Introduction

Construction projects are among the most complex and interdependent forms of commercial activity, involving numerous parties, contracts, and technical phases. As these projects increase in scope and complexity, the likelihood of legal disputes correspondingly rises. Effective legal dispute management is therefore essential to maintaining project continuity and safeguarding the rights and interests of all stakeholders.

Definition of Legal Disputes in Construction Projects

A legal dispute in the context of a construction project refers to any disagreement or claim between contractual parties—such as the employer, contractor, consultant, or subcontractor—concerning the execution of the works or the interpretation of contractual provisions, which cannot be resolved amicably. These disputes commonly arise from project delays, variations in scope, quality issues, or breaches of contract.

Common Causes of Disputes

Frequent causes of disputes include:

• Delays in Execution: Delays in project completion relative to the agreed schedule may arise due to various factors such as insufficient financing, delays in material delivery, or technical issues. Such delays frequently give rise to disputes between the parties concerning liability. These disputes may result in the employer claiming delay penalties from the contractor or the contractor requesting an extension of time.

• Cost Overruns and Variations: Contractors often submit additional financial claims arising from changes in the scope of work or unforeseen circumstances. In many cases, contractors seek compensation for extra costs that were not included in the original contract (such as variation orders or price escalation claims), leading to financial disputes regarding the legitimacy of such claims.

• Defective Work and Quality Issues: Non-conformance with agreed specifications or the appearance of defects in the executed works may lead the employer to reject the works or require rectification at the contractor’s expense. This often results in legal disputes over responsibility and compensation.

• Breach of Contractual Obligations: Any failure by either party to meet its contractual obligations—whether by the contractor (e.g., delays, substandard materials) or the employer (e.g., delayed payments)—can trigger a dispute. For example, delayed payment may cause the contractor to suspend works, potentially escalating into a termination or compensation claim.

• Force Majeure and Exceptional Events: Unforeseeable events beyond the parties’ control, such as natural disasters or legislative changes, may impact the cost or duration of the project. In the absence of clear contractual provisions addressing such events, disputes may arise regarding the allocation of risk and responsibility. Therefore, the inclusion of clear and specific force majeure clauses is essential to minimize the potential for conflict.

These and other factors highlight the importance of proactive planning and early identification of potential sources of conflict. For instance, a minor delay, if addressed promptly, may not escalate into a dispute; however, neglecting it may lead to significant claims at later stages.

Mechanisms for Prevention and Dispute Resolution

• Effective Dispute Management: Prevention and Resolution Mechanisms: Proper management of construction disputes involves two key aspects: proactive prevention to minimize the likelihood of disputes arising in the first place, and effective resolution mechanisms when disputes occur. The following are among the most recognized tools and practices in both prevention and resolution:
• Clear Contracts and Professional Contract Administration: A well-drafted contract is the starting point for minimizing disputes. Contracts should be written in precise legal language, clearly defining the rights and obligations of each party. It is essential to include provisions addressing emergency situations and force majeure events to ensure continuity of works under unforeseen circumstances. Legal counsel experienced in construction law—such as the team at ItQan – Advocates and Legal Consultants—can provide critical input during the drafting and negotiation phases to ensure that the agreement is both comprehensive and protective of the client’s interests. Furthermore, effective contract administration during the execution phase is equally important, including monitoring of timelines, financial obligations, and promptly documenting variations or delay notices. Proactive administration and timely communication are often sufficient to contain issues before they escalate into formal disputes.
• Negotiation and Amicable Solutions: Negotiation is typically the first step taken when a dispute arises. Parties—such as the employer and contractor—engage directly to attempt a resolution through constructive dialogue and mutual concessions. Negotiation is one of the fastest and least costly methods of resolving disputes and is often contractually required before escalation. At ItQan, we encourage our clients to adopt a culture of early intervention and problem-solving by facilitating project meetings and legal workshops designed to pre-empt disputes and preserve business relationships.
• Mediation: Mediation is a non-binding process where a neutral third-party mediator assists the disputing parties in reaching a mutually acceptable solution. It is cost-effective, flexible, and generally quicker than formal litigation. Globally, mediation has gained recognition as a viable tool for resolving construction-related disputes. In our practice at ItQan, we advise incorporating optional mediation clauses within contracts as an intermediate step before arbitration or litigation, especially where preserving long-term relationships is a commercial priority.
• Dispute Boards: In large-scale or long-duration construction projects, the use of Dispute Boards—either as advisory or decision-making panels—is increasingly common. These boards are typically established at the outset of the project and remain active throughout its duration, addressing disputes as they arise. The use of Dispute Adjudication Boards (DABs) under FIDIC contracts is a global best practice. In Saudi Arabia and other jurisdictions, such mechanisms are also used in public infrastructure contracts. At ItQan, we assist clients in establishing tailored Dispute Boards, drafting procedural frameworks, and representing them in board proceedings to ensure effective and timely resolution.
• Arbitration: Arbitration remains the preferred method of final and binding dispute resolution in construction contracts. It is a private process where a dispute is referred to one or more arbitrators who issue an enforceable award. Most standard contracts incorporate arbitration clauses. Modern practice often mandates the exhaustion of alternative dispute resolution (ADR) mechanisms—such as negotiation or mediation—before arbitration can be initiated. Our legal team at ItQan has extensive experience drafting arbitration clauses and representing clients in both institutional and ad hoc arbitration proceedings, ensuring that all procedural and substantive rights are fully protected.
• Litigation before National Courts: Litigation is the final resort when all other mechanisms have failed or are inapplicable. Courts have the authority to issue enforceable judgments, but construction disputes often suffer from protracted timelines and procedural complexity. In certain jurisdictions, including Egypt and Saudi Arabia, specialized commercial or construction-related courts or chambers may handle such cases more efficiently. At ItQan, we represent clients in all stages of litigation, particularly in technical disputes involving construction defects, project delays, or contract enforcement, while always exploring settlement opportunities where feasible.

