The construction sector in Pakistan is a rapidly growing sector that operates in alignment with the global construction trajectory, with the sector’s almost PKR 1,848bln contributions to the GDP of Pakistan in the financial year 2022, registering a growth of 31.1% year on-base. The Business Monitor International (BMI) research has also provided a healthy growth outlook for the industry and forecasted a growth rate of 9.1% from 2016-2025.

Construction projects in Pakistan consist of multi-tiered and interlinking stages, ranging from planning and design to procurement, scheduling, execution, and project management. To achieve successful competition, the project must be navigated per industry regulations. The regulatory duty for Pakistan’s construction sector befalls the Pakistan Engineering Council (PEC): the primary regulatory body responsible for registering engineers and contractors, ensuring they meet the required standards and qualifications to practice in the industry. 

Apart from the regulation of engineers, the PEC’s role is integral to promoting uniformity in the construction sector through a standard document termed ‘Conditions of Contract’. The role of Conditions of Contract is to provide transparent bidding, evaluation, awards and execution of construction and consultancy contracts are dependent on bidding/contract documents prepared on a just and equitable basis for stakeholders. Conditions of Contract remedy the inefficient practice of executing construction projects, whether public or private, where various Government departments, autonomous bodies etc. prepare their documents with the help of limited expertise available. Such documents are either one-sided or fail to safeguard public interest adequately. Further, lack of uniformity in documentation preparation among various departments creates confusion for contractors/suppliers, leading to many malpractices and contractual disputes, resulting in high construction costs.

The PEC Standard Conditions of Contract were first formulated in 1992 which was in line with the findings/suggestions of a committee constituted to study and review the existing rules and procedures for award of large contracts and to suggest measures to prevent malpractices. The Conditions of the Contract operated in unison with the FIDIC Suite in Pakistan to meet the unique demands and specifications of the Pakistani construction sector. 

The construction sector in Pakistan under PEC’s mandate was operated through the FIDIC 1987 Conditions of Contract until recently. In May 2024, the PEC announced a long-awaited upgrade to the Conditions of Contract 2017, adopting recent developments accrued by FIDIC in its later versions of the FIDIC Suite. The upgrade brings the construction contracts into compliance with global norms and the demands of the Asian Development Bank (ADB), the World Bank, and the latest FIDIC Standard Forms of Contracts, a significant step forward for Pakistan's construction sector, particularly for dispute resolution procedures.

The updated Conditions of Contract 2017 provide a comprehensive framework for agreements between parties involved in construction projects, including clients, contractors, and consultants, with significant implications for engineering projects in Pakistan. This update is a great leap indicative of the modern approach adopted by the PEC, this will help align construction industry practices in line with the global best practices.

The new conditions of the contract are based on the FIDIC Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer Second Edition (2017 Red Book). This addition might be a paradigm shift as it will bring the Construction industry of Pakistan from the 20th to the 21st century as our previous document had General Conditions of Contracts from "FIDIC General Conditions of Contract 1987 reprinted in 1992 with further amendments". This alignment with international standards ensures consistency and clarity in project execution. Contractors and employers can now rely on a well-defined set of rules during the bidding process, reducing ambiguity and disputes. This addition will open the doors to learning and adopting the latest Contractual practices for Contract Engineers/Managers in the Construction Industry of Pakistan.

The new Conditions of the Contract provide a healthy addition of "???????????? (???????????????????????????????? ???????????????????????????????????????????? ????????????????????????????????????)" to incorporate the latest practices. It also stipulates that foreign constructors as not eligible to participate in bidding individually. Foreign Constructor shall enter into a joint venture with Pakistani Constructor registered with the PEC and eligible for the Bidding process. By partnering with local constructors, foreign firms can transfer advanced construction techniques, technologies, and management practices.

Apart from the surface additions, as articulated above, renewed conditions of contracts carry a profound effect on Pakistan’s construction sector. The incorporation of Dispute Avoidance/Adjudication Boards (DAAB) from the beginning of the project’s lifetime is a much-awaited change. 

The Dispute Avoidance/Adjudication Boards (DAAB) are a regular feature of international construction and infrastructure contracts. DAABs were originally introduced in the dispute resolution provisions in the 1999 editions of the FIDIC Contract, whereas FIDIC later introduced the concept in its 2017 suite of contracts. The inherent complexity in construction disputes coupled with technical elements and involvement of multi-tiered stakeholders require the assistance of DAABs to resolve disputes in real time, preventing spiralling costs, adverse effects of relationships and detriment towards the project as a whole.

The theory behind dispute boards of ‘comply now, argue later’, allows the contract to proceed without undue interruption while preserving the parties’ right to seek an ultimate determination of the dispute through the usual channels of court or arbitration. The special benefactors of the DAABs are the public sector in Pakistan, in addition to the private sector. 

 The major driver of demand in the construction sector is the Public Sector Development Programme (PSDP) expenditure; followed by Private Investments in the construction sector. The majority of the construction revenue is from government contracts ranging from the building of Infrastructure to Highways to Offices and Airports. Such projects create a baseline construction demand.

DAABs forecasts sunnier days for the public sector in Pakistan, deploying a preventative mechanism necessary to ensure the timely completion of projects, resulting in reduced costs for the Exchequer and channelling the compounded positive impact of the construction industry on Pakistan’s GDP.

 If we speak of the softer impact of PEC’s renewed Conditions of Contract 2017, the development allows a welcome alignment with international standards for construction project management and dispute resolution. The uniformity and adherence to global best standards brought by Conditions of Contract 2017 is an incentive for foreign investors to engage Pakistani contractors in construction projects, allowing a stream of income for the country and contributing to the per capita income of Pakistani construction practitioners. 

The inclusion of DAABs requires a pool of practitioners adept in such mechanisms of dispute resolution. The indirect effect would be the need for capacity building in the country, which brings to the fore the importance of organizations such as the Chartered Institute of Arbitrators with their rules on dispute boards and the Dispute Resolution Board Foundation along with their training on acting as a dispute board member for lawyers, engineers, and consultants. 

The introduction of the Conditions of Contract 2017 in Pakistan marks a significant step forward in modernizing and improving the legal framework governing construction and related projects. These amendments address several critical areas, including risk allocation, dispute resolution, and project management, providing a more balanced and comprehensive approach to contracting. By incorporating international best practices and addressing the shortcomings of the older conditions, the 2017 amendments aim to enhance clarity, reduce disputes, and promote greater efficiency in project execution. This evolution reflects Pakistan's commitment to aligning its contractual practices with global standards, ultimately fostering a more conducive environment for investment and development, especially in its much-prized construction sector. 

About the author:

The author is Mian Sheraz Javaid, a distinguished Barrister at No.5 Barristers Chambers and Founding Chair of the Chartered Institute of Arbitrators Pakistan Branch. Specializing in energy law, he serves globally as an Arbitrator, Mediator, Adjudicator, Neutral Evaluator, and Dispute Board Member. Sheraz can be contacted via email at msj@no5.com or reached on his LinkedIn under the name of ‘Mian Sheraz Javaid’.