims for a greater standard of living for its citizens while maintaining the importance of sustainability.
2020 was a difficult year for countries around the world. The covid-19 pandemic had an immense impact on global economies and health sectors. Qatar had to make difficult and challenging decisions to mitigate the impacts of covid-19 and at the same time ensure that it meets the necessary deadlines ahead of the 2022 FIFA World Cup. The restoration of diplomatic ties between Qatar, Saudi Arabia, the United Arab Emirates (UAE), Bahrain and Egypt ended an economic boycott, which is estimated to have an impact on the growth of the economy in 2021. The economy is also expected benefit from a recovery of Chinese and global LNG demand.39
Documents and transactional structures
i Transactional structures
Apart from conventional project finance in the oil, gas, independent water and power production and petrochemical sectors, there has been no private finance of infrastructure in Qatar – for example, in transport, wastewater or social infrastructure. Qatar is already using a form of PPP structure to deliver projects in its water and power sectors, and has recently expanded the PPP model to other sectors. A new PPP Law No. 21 of 2020 was published on 31 May 2020 to regulate the operation of PPPs in Qatar. This is a key move for the development of Qatar's infrastructure and will complement the already significant developments arising from Qatar's hosting of the FIFA World Cup in 2022. Under the Law, the PPP partnership forecasts envisage the Qatari construction market registering a compound annual growth rate of 9.6 per cent between 2019 and 2024. This would make Qatar one of the most robust construction markets in the world.40
A first step in the process of rolling out a range of PPP projects in Qatar is the government's PPP initiative in the education system, through which the government plans to build 45 new public schools at an estimated cost of US$4 billion to provide an additional 34,000 student places.41 The initiative has been divided into six investment packages, to be offered on a staggered basis. The private sector will finance, build and maintain the schools to be run by the government. Previous failed attempts to introduce private finance into rail, road, port and water projects in Saudi Arabia, Abu Dhabi and Jordan provide salutary reminders of the difficulties posed by the additional complexity of risk allocation and documentation (and other factors). Nevertheless, successful PPP projects in the GCC have demonstrated that this vehicle is a viable option. Following the completion of the Madinah Airport PPP project in Saudi Arabia in 2015 (one of the first of its type in Saudi Arabia) and with new PPP projects in the rest of the GCC being tendered almost every week, there is an abundance of precedent models for PPP structures in the region.42
To this end, build-operate-transfer procurement, or longer-term design-build-operate contracts, are under serious consideration in Qatar and may be used for limited categories of infrastructure, such as wastewater treatment plants. Although access to private capital is unlikely to be a driving factor, it could provide benefits through more efficient and economical procurement and operation. Up to now, almost all publicly funded procurement has been on the basis of the project owner appointing design consultants and issuing design to construction-only contractors. Design-build is the exception.
Ashghal recently awarded the first PPP package to a private real estate company for the design, build, finance and maintenance of eight public schools across Qatar for a 25-year term. The schools will be leased to the government after construction. This is the first phase of the government's plan to deliver 45 schools under its PPP development programme.
Documentation outside project financing is conventional and makes use of standard forms of construction contracts and consultant appointments. Qatar Petroleum has historically been the repository for project management expertise in Qatar. It has sometimes managed projects on behalf of other public bodies, such as the Qatar Foundation, and has used its own standard documents on those projects. For flagship buildings, for which architectural design and innovation are paramount (rather than functional performance), this has had mixed results. In 2009, Qatar Petroleum joined forces with the Qatar Foundation to establish a joint venture separate project management arm called Astad Project Management. Ashghal has its own standard documentation.
International Federation of Consulting Engineers (FIDIC) forms of contract are becoming more widely used. In April 2012, tender invitation documents were issued by the Qatar Rail Company to pre-qualified consortiums for the first four large tunnelling contracts and one railway station contract for the new Doha Metro. Four of these packages have already been awarded. Further invitations to tender have been sent out for the procurement of all relevant systems required to operate the Doha Metro, including rolling stock, signalling, telecommunications, power and track works. All these contracts will be based on a bespoke design-build form of contract that Qatar Rail has developed, based on the 1999 FIDIC Yellow Book.
In the past, the quality of contract documentation has frequently not been as high as might be expected given the size, complexity and value of the projects undertaken.