In Summary: An effective dispute management strategy should integrate a range of these mechanisms: beginning with preventive measures such as carefully drafted contracts and diligent administration; followed by amicable resolution attempts through negotiation or mediation; and, when necessary, structured arbitration proceedings—with litigation reserved as a last resort. At ItQan – Advocates and Legal Consultants, we stand beside our clients throughout this process, offering strategic legal counsel and representation tailored to the complexities of the construction sector, with the ultimate goal of minimizing project disruption and securing favorable outcomes.

Legal Framework in Egypt

In Egypt, disputes may be resolved through the judiciary or arbitration. The Arbitration Law No. 27 of 1994 governs arbitration procedures. The Cairo Regional Centre for International Commercial Arbitration (CRCICA) plays a significant role in institutional arbitration and offers mediation and dispute board services. Egyptian courts also recognise the decennial liability of contractors and designers for structural defects.

Legal Framework in Saudi Arabia

Saudi Arabia has undergone major reforms in its legal dispute resolution framework. The Arbitration Law of 2012, based on UNCITRAL principles, supports enforceable arbitration agreements. The Saudi Center for Commercial Arbitration (SCCA) offers modern arbitration services. Moreover, court specialization, proposed mediation legislation, and adherence to the New York Convention make the Kingdom arbitration-friendly.

Global Best Practices

Globally, best practices include: (1) adopting standard contracts such as FIDIC; (2) use of permanent Dispute Avoidance and Adjudication Boards (DAABs); (3) interim adjudication systems like the UK model, offering quick binding decisions; (4) specialized courts for construction disputes; (5) partnership-based project delivery models to promote collaboration; and (6) digitized claim management and virtual hearings for efficiency.

Case Study: Egypt – Shepheard Hotel Contract Termination

A notable dispute arose over the management of the Shepheard Hotel in Cairo, where a Danish operator challenged the Egyptian government’s termination of the management contract. The dispute was referred to ICSID arbitration, which ultimately ruled in favour of the government, citing breach of contractual obligations by the operator. The case underlined the importance of clearly defined termination clauses and demonstrated the utility of investment arbitration.

Conclusion

The management of legal disputes in construction projects requires a proactive and multifaceted approach—beginning with robust, well-drafted contracts, followed by structured, multi-tiered dispute resolution mechanisms. Both Egypt and Saudi Arabia have made significant strides in aligning their legal and institutional frameworks with international best practices.

At ItQan – Advocates and Legal Consultants, we play a pivotal role in supporting our clients across every stage of this process. From advising on contract negotiation and risk allocation, to developing tailored dispute resolution strategies, and representing clients in arbitration, mediation, and litigation proceedings—we are committed to preserving project continuity, protecting commercial interests, and ensuring disputes are resolved efficiently and fairly.

By: Mahmoud Atef Abdelsalam, the Managing Partner of ItQan – Advocates and Legal Consultants