Construction Law 2023 Comparisons

Being a civil law jurisdiction, the Civil Transactions Law (Sultani Decree 29 of 2013) (Civil Code), in particular Book 2 Part 3 Chapter 1 (Muqawala), is the principal law governing construction contracts in Oman.

Contracts awarded by public authorities are required to use the Oman Standard Form Documents (modelled on early iterations of the FIDIC contracts) with no amendments, and include:

• Sultanate of Oman Standard Documents for Building and Civil Engineering Works (3rd edition, 1981, 4th edition, 1999 (both widely used) and, more recently, the 2019 edition);
• Sultanate of Oman Standard Documents for Electrical and Mechanical Works (1st edition 1987); and
• Sultanate of Oman Standard Form Agreement and Condition of Engagement for Consultancy Services for Building and Civil Engineering Works (1st edition 1987).

Parties can use other standard forms of contract and negotiate terms and amendments subject to compliance with the applicable laws of Oman. The FIDIC suite of contracts is widely used.

Government entities, real estate developers and project companies (utilities, infrastructure) typically act as employer in a construction project in Oman. The rights and obligations of the employer are as per the Civil Code and the contractual terms agreed. Generally, collaborative working practices are not widely adopted by the construction market in Oman. The relationship between employer-contractor-subcontractor is usually adversarial and black-letter law (contractual terms) led.

Local construction contractors and local construction contractors with international contractors through a joint venture arrangement typically act as contractor in a construction project in Oman. The rights and obligations of the contractor under a construction contract in Oman are as per the Civil Code and the contractual terms agreed between the parties (subject to not being contrary to the law, public policy and Sharia). The relationship between employer-contractor-subcontractor is usually adversarial and black-letter law (contractual terms) led.

Local construction contractors and local specialist contractors typically act in the role of subcontractor in a construction project in Oman. The rights and obligations of the subcontractor under a construction contract in Oman are as per the Civil Code and the contractual terms agreed between the parties (subject to not being contrary to the law, public policy and Sharia). These can include being passed through the contractor to the employer (on a back-to-back arrangement). The relationship between employer-contractor-subcontractor is usually adversarial and black-letter law (contractual terms) led.

In Oman, financing is usually sourced through local lenders, international institutional lenders and export credit agencies or a combination of any. The rights and obligations of the financier under a construction contract in Oman are as per the contractual terms agreed between the parties. The financier’s rights are usually treated as being sacrosanct and can be extended through direct agreements.

Scope of works are usually set down in the contract as being the scope or through specifications and programmes.

Scope and price for variations are determined in accordance with the contractual terms agreed.

Responsibilities regarding the design process are divided between the employer, the designer, the contractor and other parties as per the contractual terms agreed between each of them.

Responsibilities regarding the construction process are divided between the employer, the contractor, the subcontractors and other parties as per the contractual terms agreed between each of them.

Usually, the employer would be responsible for the status of the construction site unless said risk is passed to the contractor (the usual position) with the contractor having confirmed that a site visit has been undertaken and such responsibilities/risks are expressly accepted by the contractor in the contractual terms agreed.

The consents, permits and licences for a construction process are project specific, but usually the following would be required from a regulatory perspective for both temporary construction site and permanent project facilities:

Before

• Site/plant approval from the Ministry of Housing and Urban Planning, Environmental Authority, Authority for Public Services Regulation and local municipalities.
• Preliminary environmental permits from the Environmental Authority.
• No Objection Certificates for construction of building/plant required to be obtained from the local municipality and Environmental Authority.
• Excavation permits from the local municipality, Environmental Authority, Ministry of Housing and Urban Planning and the Royal Oman Police (ROP)/Civil Defence.
• Approval for temporary facilities (temporary construction site) from the local municipality and Environmental Authority.
• ROP approval of site drawings.
• Electrical line site clearance from Ministry of Housing and Urban Planning and the regional electricity distribution company.

During

• Permits for the transportation of heavy plant and equipment and for the transportation of hazardous waste from ROP.
• Permission for the installation of sign boards from the local municipality.
• Waste disposal consents from the local municipality and Environmental Authority.

On Completion

• Municipality permits, such as certificate of completion.
• Electricity and water supply connection approval from the relevant distribution company and Authority for Public Services Regulation.
• A fire safety certificate from the Director-General of Civil Defence.