The NEC contract is not used; neither are UK JCT contracts.
iii Delivery methods and standard forms
In both the public and private sectors, attitudes to contracting are generally traditional, and long-term relationships and trust do not have a major role. There is some cynicism among international bidders as to the relative importance of quality and price in the evaluation of contractors' tenders.
Risk allocation and management
i Management of risks
The prevailing approach by owners tends to be to maximise risk transfer to contractors (and consultants). It is common for the risk of unforeseen ground conditions to be placed on contractors, and sometimes for change-in-law risk to be transferred to the contractor. Risk of increases in the price of materials is expected to be borne by contractors, as are delays caused by a scarcity of materials or delays in approval procedures and import procedures. An economic boom followed by a contraction of the regional construction market led to key material prices rising and falling dramatically, which caused considerable difficulties. With the anticipated boom in construction activity in Qatar, headline inflation was 2.7 per cent in 2016, compared with 1.7 per cent in 2015. Inflation slowed to 0.4 per cent throughout 2017 and remained subdued in 2018. A blockade from other GCC nations caused food prices to increase by 3.9 per cent from June 2017 to November 2017, resulting in Qatar having to import food from further afield. However, there was deflation in house prices by an average of 2.8 per cent owing to the increasing amount of accommodation becoming available in preparation for the World Cup.
In 2020, the inflation rate in Qatar was at -2.17 per cent. This is compared to an inflation rate of -0.55 per cent in 2019.43 Prices are expected to return to normal in 2021, and with a possible implementation of VAT, which was postponed due to the pandemic.44
Generally speaking, Qatar should be considered a high-risk environment for contractors. Those who enter into fixed-price lump-sum contracts are expected to stick to the fixed price, with a reluctance to recognise rights to compensation for delays caused by variations, late or inadequate design or information issues, late site access or late payment (the latter being common).
ii Limitation of liability
Generally, under Qatar law, parties enjoy freedom of contract. Express terms that exclude, cap or estimate damages will in most cases be binding and enforceable between the parties. Some exceptions to this include the following:
- Liability resulting from deceit or gross mistake, which, under Article 259 of Law No. 22 of 2004 (Civil Law), cannot be limited or excluded (except in the case of deceit or gross mistake on the part of subcontractors).
- It is not permissible to exclude liability arising in respect of future unjust acts (very broadly corresponding to acte illicite or tort).
- Decennial liability under Article 711 of the Civil Law is a joint guarantee imposed on a contractor and architect for 10 years against 'the total or partial collapse or fault in the buildings . . . or fixed constructions . . . and this guarantee shall cover whatever defects shall appear . . . which threaten its sturdiness and safety'. Liability under Article 711 cannot be excluded or limited.
- Under Article 171(2) of the Civil Law, a court or arbitral tribunal may, after weighing up the interests of the parties, reduce an 'exhausting' contractual obligation to 'a reasonable margin' if:
- 'public exceptional incidents' occur that could not have been expected; and
- the occurrence of them makes fulfilment of the contractual obligation 'though not impossible, exhausting to the debtor and threatens him with grave loss'. This provision may not be excluded by agreement.
- Under Article 266 of the Civil Law, if damages are estimated or liquidated, the agreed amount may not be due if the debtor can show that no loss has been suffered by the creditor; or the level of the agreed damages was 'exaggerated to a high degree'; or the obligation has been partially performed. In that case, the court or arbitral tribunal may reduce the amount of compensation due. Article 266 may not be excluded by agreement.
Liability for liquidated damages for delay is often capped at between 5 and 10 per cent of the contract price. Overall contractual liability is often capped, depending upon the nature of the work, at between 100 and 200 per cent of the contract price. Examples of liabilities that are commonly excluded from the agreed overall liability cap include indemnities relating to intellectual property rights, liabilities recovered by the party in breach under insurance policies, liability for death and personal injury, and sometimes property damage.
Liquidated damages are commonly applied for delay in completion of work under contracts for both contractors and consultants. It is becoming common for employers to seek to impose liquidated damages upon consultants for failing to mobilise and maintain key personnel.
