UAE Construction Sector Legal background
Celine Kanakri, senior associate at Baker & McKenzie wrote back in May 2015 advising to undertake commercial and technical due diligence before signing any contract and elaborating she holds that :
The UAE’s booming construction industry prevailing contractual arrangements have been based on international best practices that were adopted locally, with many construction contracts in the country modelled on the ‘International Federation of Consulting Engineers’ (FIDIC) typical contract.
The fundamentals of a contract are nevertheless to understand one’s rights and obligations under UAE‘s Law in terms of contract price, variations, damages and termination.
In the GCC countries, the preferred arrangement of a lump-sum contract is dominant and any request for additional costs or remuneration for execution of the originally agreed design is in principle not allowed. However, one should bear in mind that if a variation or an addition to the design is made with the employer’s consent, the contractor could be allowed to recover costs for the additional works.
Liquidated damages clauses that are very common in construction contracts are in principle valid and enforceable under UAE law, with certain exceptions.
Automatic termination, termination by agreement of both parties and unilateral termination/termination for convenience are possible under UAE law, provided that the contractual provisions in that respect are clear.
UAE law in the interpretation of construction contracts being the ultimate reference, legal advice prior to entering into a contract is of paramount importance. All commercial and technical due diligence exercises are therefore vital before pricing and committing to a delivery date.
In a nutshell, UAE law lists and covers sectors in relation to which the federal government has exclusive power to make laws such as those related to education and labour, leaving the individual emirates to provide for all residual lawmaking such as about their own natural resources. In any case, Federal law overrides the “local” law.
Generally the Law is made of the Commercial Code covering all trading activities and/or all commercial activities whereas the Civil Code does elaborate on the general contractual principles and covers specific business arrangements.
In the specific case of construction contracts, parties are entitled to rely on agreed contractual terms but only to the extent that they obstruct or contradict public order or decency and are not inconsistent with mandatory provisions of law.
It is found in various provisions of the Commercial and Civil Codes. These are the mandatory sections to all contracts as specifically set out in 25 Articles of the Civil Code to cover what is locally called a “Muqawala” which are fundamentally agreements to undertake a project for a fee.
The Civil Code holds a very important principle that imposes strict joint liability on contractor and supervising architect for 10 years as off “delivery” of the work. This liability covers collapse total or partial and any defect threatening stability or safety of the building.