In case of non-compliance with the permit terms and conditions, the permit holder may be fined, and/or the permitted activity suspended, until the conditions are satisfied.

The parties responsible for the obtaining of said permits and approvals will be as per the contractual terms agreed.

Unless directly incorporated into the main construction contract (ie, DBOOM or DBOM-type contracts), any maintenance obligations post the defects liability period (DLP) will usually be set out in a separate maintenance agreement.

Operation, finance, transfer agreements do exist and are performed in Oman.

Testing and completion requirements and responsibility will be specifically set out in the contractual terms.

The processes of completion, takeover and delivery of a project in Oman will be set out in, and performed in accordance with, the specific (or standard) contractual terms agreed.

Apart from the mandatory obligation of Decennial Liability (Article 634 of the Civil Code), the DLP will be as per the agreement of the parties (usually 12 months). In the event of a defect in the works or design subsequent to the DLP, liability can be pursued in accordance with prevailing law.

Lump sum contracts are typically used in Oman with the ability to vary as per the contractual terms. Milestone payments are generally adopted.

Typical measures for late payment will be a claim for interest. If expressly included in the contractual terms, suspension of the performance of the contract can be triggered for non-payment. Advance and interim payments are widely used.

Typically, one would see applications for interim payment certificates for subsequent certification by the engineer and payment by the employer.

Planning is arranged prior to the commencement of the construction contract and approved by the employer, resulting in an agreed programme. Updates and amendments to the programme can be made throughout the project. The issuance of milestone payments or certificates can be, and usually are, connected to the programme’s deliverables.

The extension of time provisions that appear in the Oman Standard Form Documents and the FIDIC suite of contracts are followed/adopted by parties to construction contracts in Oman. In some instances, parties are also able to negotiate their own provisions. Obligations, time-related costs and concurrency are dealt with as per the contractual terms.

If specifically included in the contractual terms, the remedies available to the employer would be liquidated damages (usually capped to a percentage of the overall Contract Price).

In accordance with the contractual provisions agreed between the parties, the contractor would normally issue a claim for an extension of time, formulated as per the employer’s requirements. Extensions of time would normally be awarded if it is agreed, or proven, that there has been “employer prevention”.

Whilst the concept of force majeure is recognised under Omani law, Omani law does not provide a specific definition of a force majeure event. Therefore, it is possible to contractually limit or exclude certain circumstances from being qualified as force majeure in Omani law-governed contracts.

The Omani courts have held that a force majeure event would be any event that prevents a party from performing its obligations under the contract for reasons outside of its control and which were not reasonably foreseeable.

Pursuant to the provisions of the Civil Code, as expressly included within its terms, the contract may be suspended or terminated due to a force majeure event, with the law accepting the non-performance of obligations during the term of the event.

Article 159 of the Civil Code provides the Omani courts a discretion to vary the terms of a contract in favour of an obligor if continued performance of the contract has become “oppressive”, provided the circumstances in question are “exceptional” and “public” and could not have reasonably been foreseen by the contracting parties at the time of their agreement.

Although the concept of disruption is widely accepted in the Oman construction market, there is no specific mechanism for a disruption claim in the Oman Standard Forms of Contract (or FIDIC for that matter). Accordingly, for a successful claim of disruption, the contractor is usually required to:

• clearly identify those activities affected by the alleged disruption;
• establish that disruption (and loss that flows from it) arose from a breach of contract;
• demonstrate that progress has been adversely affected by the disruption complained of; and
• quantify the costs resulting from the disruption.

Liability arising from gross fault or fraud (the latter of which is akin to fraudulent misrepresentation) cannot, as a matter of law, be excluded. Any contractual provision that seeks to so exclude liability in such circumstances will be void.

The concept of gross fault (similar to wilful misconduct and gross negligence) is recognised by Oman jurisprudence, but is not a defined term as a matter of law.

Parties are generally able to exclude or limit liability as required. However, any terms that seek to limit a right otherwise required by Omani law: decennial liability; gross fault; or fraud, shall be held void. Under the Omani Standard Forms of Contract, it is the employer’s liabilities that are generally limited.

Indemnities are generally used to limit risk in Oman. Parties can indemnify others to cover a whole host of eventualities in relation to claims, losses, damages, etc, arising from loss and/or damage to property, injury, disease, death, environmental liabilities, etc.

