MANAGING RISKS SUCCESSFULLY
Michael Sergeant, Partner and Gerard Moore, Associate, Holman Fenwick Willan LLP, share their viewpoint on the importance of smart project management to delivering multi-stakeholder projects.
Despite commentators suggesting a sluggish global economic outlook for 2016 and 2017, the UAE has adapted well to the commodities downturn, by reducing its dependency on oil revenue and targeting other sectors such as tourism, which are likely to have more sustainable long term growth. The UAE’s outlook has been bolstered by a significant increase in visitors to the region, with Dubai alone attracting 7.5% more tourists in 2015 than the preceding year. This has prompted investment in theme parks, hotels and major infrastructure projects. These often require multiple parties to collaborate on these projects. The marshalling of varying interests are key to successful completion, and advisers need to be aware of these “softer” points.
Earlier this summer the Minister of Economy in the UAE announced that tourism will play a major role in the government’s plans to diversify the national economy, stimulating non-oil sector growth as part of the UAE’s vision for the post-oil era.
One example of the increasing demand for advanced tourism facilities is the new AED 25 billion tourism resort, the Firdous Sobha, to be developed in joint venture by the government of Umm Al Quwain and the Sobha Group. It will be a world class eco-tourism resort covering 53 million square feet on Al Sinniyah Island off Umm Al Quwain. This development is a central plank in the lesser known emirate’s strategy to become as much of a tourist attraction as its emirate cousins. It will be the single largest construction undertaking in Umm al-Quwain by project size, value and duration.
Large development projects present many amazing opportunities for the project’s stakeholders. However, these projects also raise risks and issues which need to be carefully managed to ensure that each party’s objectives are achieved. The realisation of large and often complex infrastructure projects is a difficult multi-dimensional endeavour that requires the positive alignment of interests from each entity involved.
There are many risks and issues which can arise on multi-faceted projects and which can impact upon the JV partners achieving their ultimate objectives. Issues can often arise around decision making. The JV agreement will often allocate decision making responsibility for particular matters to each JV partner. However, there will be many decisions which must be made jointly
Master planning and design development needs input from both JV partners. For example, during site investigations, it may become apparent that the design or location of a golf course club house, or other key feature of the development, might need to change due to local ground conditions. The ultimate design or location may have to be determined and agreed by both parties.
Risks can also occur between the many other parties on the project, despite them not necessarily having any contractual relationship. For example, separate sub-contractors may be engaged to construct the golf course and build the golf club house. However, the works are clearly related and must ultimately connect with each other. Delay in completing the golf course, for instance, will clearly have a knock on effect in completing the golf club house. In a large, mixed-use development such as Firdous Sobha, there is the potential for a large number of these kinds of risks.
It is the responsibility of the professionals engaged on the project – project managers, architects, engineers, quantity surveyors and/or lawyers – to identify and manage these risks effectively.
For those involved in the project, it is important to recognise that each party has its own project objective. For example, the Government’s key objective is to deliver a world class facility that puts it “on the map” as a commercial and tourist destination and provides a number of obvious economic and social benefits. Sobha, as both a JV partner and the main contractor, will want to develop the project in as short a time, and as cost-effectively as possible while still delivering a development which enhances its reputation and is attractive to investors. The personalities of the key decision makers will also impact upon each approach to the interface risks.
There are obvious contractual mechanisms which enable these risks to be dealt with by the parties. These include variations, extensions of time, liquidated damages and delay costs clauses. However, there are alternative frameworks, which sit alongside the contractual mechanisms, under which parties can work together and collaborate to deliver a particular outcome. For example, each party involved in the project might enter into a multi-party deed, or a non-binding charter, under which they agree to cooperate and collaborate to deliver “the region’s top tourist destination.”
Successful project management
Proactive project management and ongoing communication are also key for those professionals responsible for managing projects like Firdous Sobha.
Project managers can hold workshops at the start of the project for all key stakeholders. These help to build relationships, open up lines of communication and understand each project participant’s key objectives for the project. Most importantly, they allow for early identification and resolution of interface risks which may arise.
Project managers should also hold regular meetings with all relevant stakeholders to ensure that new interface and other risks are identified and managed. Regular meetings also ensure that there is constant communication and help to avoid disputes.
The development of a world class eco-tourism resort like the Firdous Sobha presents many opportunities but also some risks for its stakeholders. Whether the key objective of delivering the “the region’s top tourist destination” is achieved will depend on how those risks are managed.
About the firm
Holman Fenwick Willan is an international commercial law firm, with over 450 lawyers across Asia, Australia, the Middle East, Europe and South America. The firm opened its Dubai office in 2006 and now has four offices across the Middle East.
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