Force majeure provisions are common in contracts and are generally enforceable. Unclear drafting often makes it difficult to establish with any certainty the effect of the clause in specific cases. Article 171 of the Civil Law is also relevant in relation to force majeure situations. Article 258 of the Civil Law allows the parties to agree that the debtor will be liable for the consequences of force majeure. Accordingly, if a contract term places this risk on a party, it will generally be enforceable, subject to Article 171.
iii Political risks
Despite the current geopolitical context in the GCC, progress on Qatar's current construction projects has continued. In mid-2017, Saudi Arabia, the UAE, Egypt and Bahrain elected to begin a blockade against Qatar. As a result of this, Qatar's existing alliances with trading partners (e.g., Turkey and Oman) have been strengthened. This boosted import levels to pre-blockade levels by August 2017.45 Despite the blockade, the economy grew by 1.6 per cent in 2017.46
Despite the inevitable challenges of the blockade, with Qatar's newly established trading partners and routes, Qatar remains in a strong position for the World Cup in 2022. That said, long-term project finance lenders have been more cautious. Qatar's long-term debt currently has a credit rating of AA3 from Moody's (a decline from a rating of AA2 in March 2016).47 Standard & Poor's has also maintained Qatar's AA-/A-1+ short-term foreign and local currency sovereign credit rating.48
On 4 January 2021, the Al Ula agreement ended the siege of Qatar. Following 43 months of Saudi Arabia, the UAE, Bahrain and Egypt blockading Qatar, full diplomatic ties will be restored. The reconciliation means a stronger, more powerful Gulf cooperation, which will in turn strengthen the wider business climate in the region. The Qatar Financial Center is seeking to attract US$25 billion of foreign direct investment (FDI) by 2022. The ambitious FDI target, along with the goal of creating 10,000 new jobs and more than 1,000 companies by 2022, will boost Qatar's economy.
Under Article 27 of the Qatari Constitution: 'Private property is inviolable; and no one shall be deprived of his property save by reason of public benefit and in the cases prescribed by the Law and in the manner stated therein provided that the person concerned is fairly compensated.'
The Qatari riyal is freely convertible and its value is pegged to a fixed rate of exchange with the US dollar. Corporate borrowings from banks licensed by the Qatar Central Bank are required to be guaranteed by the borrowing company's shareholders, except in the case of public companies or if the Qatar Central Bank specifically waives this requirement. If banks fund private development, lenders will also take traditional mortgage security or, if this is legally not possible, lenders will typically take an assignment of contractual rights. This happens, for example, when a borrower's legal interest in land that is being developed cannot be registered until the development is completed physically.
Bonds and insurance
Public sector bodies are governed by Law No. 24 of 2015 Regulating Tenders and Bids, as amended by Law No. 18 of 2018. This Law aims to streamline and standardise the public procurement process by introducing clear guidelines to be implemented by each tender committee.49
Under this Law, public sector bodies are required, inter alia, to obtain tender bonds from bidders, payable on demand. Project owners commonly require from contractors (and consequently, contractors commonly require from subcontractors) on-demand performance bonds of no more than 10 per cent of the contract price. Advance payments are common and are made against on-demand bank guarantees. Also commonly required as security for performance of construction contracts are retentions of up to 10 per cent and robust forms of parent company guarantees. Collateral warranties, whether from main contractors and consultants in favour of end users, or from subcontractors and sub-consultants, are not common in the Qatar market and are seen as onerous by contractors and consultants. There are signs, however, of increasing expectations for these.
Enforcement of security and bankruptcy proceedings
Insolvency is mainly dealt with in Law No. 27 of 2006 (Commercial Law), as amended by Law No. 7 of 2010: the relevant provisions can be found under Title Six entitled 'Bankruptcy and Preventive Conciliation'. The following is an indicative list of other provisions that govern insolvency and preferential claims:
- Law No. 22 of 2004: the Civil Law;
- Law No. 11 of 2015: the New Commercial Companies Law;
- Law No. 14 of 2004 (as amended by Decree-Law No. 22 of 2007, Law No. 6 of 2009; Law No. 3 of 2014; and Law No. 1 of 2015): the Labour Law; and
- Law No. 40 of 2002: the Customs Law.
Qatar's insolvency law provides that any contracts executed by a company prior to declaration of bankruptcy remain valid, unless they are contracts for personal services. This being the case, a contractual provision allowing an employer, in the event of the contractor's bankruptcy, to terminate the contract for contractor's default and complete the work itself will be valid.