Parent company guarantees can and are provided in certain circumstances. 

The usual guarantees seen in construction contracts are advance payment guarantees and performance guarantees provided to the employer by the contractor. Such guarantees are usually required to be provided by a reputable domestic bank (although these can be supported by contra foreign bank guarantee) and it is the terms of the guarantee that shall prevail and are distinct from the construction contract.

Omani law does not specify which insurance policies are required to be obtained for the performance of a construction contract. However, some of the following policies are required under the Oman Standard Forms of Contract whilst others are usually included under usual industry practice:

• third-party liability insurance;
• workman’s compensation insurance;
• vehicle insurance (third party);
• professional liability insurance; and
• contractor all risks.

For contractor insolvency, contractual terms agreed would normally provide for an automatic termination of the contract (as is the position in the Oman Standard Forms of Contract). Such provisions do differ between the parties, usually favouring the employer over the contractor.

The allocation of risk is as per the contractual terms agreed between the parties, but with the reality being the contractor shouldering the most risk.

The employer would usually have a great deal of power over whom the contractor employs on the project. Strict labour laws and limits on personal behaviours are expressly referred to and set out in the Oman Standard Forms of Contract.

Main contractors are entitled to subcontract part of their performance obligation to subcontractors; which is the usual position in Oman construction projects. The extent to which they may do so may be limited by the contractual provisions. The parties are free to negotiate and agree contractual protections in respect of their subcontracting arrangements although it is normal to see “back-to-back” provisions existing in subcontracts, resulting in the subcontractor’s rights being subject to the employer’s rights over the contractor.

A party’s IP protections would be expressly set out in the contractual terms and usually provide for a licence permitting one party to use the other’s IP in its performance of the contract.

Pursuant to Article 258(1) of the Civil Code, the remedy of specific performance is available for a party who has suffered a breach and seeks performance of the other’s obligations. In circumstances where the specific performance would be considered as “overly oppressive for the debtor” (Article 258(2) of the Civil Code), monetary compensation will be awarded instead.

The employer would usually reserve an express unilateral right to termination of the contract were the contractor to seriously breach, although more suspension rights for the contractor are now being seen, particularly in circumstances where the employer has failed to make payment when contractually required to do so.

Contractually capping the damages recoverable under a liquidated damages clause is common practice (usually to 10% of the contract price) and which is considered to be the only or main restriction on the remedies sought (save in relation to limitations of liability legally valid and expressly set out in the contract). 

Sole remedy clauses are used in construction contracts relating to liquidated damages. However, pursuant to Article 267(2), upon an application of either party, liquidated damages provisions can be amended by the courts in order to make the compensation equal to the actual damage sustained. Any agreement to the contrary will be considered void.

All damages that cannot be proven to have directly resulted from the breach will be excluded from liability.

Retention and suspension rights are not usually excluded from Oman-law governed contracts; indeed they are becoming more common in Omani-law governed construction contracts.

A contract of Muqawala shall terminate upon the completion of the work agreed or by cancelling of the contract by consent or court order (Article 646 of the Civil Code). In such circumstances, the contractor, as a matter of law, shall be compensated to the value of the works performed. Contractual terms may provide additional remuneration. In any event, any party who incurs losses as a result of the termination may be entitled to claim damages as a matter of law.

Any disputes being referred for determination will proceed according to the dispute resolution terms of the particular construction contract. Pursuant to the dispute resolution terms of the Omani Standard Forms of Contract, disputes are referred to ad hoc arbitration in accordance with Sultani Decree 47 of 1997, as amended, issuing the Law of Arbitration in Civil and Commercial Disputes.

Construction disputes, as is the case with all other disputes, can be determined by the courts of Oman where the contractual provisions provide, are silent, or where the court assumes jurisdiction.

Arbitration is a commonly used dispute resolution method for construction-related disputes. Indeed, the Oman Standard Forms of Contract expressly provides for this. However, a pre-step in the dispute resolution mechanism under these contracts is the requirement that the engineer first provides a determination.

Private parties may agree for alternative dispute resolution methods, such as mediation, which would seem to be gaining some traction in the Oman disputes arena. Resorting to Dispute Adjudication Boards is also becoming increasingly popular for those parties who have entered a FIDIC-based standard contract.