Construction and projects in Qatar: overview

The FIFA 2022 World Cup™ (World Cup) and the Qatar National Vision 2030 (QNV) is dominating activity in the construction and project sector in Qatar. Successful delivery of the World Cup will require the Qatari government to complete the infrastructure development promised to FIFA. This will also help Qatar to meet the targets it has set itself in the QNV. Creating a world-class infrastructure in Qatar will ensure the continued success of the country's powerhouse economy. The abdication in 2013 of Sheikh Hamad bin Khalifa Al Thani as Emir in favour of his son, Sheikh Tamim bin Hamad bin Khalifa Al Thani (Sheikh Tamim) is unlikely to have any effect on these aims. This is because Sheikh Tamim was a key figure in the World Cup bid and launched the QNV.

The main trends in the construction sector remain to:

The impending World Cup in Qatar is generating lots of attention, but the delivery of the QNV may be more significant in the long run. The QNV has four pillars and two relate to human and social development. This is reflected in significant museum and library projects, and the continuing development of Education City and Qatar University. A few of the high-profile projects underway or announced are as follows:

Procurement arrangements tend to vary according to the size of the project rather than its parties. Most small and medium to large projects tend to be:

On very large and major projects, other arrangements are considered. For example, Hamad International Airport (HIA) has been procured on a construction management basis. This means that the Steering Committee for the New Doha International Airport, (now referred to as HIA) as the client, directly engages a construction manager. The large number of contractors and consultants carrying out the works and design packages are then each engaged separately under a direct contract with the client.

Clients are often single entity government departments or public sector related entities (including subsidiary entities and project-specific companies established for the procurement of the project). For smaller projects, local contractors and consultants have the technical and volume capacity to transact alone as single legal entities.

For mid-size and larger projects, where international capacity and expertise are required, compliance with Law No (13) of 2000 for the Regulation of Foreign Capital Investment in Economic Activity generally (subject to a few specific exceptions) has the effect of requiring non-Qatari contractors and consultants to form partnerships with Qatari partners if they wish to be free to bid for work generally. Vehicles for contracting parties are therefore usually joint ventures, which can be either incorporated to become a single company (LLC), or based on a contractual joint venture agreement.

Where the public sector engages contractors who have formed a contractual joint venture arrangement, "joint and several" liability will be required from the joint venture partners to the public sector entity. Additionally, enquiries may be made by the public sector client into the contractual arrangements and risk-sharing between the joint venture partners. This can include full disclosure of (and sometimes the client's approval of) the joint venture agreement. Parent company guarantees will usually be required from all joint venture partners that are subsidiaries.

Major oil and gas, petrochemical and integrated water and power projects have been project financed, with the first closings having been achieved many years ago. Outside of those sectors, most of the large development projects in Qatar are government driven and government funded, and this is the most common form of financing.

The government maintains a healthy budget surplus of US$7.6 billion. It has allocated US$65 billion for development projects between 2011 and 2016, so has little need for private finance initiative (PFI) or public private partnership (PPP) funding vehicles.

Bank debt and foreign investment funds have been a source of funding for some private sector property development. Where private sector project finance is used in Qatar, it comes from a variety of sources. Both international and local banks have been involved in financing projects in Qatar, with both conventional and Islamic financing structures being used.

Corporate borrowings from banks licensed by the Qatar Central Bank (there are 18 at the time of writing) must be guaranteed by the borrowing company's shareholders, except:

Circulars can also require that credit facilities to the construction sector are secured by a pledge of receivables in favour of the lending bank.

In cases where banks fund private development, lenders will also take traditional mortgage security or, where this is not legally possible, will typically take an assignment of contractual rights. For example, this can happen where the borrower's legal interest in the land being developed is not registrable until the development has been physically completed.

Public sector entities governed by Law No (26) of 2005 establishing a Law Organizing Tenders and Auctions (Public Tender Law) must, amongst other things, obtain tender bonds from bidders. Clients often require an on-demand performance bond (usually amounting to 10% of the contract price) from the successful bidder. Advance payments are common, and are made against on-demand bank guarantees. Retentions of up to 10% of the contract price and robust forms of parent company guarantees are also commonly required as performance security.

Collateral warranties, whether from main contractors and consultants in favour of third parties, or from sub-contractors and sub-consultants in favour of the client, were traditionally uncommon in the Qatar market and are seen as onerous by contractors and consultants. However, on public works projects (for example, Qatar Rail and the Public Works Authority (Ashghal) they are often required to be entered into by sub-contractors and sub-consultants.