It is not possible to provide an exhaustive list of regulations and legislation that would affect projects. The following is therefore a general and selective commentary on some matters likely to affect publicly funded building projects:
- all entities carrying on business in Qatar must be properly registered with the Ministry of Economy and Commerce. Foreign ownership of companies is regulated;
- planning permission from the municipality;
- preliminary approval by the relevant municipality to open a file;
- fire safety clearance from the General Directorate of Civil Defence (GDCD), formerly known as Civil Defence Department;
- clearance for road design and access from the Road Construction Department at the Ministry of Municipality and Environment (MME);
- clearance for power and water service delivery from Kahramaa, the Qatar general electricity and water corporation;
- clearance for telecommunications service delivery from Ooredoo (formerly QTel);
- clearance from the Building Permit Department of the MME;
- final building permit approval from the municipality;
- submitting a public announcement of the construction project at the municipality;
- fire safety approval from the GDCD;
- certificate of completion from the municipality; and
- registration of the building at the municipality.
Engineering-related activities in Qatar are regulated by Law No. 19 of 2005 (Engineering Law) and the executive regulations made under it. Engineering is widely defined and includes architecture, civil, electro-mechanical, mining, quantity surveying services and project management activities. Each person or firm performing engineering work in Qatar must obtain a licence from the Engineering Committee of the MME. The requirements to obtain a licence are extensive and usually take a long time to satisfy. In some circumstances, an exemption from the requirement to hold a licence may be granted to non-Qatari persons or organisations. An update to this law was passed in January 2014 (Law No. 2 of 2014), which amended some provisions of the Engineering Law regarding the practice of the engineering profession. These changes do not amend the substantive requirement for engineers to obtain a licence before practising in Qatar or indeed any changes to the registration process, but amend the length of validity of individual engineers' licences, and the make- up of the committee that approves the registration of engineers and engineering firms in Qatar.
i Environmental issues
The MME is the competent authorities for environmental protection matters. There are a number of environmental laws, of which the following are the most relevant:
- Law No. 30 of 2002: Law of Environment Protection and the executive regulations made under it. These provide that all plans for public or private development projects must be submitted to the authorities for approval;
- Law No. 4 of 1983 (as amended) concerning Exploitation and Protection of Aquatic Life in Qatar. This prohibits certain harmful discharges into internal waters without approval; and
- Law No. 8 of 2017 regulating Maritime Business in the Water of the State of Qatar provides that both Qatari and non-Qatari ships may not engage in maritime business in Qatari waters unless they have obtained a licence from the competent department in accordance with the provisions of this Law.
Environmental protection is gaining more importance in Qatar and the role of the environmental authorities is expanding, especially in the approval process of construction projects. Environmental impact assessments may be required for some projects.
Sustainable development is also gaining increasing attention. Several projects are aiming to meet sustainable standards, such as the central Doha regeneration project for Msheireb Properties. The importance of sustainability was further expressed within the National Development Strategy for 2018–2022. This sets out plans for more food to be produced domestically and for optimising hydrocarbon sources to maximise their economic and strategic value to the nation. These are coupled with an intention to be more environmentally friendly with a smaller carbon footprint. The plan also includes increasing renewable energy sources, for example, through the issuing of Decree No. 19 of 2018 for Qatar General Electricity and Water Corporation to allocate land for a solar power plant.
ii Labour laws
An employer must obtain permission from the Recruitment Committee at the Labour Department of the Ministry of Administrative Development, Labour and Social Affairs (MADLSA) to employ foreign employees. Once obtained, the employer must apply for a work visa so that the employee may enter Qatar. Within seven days of the employee's arrival in Qatar, the residence permit procedure must be commenced so that an employee may work and reside in Qatar. The permit will have to be renewed periodically during the course of the employment in Qatar.
The vast majority of employees in Qatar, particularly those engaged in connection with the construction industry, are subject to the Labour Law. One of the few exceptions is employees of government entities, who are instead subject to Law No. 15 of 2016 (Human Resources Law).
