Security of payment: Qatar

Payment delays, whether due to late certification or prolonged payment waiting periods, are among the main causes of claims and disputes in Qatar and the broader Middle East impacting 25.6 % of projects in the region.¹

This article outlines some of the legal avenues available to contractors and subcontractors in Qatar to enforce their payment entitlements in the absence of a dedicated security of payment framework.  

 

What legislation or regulations govern security of payment in construction contracts?

Unlike other jurisdictions,² Qatar does not currently offer contractors and subcontractors dedicated security of payment protections.

Entitlement to payment in Qatar

In the absence of a dedicated security of payment regime, contractors and subcontractors in Qatar must rely on general legislation, notably the Qatari Civil Code (Law No. 22 of 2004), which affirms their entitlement to payment. Key provisions include:

• Article 171(1): Contracts are binding and must be executed in good faith, enabling the enforcement of agreed payment terms unless they conflict with mandatory provisions, public order or morality as set out by Law.

• Article 697: Contractors are entitled to payment upon completion unless agreed otherwise.

• Article 698(1): Contractors may submit progress claims, supporting cash flow in long-term or large-scale construction projects.

• Article 699: In the absence of a specific agreement, the value of construction works may be determined by reference to similar work at the time of contracting.

Contractors in Qatar should be aware that certain provisions of the Civil Code, such as Articles 697 to 699, are not mandatory and may be overridden by express contractual agreement. This reflects the principle of freedom of contract under Article 154, which permits parties to agree on their own terms, except where mandatory provisions apply, such as Article 171(1), which cannot be excluded.

Suspension/termination

Where payment delays arise, Article 191 gives contractors and subcontractors the right to suspend works or withhold performance, while Article 183 allows for termination for breach. Although the prospect of suspension or termination provides an effective lever in resolving payment delays, these rights should be exercised with caution, ideally under the guidance of legal counsel.

Employer to subcontractor payments

Subcontractors in Qatar are especially exposed to payment delays. Article 702 of the Qatari Civil Code offers a safeguard by allowing subcontractors and labourers to bypass main contractors and claim payment directly from employers, limited to the amount owed to the main contractor by an employer at the time of the claim. This allows subcontractors who have performed work for the main contractor to seek payment from the employer where sums remain due to the main contractor for that same work. In Qatari public works projects, it is common for employers to have the express right to make direct payments to subcontractors, providing an additional layer of payment protection for the most vulnerable participants on construction projects.

Pay-when-paid provisions

In the absence of a dedicated security of payment framework, contractors and subcontractors in Qatar may find some reassurance in recent judicial pronouncements, such as the 2024 decision of Qatar’s Court of Cassation (Appeal No. 1460 Year 2023) regarding “pay-when-paid” clauses, which are commonly used in Qatari construction contracts (and universally acknowledged for their contribution to payment delays).

In a welcome clarification, the Court of Cassation held that such clauses cannot justify indefinite delays in payment, may only permit a temporary and reasonable extension of the payment deadline and must not be used to indefinitely defer payment obligations. What constitutes a “reasonable delay” will depend on the facts of each case, but this decision marks a significant step towards strengthening the ability of contractors and subcontractors’ to recover outstanding dues. This decision reflects a judicial shift towards balancing interests across the contracting chain and limiting (but not eliminating) the exposure of contractors and subcontractors to payment risks.

 

What framework is put in place to protect monies intended for progress payments?

Are project bank accounts required?

While project bank accounts (PBAs) are commonly used on large projects to ringfence funds and ensure milestone-based payments, there is no legislative or regulatory requirement for their use in Qatar. PBAs and escrow accounts remain subject to contractual agreement, rather than legal mandate.

Are retention monies quarantined?

Retention monies are commonly used in Qatar to ensure satisfactory completion and defect rectification on projects. However, Qatar law does not require these funds to be held in separate or guaranteed accounts. Instead, such amounts are typically retained within the employer’s general funds, exposing contractors to insolvency risk.

Are retention monies regimes prohibited?

Retention arrangements are not subject to any statutory prohibition and are widely used in Qatar.

 

 

Can a contractor or subcontractor impose a lien or other form of security over the works or other assets of the developer?

Subcontractors in Qatar have limited statutory protection through liens. Under Article 702(2) of the Civil Code, they may, in certain circumstances impose a lien over amounts owed by an employer to the main contractor, securing payment for work performed. In Qatar, liens serve as a legal mechanism to satisfy debts arising from judgments or contractual obligations. Beyond this, the construction industry in Qatar primarily relies on contractual security measures, the most common being advance payments, which remain a key source of cash flow for contractors.

 

What impact has the legislation or regulation had on the construction sector and insolvencies?

Contractors and subcontractors in Qatar often face the burden of initiating protracted legal proceedings (and enforcement proceedings) to recover delayed payments. This challenge has been partially addressed by the recent enactment of Article 6 of Law No. 4 of 2024 on Judicial Enforcement, which expands the scope of enforceable instruments to include cheques. Under the new law, cheques can now be enforced immediately by the new Enforcement Court, bypassing litigation, accelerating recovery efforts, and potentially enhancing the efficiency of payment enforcement in construction contracts.

This development offers an added layer of payment security for Qatar’s construction sector, where post-dated cheques have traditionally been used to secure payments. It complements earlier legislation, such as Law No. 11 of 2004 (Penal Code), which criminalised dishonoured cheques. However, Article 6 of Law No. 4 of 2024 on Judicial Enforcement does not extend to payment certificates meaning its impact remains limited as payment delays are more likely to stem from late or disputed payment certifications rather than dishonoured cheques. In the absence of a dedicated security of payment regime, payment risks persist and are left to be resolved through negotiation, arbitration, or prolonged litigation.

 

What, if any, reforms are being considered?

There are currently no announced plans to introduce a security of payment regime in Qatar, meaning contractors and subcontractors in Qatar remain exposed to a significant level of payment risk. Payment delays continue to disrupt cash flow, threaten business continuity, increase insolvency risk and hinder construction progress.

These issues could pose a threat to the timely completion of projects key to achieving broader national development goals. The construction sector in Qatar serves as a cornerstone of the nation’s economic growth and development, with projections indicating the Qatar construction sector will grow beyond USD68.7 billion (QR250 billion) by 2025 and reach USD106.3 billion (QR388 billion) by 2030,³ driven by significant investments to date in infrastructure, real estate and transportation projects aligned with the Qatar National Vision 2030,⁴ and further investment in liquefied natural gas (LNG) projects.⁵ Sustained payment risks within this sector could undermine progress on these initiatives and disrupt momentum.

Concerns over project delays and payment risks have long driven proposals for reform in Qatar’s construction dispute resolution landscape. In 2013, the Qatar International Court and Dispute Resolution Centre proposed the Q-Construct adjudication scheme, a fast-track scheme designed to resolve construction disputes, including payment issues, through an efficient and streamlined adjudication framework in line with recognised international best practices.⁶ However, Q-Construct was never formally launched despite the demonstrated effectiveness of similar schemes in other jurisdictions in aiding the prompt resolution of payment disputes, improving cash flow, enhancing overall industry resilience and mitigating project delays. As the Qatar construction sector grows from strength-to-strength, it remains to be seen whether similar schemes will again be mooted to manage payment and insolvency risks.