Small and private sector projects have no universal standard form of contract, and often use untailored agreements, which may have been "carried forwards" from previous projects. The quality of contract documentation is often poor. Older versions of standard form contracts issued by Qatar Petroleum are sometimes amended and used.

Medium to large public works projects procured by Qatar's public works authority (Ashghal) tend to use Ashghal's own bespoke forms, which were revised and reissued at the end of 2010.

Public sector projects (other than those procured by Ashghal) often use their own bespoke forms of contract which have been prepared either by in-house lawyers or external law firms. These may be amended versions of the International Federation of Consulting Engineers (FIDIC) Yellow, Silver or Red Book contracts, but other forms are also used. On major projects, bespoke and "project specific" forms are prepared.

On public sector projects of all sizes, contract terms with the client are rarely negotiable for main contractors and consultants. Sub-contractors and sub-consultants will typically be required to accept "back-to-back" terms, including "pay-when-paid" clauses.

Contracts in Qatar commonly provide for a high level of risk transfer to contractors and consultants. However, the full extent of risk transfer is often unclear due to the poor drafting of contract amendments or particular conditions. The key categories of risk are:

Contractors and consultants can sometimes help to mitigate these risks by preparing and incorporating a detailed programme into the contract, showing not only the time for each phase of works or services, but the time allowed in the programme for:

Similarly, attempts can be made to put some "flesh on the bones" of skeleton "employer's requirements" documents to help clarify the detail and expectations of the scope of work. Meticulous contract administration and record keeping will, as always, greatly assist in managing risk.

Generally, parties enjoy freedom of contract under Qatar law. Express terms which either exclude, cap or pre-estimate damages will in most cases be binding and enforceable between the parties. Some exceptions include:

In those instances a judge (or arbitrator) can reduce the compensation due. Any contractual term attempting to exclude this principle will be void.

However, the converse does not apply for a creditor of liquidated damages. Article (267) of the Civil Law provides that if the creditor's loss is greater than the pre-agreed damages, he cannot claim a higher amount unless he can show the loss arises as a result of the debtor's "deceit or gross mistake".

Liability for liquidated damages for delay is often capped at between 5% to 10% of the contract price. Overall contractual liability is often capped, depending on the nature of the work, between 100% to 200% of the contract price. The following liabilities or indemnities are sometimes outside the overall contractual liability cap:

Certain liabilities cannot be contractually capped (see Question 8).

Liquidated damages are commonly applied to any delay in completing work under contracts for both contractors and consultants. Increasingly we are seeing liquidated damages being applied to "mobilisation" and "key personnel" clauses for failing to either mobilise on time, or supply and maintain the agreed named personnel.

Force majeure provisions are common in contracts and are generally enforceable. However, unclear drafting often makes it difficult to establish with any certainty the extent to which the clause is applicable.

Article (258) of the Civil Law allows the parties to contractually agree that the debtor (that is, the contractor or consultant) will be liable for the consequences of force majeure. Therefore, if a contract term transfers this risk, it will be generally binding and enforceable.

However, under Article (171)(2) of the Civil Law, a debtor can apply to the court to have his contractual obligation reduced to a "reasonable margin" in certain "force majeure type" scenarios (see Question 8). Although relatively untested, "public exceptional incidents" can have less impact than events typically covered by force majeure clauses. This specific principle in Article (171)(2) can be applied notwithstanding the general principle of freedom of contract or Article (258) of the Civil Law, and will prevail over any contractual terms to the contrary.

With particular regard to the construction industry, Article (700) of the Civil Law provides that contractors cannot avoid or vary their contractual obligations and agreed terms as a result of price increases in the market (for example, raw materials, labour and so on) which were either unforeseeable or were outside his control. However, this provision is also subject to Article (171)(2) of the Civil Law.

"Time" risks are specifically considered in Question 7. Provisions for extensions of time do not always identify the specific events or circumstances under which a contractor or consultant is entitled to an extension of time so that they can avoid paying damages for the delay. Contract provisions typically refer to circumstances which "arise through no fault of the contractor", which are then subject to the client's or the engineer's discretion in allowing an extension of time to be granted. The scenario which commonly arises in practice, where multiple factors and parties actually cause the delay, is rarely provided for in contracts. However, the civil law principle of equitable allocation of liability will apply in most cases in dispute. Also, there are some provisions in Qatar law regarding the application of liquidated damages, which may assist contractors/consultants in this respect (see Question 8).