Although not strictly a labour law, Law No. 21 of 2015 (essentially, the Residency Law) is also relevant in relation to employee residency arrangements. This applies to all non-Qatari nationals working and residing in Qatar, aside from those working under the auspices of the Qatar Financial Centre (see Section X). Law No. 21 of 2015 came into force one year after being published in the Official Gazette on 27 October 2015, replacing the existing sponsorship system in favour of a contract-based one that gives expatriates more freedom to change jobs in Qatar. Previously, if an employee was unable to get a no-objection certificate from his or her sponsor while attempting a job transfer, he or she would be banned from the country for a period of two years before being able to come back in search of new employment. Articles 20 and 22 of the Residency Law allow employees who have completed their contracts to seek new employment and move to another sponsor without the approval of their previous recruiter. They are also able to change jobs before their contract finishes with the approval of their recruiter, the Ministry of Interior (MOI) and the MADLSA. However, employees with open-ended contracts are able to seek approval for a change of job after five years of employment. Nonetheless, if a company ceases to exist, the recruiter dies or the recruiter and the employee are involved in a legal battle with each other, the employee is able to move to another recruiter after receiving permission from the MOI and the MADLSA. The existing exit permit system has been replaced, allowing expatriates to freely leave the country without obtaining their employer's permission. Additionally, the penalty for withholding employees' passports will be increased from 10,000 to 25,000 Qatari riyals.
Law No. 13 of 2017 amends certain provisions of the Labour Law and Law No. 13 of 1990 (Civil and Commercial Procedures Law). The 2017 Law sets out a specific procedure for an employee to appeal a penalty imposed by an employer before the Committee for the Settlement of Labour Disputes. Disputes between employee and employer are also regulated under the Law.
iii Health and safety
Part 10 of the Labour Law imposes a range of health and safety-related obligations upon employers.
Ppp and other public procurement methods
There has not been any trend towards PPP procurement as generally understood in Europe and the United States. Consideration is currently being given to the possible use of some kind of PPP-type arrangements. The most recent report on the subject was prepared for the Qatar Ministry of Economy and Finance and the Qatar Financial Centre Authority in February 2012.
The Cabinet recently approved two new laws to govern relationships between the private and public sectors. The newly approved draft PPP law includes allocation of land through rent or use licence, for development by the private sector through build-transfer-operate, build-own-operate-transfer, build-operate-transfer and operations and maintenance, among other provisions. It remains to be seen whether this will prompt an upswing in the take up of PPP arrangements, following the school PPP announced by Ashghal. In view of the very pressing deadlines for infrastructure delivery, the additional complexity of PPP arrangements and frequently prolonged negotiations prior to contract award are likely to dampen widespread use of PPP in the near future.
ii Public procurement
The principal law regulating public procurement is the Public Tenders Law (see Section V), which applies to all ministries and other government bodies and to public institutions and corporations, except as otherwise provided in the law establishing them. It does not apply to the armed forces or police in the case of confidential procurements; nor does it apply to Qatar Petroleum.
The legislation establishing publicly funded bodies may apply special procurement procedures to those bodies in place of, or in addition to, the Public Tenders Law. The laws establishing such bodies must be looked at to determine which procurement procedures apply.
Law No. 24 of 2015, as amended by Law No. 18 of 2018 (which took effect on 13 June 2016), regulates public tenders and auctions, and seeks to revamp and modernise the government contracting process by introducing competition as a method of procurement for technical works, including drawing and design. A two-stage tendering process has been instituted to assist bidders by defining the technical requirements and the scope of work. This should help secure the appointment of the right contractor, agreed costs and an appropriate transfer of risk. The amended law requires relevant government employees to declare any potential conflicts of interest, direct or indirect, in any government contract, to bring Qatar in line with international best practice. A dispute resolution committee hears all pre-contract disputes. This is headed by a senior judge and provides a specialised forum to resolve disputes in relation to government contracts. The amended law applies to most government and quasi-government contracts of Qatar. It can also extend to apply to private entities in receipt of state funding. The amended law is subject to specific by-laws, which have not yet been made available by the Ministry of Finance; as a result, it is difficult to predict how it will work in practice.
The Central Tenders Committee deals with tenders over 5 million riyals in value and is attached to the Ministry of Economy and Finance. As of 13 June 2016, the Local Tenders Committee processes all public tenders valued at 5 million riyals or less. The procedures are prescriptive and detailed.
Foreign investment and cross-border issues
Regulation of foreign ownership of Qatari companies has been mentioned, but the detail is beyond the scope of this chapter.
Removal of profits and investment
There are currently no exchange control restrictions in Qatar and, subject to payment of taxes, there are no restrictions on remittances of investment returns. Under Law No. 21 of 2009 (Income Tax Law), a withholding tax of 7 per cent was payable on interest payments made to non-residents. This has been removed by Law No. 24 of 2018 (New Tax Law). Under the New Tax Law, a single withholding tax rate of 5 per cent now applies to payments made to non-residents for royalties and services that are performed in Qatar without a permanent establishment.50
i Special jurisdiction
There are no specific courts or tribunals in Qatar dealing with project finance transactions or construction contracts. Disputes will be heard in the Qatari courts unless referred to arbitration or unless the Qatar Financial Centre (QFC) laws apply.
In 2005, the QFC was established under Law No. 7 of 2005, as amended (Qatar Financial Centre Law). The QFC perhaps can best be considered as a separate jurisdiction within Qatar for businesses established in the QFC (i.e., pursuant to the specific QFC laws and regulations). To date, the QFC has had little impact on the project finance or construction sectors, as its objectives are to promote the establishment and conduct of international banking, financial services, insurance and associated businesses. The QFC has its own court, the Qatar International Court and Dispute Resolution Centre (QIC-DRC), formerly the Civil and Commercial Court of the Qatar Financial Centre. The court is staffed (on a visiting basis) by a number of very distinguished judges from various civil and common law jurisdictions. The Rt Hon the Lord Thomas, a former Lord Chief Justice of England and Wales, is the current President of the QIC-DRC.
Since its establishment in 2009, relatively few cases have been heard by the QIC-DRC. However, recently there has been a reported increase in the number of cases coming before the court. The QIC-DRC is currently promoting the use of its services, particularly for alternative dispute resolution (ADR), in the construction sector through a construction dispute resolution system known as Q-Construct, which is akin to construction adjudication in certain common law countries. So far, the public bodies now embarking on procurements have yet to show an appetite to provide in their contracts for the use of services such as Q-Construct or dispute adjudication boards.
The language of the QIC-DRC may be Arabic or English and rights of audience are governed by Article 29 of the QFC Civil and Commercial Court Regulations and Procedural Rules (December 2010). The court is extremely well-equipped with modern facilities and hearings can take place by video link. It recently conducted a two-day hearing using its video conferencing technology in response to the covid-19 lockdown.
ii Arbitration and ADR
Construction contracts, particularly in the private sector, commonly provide for disputes to be resolved by arbitration. In the public sector and the oil and gas sector, some employers are willing to agree arbitration provisions, but others, such as Ashghal, are more traditional and their standard terms refer disputes to the Qatari courts. Traditionally the courts and practising lawyers have been circumspect in their view of arbitration. However, Law No. 2 of 2017 (Arbitration Law) is a significant update to Qatar's arbitration law. Historically, lawyers have tended to regard arbitration as merely adding a tier to the bottom of the court process. However, through the introduction of the Arbitration Law, it is hoped that any lingering doubts about Qatar's approach to enforcement of arbitral awards have been removed, making arbitration a credible alternative to the local courts.
Some of the developments in the Arbitration Law include the following:
- arbitration agreements may be made electronically;
- authority for a public entity to arbitrate must come from the Prime Minister;
- the Ministry of Justice is to maintain a list of approved people who can act as arbitrators; and
- qualifications must be approved if parties wish to nominate an arbitrator who is not on the Ministry's list.
Public sector employers who accept arbitration provisions require Qatar to be the seat of the arbitration. This is also the norm (although not universal) in arbitration agreements between private sector bodies (e.g., between a main contractor and a subcontractor).
The International Chamber of Commerce (ICC) is the most commonly accepted international arbitration institution. The London Court of International Arbitration is occasionally an agreed choice. The Qatar International Centre for Conciliation and Arbitration operates under the auspices of the Qatar Chamber of Commerce and Industry and publishes its own rules for mediation and arbitration. The QIC-DRC also has its own procedural regulations for arbitration,51 which apply when the QFC is the seat of arbitration.