Historically, provisions for material variations have been quite vague, although recent public works contracts now contain more detailed procedures for this. These often give the client or engineer substantial discretion regarding price, additional time and so on. Disagreements regarding these provisions are sometimes covered by escalation-type dispute resolution procedures (that is, procedures with various increasing management levels to which the matter can be referred for "amicable resolution" before resorting to the courts or arbitration). These are typically subject to tight time-bar provisions for challenging the outcome at each stage.

Public sector work is often tendered on a basis that requires full compliance. Qualified bids may in some cases be acceptable if specified in the request for proposals. However, the qualifications (whether legal or technical) must usually be clearly specified and priced as part of the tender submission. Exceptionally, some negotiation can sometimes take place with public sector entities, particularly where the required services are of a universal nature. This may be the case where there is very little competition in the international market (for example, professional services agreements for iconic architecture, innovative engineering and other design solutions). Greater negotiation takes place for private commercial projects (see Question 14).

On public sector projects, selection is usually by tender in accordance with the Public Tender Law (see Question 5). On private sector commercial projects, selection and appointment is commonly the result of:

In these cases, terms and conditions are more negotiable than on public sector projects.

On public sector projects of all sizes, contract terms with the client are rarely negotiable for consultants (see Question 6). The terms of consultants' appointments are often far more onerous than a consultant might be used to in the UK or Europe. A high degree of risk is generally passed down to consultants and partnering is almost unheard of in Qatar outside of the oil and gas sector.

Limited negotiation can sometimes take place with public sector entities (see Question 13). This usually only happens where there is very little competition in the international market (for example, professional services agreements for iconic architecture or innovative engineering). Slightly wider negotiation may take place for private commercial projects, but by British standards, negotiation is limited and focuses heavily on price.

Where not prohibited by law (for example, for decennial liability in Article 711 of the Civil Law (see Question 8)), liability is sometimes capped at a multiple (100 to 200%) of the consultant's fee. Consultants will be expected to carry specified levels of professional indemnity insurance. Consultants may also be required to sign up to 'fitness for purpose' type obligations. Consultants should seek advice in each case regarding the interpretation that Qatar law would apply to the exact proposed wording. Depending on the wording used, the obligations are often not interpreted in Qatar law as onerously as would be the case in English law. This is particularly the case if the dispute resolution forum is the Qatar Courts, where the wording will be translated into Arabic before being considered. Consultants will also be asked to provide on-demand bonds, parent company guarantees (if they have parent companies) and, increasingly for major projects, collateral warranties.

Payment is usually in arrears subject to certification by the client or engineer. Payments are commonly "milestone" based. Advance payments for contractors and consultants are common though these are always subject to an on-demand bank guarantee. Problems can arise with provisions in the guarantees and in the associated contracts concerning how the outstanding balance of the guarantee reduces as the advance payment is repaid, particularly where that reduction relies on some action by the employer. These provisions should be checked carefully.

Payments to contractors and consultants are usually made directly into a bank account, which must be in Qatar.

Although there are a few provisions in the law that may assist with securing payment, they are vague and difficult to enforce in the courts. These cannot therefore be relied upon with certainty. Long delays in payment are common on most types of projects.

Public sector entities often rely on cash-flow from the Ministry of Economy and Finance (MoEF) and contracts sometimes contain provisions making payment dependent upon receipt of the client entity's cash-flow from the MoEF. Failure by the client to pay invoices (even if certified) will sometimes expressly prohibit the contractor or consultant from suspending work. Due to the general concept of freedom of contract, clear express terms of this nature, even if potentially onerous on the contractor or consultant, are likely to be binding and enforceable.

In public sector contracts, interest for late payment is sometimes provided for. However, it is often expressly provided in the agreement that interest is not payable where the reason for late payment is a delay in funding from the MoEF to the client.

Sub-contracts and sub-consultancy agreements are typically wholly "back-to-back" with the main agreement, with full risk pass-down and "pay-when-paid" clauses.

Sub-contractors and sub-consultants must usually comply with (and not put the main contractor/consultant in breach of) the main agreement. Indemnities to the main contractor/consultant are sometimes incorporated in connection with this obligation.

Sub-contract agreements are more frequently negotiated than main agreements, particularly in terms of:

All entities carrying on business in Qatar must be properly registered with the Ministry of Business and Trade.

Engineering related activities in Qatar are governed by Law No. (19) of 2005 the Engineering Law. Each individual or each firm performing engineering works in Qatar must obtain a licence from the Engineering Committee of the Urban Planning and Building Development General Authority (Engineering Committee). The requirements for obtaining an engineering licence are extensive and include:

Engineering consultancy works are widely defined as works involving the following matters:

A firm can register as an International Engineering Consultancy or Local Engineering Consultancy.

Exceptionally, exemptions are available to the above engineering licensing requirements. International engineering offices may be exempt if they are contracted to provide certain distinct technical specialities that either:

A further possible exemption may apply under Article (3) of Law No (13) of 2000 (Foreign Investment Law). This allows a branch of a foreign company to be registered in Qatar if it has been awarded a contract in Qatar to render a service of public benefit. If the entity is deemed to be an engineering consultant, the Engineering Committee can grant an exemption from acquiring a full licence.

Drawings submitted for approval by municipal authorities must be signed by local registered engineering practices.

The required licences and consents will vary according to the nature of the project, its location, and so on. Below is an indicative, but non-exhaustive, list of permits that may be required:

An engineering office is required to have certain insurances, particularly professional indemnity insurance, in order to be registered as an engineering office in Qatar. Vehicles must also be insured.

Recent insurance laws issued within Law No. (13) of 2012 (Law of the Qatar Central Bank and the Regulation of Financial Markets) provide new and more detailed regulation regarding insurance. These new laws do not change the types or scope of compulsory insurance. However if insurance is taken-out in respect of properties within Qatar and associated liabilities, it must be taken out with one of the QCB regulated insurance companies and cannot be taken out with an "out-of-state" insurance company.

Other insurances which a commercially prudent consultant or contractor will carry, and which are commonly required in contracts, are as follows:

Clients now increasingly ask to be a "named insured" on project-specific policies.

Qatari nationals are to be given priority over non-Qatari nationals when an employer is seeking to fill a role. This practice is known as "Qatarisation". There are no particular requirements for hiring a Qatari national.

As a result of the practice of Qatarisation, an employer must obtain permission from the recruitment committee at the labour department of the Ministry of Labour and Social Affairs before employing foreign employees. Once obtained, the employer must apply for a work visa so that the employee can enter Qatar. Within seven days of the employee's arrival into Qatar, the residence permit procedure must be commenced so that the employee can work and reside in Qatar.

The vast majority of employees in Qatar, particularly those engaged in connection with the construction industry, are subject to Law No. (14) of 2004 (Labour Law). One of the few exceptions to this applies to employees of governmental entities, who are instead subject to Law No. (8) of 2009 (Human Resources Law).

Although not strictly a labour law, Law No. (4) of 2009 (Sponsorship Law) is also relevant in relation to employee sponsorship arrangements. This applies to all non-Qatari nationals working and residing in Qatar.

There is no requirement to pay statutory redundancy pay in redundancy situations. If employees are employed for more than one continuous year, then under the Labour Law they are entitled to receive an end of service gratuity benefit for each complete year of service. Any partial year of service is calculated on a pro-rata basis. The calculation is based on the employee's last basic salary received (that is, the employee's salary excluding any allowances or benefits).

Specialist advice should be taken where an employer provides a pension scheme for employees. The law regarding the payment of an end of service gratuity is different and more complicated in these circumstances.

Part 10 of the Labour Law contains a range of health and safety related obligations, requiring an employer to:

Several Ministerial Decisions relating to employees' health and safety have been issued. Ministerial Decision No. (20) of 2005 is particularly relevant to the construction industry. This sets out the employer's general obligation to ensure:

A list of penalties for non-compliance with the health and safety law can be found at the end of the Labour Law, which include fines and/or imprisonment. The level of fines will depend upon the obligation breached and will be multiplied by the number of employees affected by the violation(s).

The Supreme Council for Environment and Natural Reserves (SCENR) and the Ministry of the Environment are the competent authorities for environmental protection related matters in Qatar. There are a range of environmental laws but two of the most relevant are:

Environmental concerns are increasingly prominent and gaining more importance in Qatar. Environmental development is one of the pillars of the Qatar National Vision (QNV). As a result, the role of the environmental authorities is expanding, particularly in the approval process for construction projects. Liaison with the authorities is recommended. Although we are not aware of any particular proposed legislation, it is expected that further environmental legislation will be enacted in the coming years. Some of this may be introduced via the Qatar Construction Standards, with the 2010 version currently in force.

Environmental impact assessments may be required for some projects. This will depend on the specific project, and so applications should be made to the authorities on a project-by-project basis.