Apart from arbitration, the use of formal ADR is not widespread. A small number of projects have adopted FIDIC dispute adjudication boards, but others using FIDIC contracts have deleted these provisions. As noted in Section X.i, the QIC-DRC is promoting its services for ADR in the construction sector through its proposed Q-Construct scheme.
When construction disputes are referred to the courts, they are almost invariably referred by the judge to a court-appointed expert, who will investigate the facts and merits of the case and report to the judge. All proceedings in the Qatari courts are in Arabic and all documents referred to must be translated into Arabic. It would be difficult to predict with confidence the outcome of a large and complex construction dispute, heavy on documentation, as to the court's judgment and the time and costs involved.
Qatar became a signatory to the New York Convention in 2003. There have been few, if any, applications since then to enforce foreign awards. A small number of foreign awards had been enforced on other grounds prior to Qatar's accession to the Convention. However, a decision in 2014 has indicated a 'positive step towards a full recognition and enforcement of foreign awards' in the Qatari courts.52 In this context, at a hearing in early April 2014, the Qatari Supreme Court (the highest jurisdiction of Qatar) overturned a judgment of the court of appeal that set aside an ICC arbitral award as being in violation of Qatari public policy.
Outlook and conclusions
As Qatar continues to prepare for the 2022 FIFA World Cup, it is undertaking an extraordinary and ambitious programme of infrastructure development, which is almost entirely publicly funded rather than project-financed. In the oil, gas, petrochemical and independent water and power plant sectors, there have been successful project financings and further development in these sectors could be expected to be project-financed. When Qatar agreed to host the 2022 World Cup, it signed up to fixed deadlines for delivery of a number of major infrastructure projects. Those time limits were ambitious even in December 2010 when Qatar won the bid; since then, there has been limited physical progress on a number of key projects. The coming years will be challenging regarding the built environment of Qatar and its transport systems, and a challenging time for contractors, developers, designers, planners and logisticians. The anticipation of great opportunities has attracted keen interest from international contractors. Ensuring contracts have a successful financial outcome for those participants will, as ever, need skill and patience to navigate the risks involved.
1 Andrew Jones and Zaher Nammour are partners, Paul Prescott is a senior associate and Gabriel Olufemi is an associate at Dentons & Co.
2 Ministry of Development Planning and Statistics, monthly figures on population, February 2020.
3 CIA World Factbook, updated 17 March 2020.
4 'New plan focuses on self-sufficiency, sustainable growth', Gulf Times, 14 March 2018 (https://www.gulf-times.com/story/585157/New-plan-focuses-on-self-sufficiency-sustainable-growth).
15 See 'Update 4-Qatar plans to boost LNG production to 126 mln T by 2027', Reuters, 25 November 2019 (https://www.reuters.com/article/qatar-energy-qp/update-3-qatar-plans-to-boost-lng-production-to-126-mln-t-by-2027-idUSL8N2851HI).
17 See 'Qatar Economic Insight', QNB report dated December 2017 (access via https://www.qnb.com/cs/Satellite/QNBQatar/en_QA/InvestorReln/Publications/enEconomicInsightReports).
36 Tenders Law 2015 & 2018 + Regulations 2016.
42 'PPP laws in the Gulf – on the agenda', June 2016 publication, Norton Rose Fulbright (https://www.nortonrosefulbright.com/en/knowledge/publications/db04cc14/ppp-laws-in-the-gulf---on-the-agenda).
45 'Qatar Economic Insight', QNB report dated December 2017 (access via https://www.qnb.com/cs/Satellite/QNBQatar/en_QA/InvestorReln/Publications/enEconomicInsightReports).
46 'Qatar Economic Insight', QNB report dated September 2018 (access via https://www.qnb.com/cs/Satellite/QNBQatar/en_QA/InvestorReln/Publications/enEconomicInsightReports).
50 Ernst & Young, Global Tax Alert, 17 January 2019 (https://www.ey.com/gl/en/services/tax/international-tax/alert--qatar-enacts-new-income-tax-law).
51 Regulation No. 8 of 2005.
52 Kluwer arbitration log, 'A Halftone Application of the New York Convention by the Qatari Supreme Court', by Minas Khatchadourian, posted 14 April 2014.