Sustainable development is gaining increasing attention in Qatar. Several projects are aiming to meet sustainable standards, for example, the central Doha regeneration project for Msheireb Properties. In general, US Leadership in Environmental Energy and Design (LEED) standards are the prevailing rating system. However, Qatar is increasingly adopting the Global Sustainability Assessment System (GSAS) and may specify its use on future projects.

New buildings do not need to meet carbon emissions or climate change targets.

The rules prohibiting corrupt business practices and bribery include:

See above, Rules.

In Qatar, insolvency is mainly dealt with in Law No. (27) of 2006 issuing the Commercial Law (Commercial Law). The relevant provisions can be found under Title Six (entitled "Bankruptcy and Preventive Conciliation"). Below is an indicative but non-exhaustive list of some of the other provisions that govern insolvency and preferential claims:

Qatar's insolvency law provides that any contracts executed by a company prior to a declaration of bankruptcy remain valid, unless they are contracts for personal services. That being the case, a contractual provision allowing an employer, in the event of the contractor's bankruptcy, to terminate the contract for the contractor's default, and complete the work itself, will be valid.

So far there has not been any trend towards PPP procurement as generally understood in Europe and the USA (see Question 4). The government has suggested it will consider whether to use some kind of PPP-type arrangements in the future.

There is no legislation which specifically applies to PPPs.

PPPs are not common in Qatar. Therefore, there are no standard forms of PPP project agreement or related contracts.

Litigation in the Qatar courts was typically the most common formal dispute resolution method on public sector contracts, certainly for Ashghal. Court proceedings are carried out completely in Arabic and all documents must be translated into Arabic. However, arbitration is increasingly displacing litigation as the most common method. Qatar Rail, the New Port and HIA all have arbitration clauses in their contracts. Most adopt the International Chamber of Commerce (ICC) Rules, with Doha as the seat of the arbitration.

The Tenders Law specifies that most public sector entities must obtain approval from a very senior level, often Ministerial, before an arbitration agreement is binding on that public sector entity. Where arbitration is mentioned in public sector contracts it therefore often provides that, in the event of a dispute, the parties may decide to put the matter to arbitration instead of court proceedings, if it is agreed at that time.

There are no specialised construction courts in Qatar. Construction disputes are resolved by the civil courts, often with court appointed experts (from an internal panel) advising the judge.

Where arbitration is provided for in a contract, the relevant institutions are normally:

The specified seat of the arbitration is usually Doha. However, in exceptional cases we are aware that seats such as London, Paris, New York and Geneva have been agreed.

The Government took the unusual step of consulting with domestic and international law firms during the course of 2012 on a new draft arbitration law.

Contracts sometimes have "escalation-type" provisions for dispute resolution, providing for multiple stages to which the matter in dispute can be referred before the parties resort to the formal procedures as noted in Question 32. This may include, for example:

ADR methods such as conciliation, mediation and adjudication are not yet commonly recognised in Qatar, although we are aware that interest in these methods is increasing as the latest round of major projects are being tendered and procured. The Qatar International Court and Dispute Resolution Centre (QICDRC) is promoting a form of construction adjudication, known as Q-Construct. It is thought unlikely that Q-Construct will be a compulsory scheme.

Construction companies are not subject to any specific taxes particular to the industry sector.

Article (11) of Law No. (21) of 2009 (Income Tax Law) provides for a withholding tax of 7% on non-resident interest income, commissions, brokerage fees and other payments made to non-residents for services carried out partly or wholly in the State of Qatar. A rate of 5% applies to "technical fees" which is understood to include fees for design consultancy services.

Circular No. (3) of 2011 allows for an application to be made to the MoEF in order to include a "gross-up" provision in an agreement between a non-resident individual or company and a Qatar-incorporated company. It is still unclear as to who can benefit from this exemption. However, when this is clarified, it could amount to a five to ten-year exemption on withholding tax. Presently, there are no tax incentives to carry out regeneration projects.

See Question 18.

To our knowledge, there are currently no proposals concerning the reform of construction or projects law. Following the tragedy of the Villaggio fire in 2012, existing rules relating to fire safety are now more strictly enforced. Amendments have also been made to the Civil Defense Law.

A new Commercial Companies Law has been approved but is not yet in force.

The planned pace and extent of infrastructure development means that it is likely new laws and regulations will be passed in the near future. There is often little time between the announcement of a new law and its implementation. Drafts of new laws are not always subject to public consultation.