Construction 2024 Comparisons

Article 2 of Sultani Decree 6 of 2021 on the Issuance of the Constitution of the State states that Islam is the religion of Oman, and that Islamic law (Sharia) is the basis of legislation in Oman. For civil and commercial law purposes, however, Oman (as with all other Arab countries) can be considered largely as a civil law jurisdiction.

The Civil Transactions Law, also referred to as the Civil Code (promulgated by Sultani Decree 29 of 2013, which came into force on 6 August 2013), codified existing principles of law, including principles derived from Islamic law and civil jurisprudence. Article 1 of the Civil Code provides that: “Should the present law be void of relevant provision, the court shall rule as per Islamic jurisprudence provisions, if there is no relevant provision, it shall rule as per the general principles of the Islamic Sharia, and if the latter is void of such provision, the court shall rule according to custom.”

Articles 66 to 173 of the Civil Code contain the general principles under Omani law in relation to the formation, interpretation, performance and termination/expiry of contracts. Articles 176 to 200 contain the general principles under Omani law in relation to liability for acts causing harm (similar, but not identical, to the common law concept of “tort”). Articles 220 to 354 contain the principles under Omani law in relation to the effects of obligations.

At Articles 626 to 650, the Civil Code contains a set of provisions dealing specifically with muqawala contracts (independent contracts for making something or performing work in return for compensation, which include construction contracts). These include a number of default provisions, which will apply in the absence of the parties having agreed their own terms (for example, in relation to the time to complete), as well as mandatory provisions applicable to all construction contracts, such as the decennial liability provisions of the contractor, architect and engineer at Articles 634 to 637 of the Civil Code.

Decennial liability is also a mandatory provision of Sultani Decree 27 of 2016 issuing the Law Regulating the Work of Engineering Consultancy Offices, Article 16 of which provides that the contractor and engineer/architect will be liable for unforeseen ground conditions, where the engineer/architect was responsible for the design and supervision of the works.

Sultani Decree 55 of 1990 promulgating the Commercial Law (usually referred to as the “Commercial Code”) also contains provisions applicable to construction and engineering projects. Article 2 of the Commercial Code provides that: “In defining the rules applied on merchants and commercial activities, the legally recognised contracts shall be taken into account. The said contracts shall become effective upon mere congruence of offer and acceptance unless the articles of this law stipulate otherwise.”

As with the Civil Code, the Commercial Code also prescribes limitation periods that may apply to construction contracts.

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. Such documents 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).

Private parties also use the standard forms of contract and can negotiate terms and amendments subject to compliance with the applicable laws of Oman. Private parties also use other standard forms of contract, with the FIDIC suite of contracts widely used across the Sultanate.

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 set out in the Civil Code and the contractual terms agreed. Generally, collaborative working practices are not widely adopted by the construction market in Oman. The relationships between employer, contractor and subcontractor are usually adversarial and led by black-letter law (contractual terms).

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 set out in the Civil Code and the contractual terms agreed between the parties (subject to not being contrary to the law, public policy and Sharia). The relationships between employer, contractor and subcontractor are usually adversarial and led by black-letter law (contractual terms).

Local construction contractors and local specialist contractors typically act in the role of subcontractor in construction projects in Oman. The rights and obligations of the subcontractor under a construction contract in Oman are set out in 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 relationships between employer, contractor and subcontractor are usually adversarial and led by black-letter law (contractual terms).

In Oman, financing is usually sourced through local lenders, international institutional lenders and export credit agencies, or a combination thereof. Islamic finance structures are also available, and provide an alternative to conventional financing.

The rights and obligations of the financier under a construction contract in Oman are set out in the contractual terms agreed between the parties. The financier’s rights are usually treated on a priority basis, and are protected through the use of direct agreements.

Designers, in the form of architects and engineers, acting in the Sultanate of Oman range from multinationals with branch offices in the jurisdiction to independent local entitles. Government organisations and entities – such as the Ministry of Housing and Urban Planning, Royal Court Affairs and city municipalities – also act in a design capacity for government and quasi government projects.

For government projects, the rights and obligations of the designer under a construction contract will usually be set out in the Sultanate of Oman Standard Form Agreement and Condition of Engagement for Consultancy Services for Building and Civil Engineering Works (1st edition 1987). Sultani Decree 27 of 2016 issuing the Law Regulating the Work of Engineering Consultancy Offices is also relevant, as it provides a mandatory provision concerning decennial liability (as does the Civil Code). Article 16 of the former provides that the contractor and engineer/architect will be liable for unforeseen ground conditions, where the engineer/architect was responsible for the design and supervision of the works.

The relation between engineer/architect and the parties under a construction contract is significant as, in addition to providing architecture and engineering services, the engineer/architect would also usually provide project supervision and project management services, thus significantly liaising with both parties on the project.

The scope of works will be set down in the contract, usually through specifications, drawings and Bills of Quantities programmes.

The scope and price for variations are determined in accordance with the contractual terms agreed. If variations also result in time extensions for the completion of the works, in addition to additional works costs, additional claims can be sought for the time extension and the associated additional prolongation costs.

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.

Decennial liability is also a mandatory provision of the Civil Code (Articles 634 to 637 ) and Article 16 of Sultani Decree 27 of 2016 issuing the Law Regulating the Work of Engineering Consultancy Offices, both of which provide that the contractor and engineer/architect will be liable for unforeseen ground conditions, where the engineer/architect was responsible for the design and supervision of the works.

Responsibilities and risks 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.

Generally, the employer will be responsible for providing access to the site and payment to the contractor for performance of the contract/execution of the works. The engineer/consultant will supervise the contractors’ execution of the project, and may also provide the design. The contractor will execute the construction works as per the contract requirements.

Usually, as a starting point, the employer would be responsible for the status of the construction site and timely access to it, unless and until 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 within the contractual terms agreed.

The consents, permits and licences for a construction process are project-specific, but the following would usually 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, the Environmental Authority, the Authority for Public Services Regulation and local municipalities.
• Preliminary environmental permits from the Environmental Authority.
• No Objection Certificates for construction of the building/plant from the local municipality and the Environmental Authority.
• Excavation permits from the local municipality, the Environmental Authority, the 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 the Environmental Authority.
• ROP approval of site drawings.
• Electrical line site clearance from the 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 the Environmental Authority.

On Completion

• Municipality permits, such as a certificate of completion.
• Electricity and water supply connection approval from the relevant distribution company and the 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 may be suspended, until the conditions are satisfied.

The parties responsible for obtaining said permits and approvals will be set out in the contractual terms agreed.

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

Operation, finance and transfer services are usually performed in construction-related projects separate to the construction contract (except for own and operate type contracts – ie, O&M, DBOOM or DBOM type contracts).

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

The tests required upon completion of the project are usually undertaken by the main contractor, or by specialised subcontractors under the main contractor’s responsibility.

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 and Article 16 of Sultani Decree 27 of 2016 issuing the Law Regulating the Work of Engineering Consultancy Offices), 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 the contractual requirements and prevailing law. For any defects discovered during the DLP, the contractor will usually be required under the contract to remedy the defects or to complete outstanding works (including those referred to in the taking-over certificate) in a timely manner. Many construction contracts will provide that the contractor’s failure to comply with its obligations during the DLP will entitle the employer to call in the performance bond.

Both lump sum (fixed price – with the ability to vary as per the contractual terms) and measurable (re-measurement or “measure and value”) contracts are typically used in Oman. Milestone payments are generally adopted.

Indexation is not typically used in construction contracts in Oman, but fluctuation clauses increasing the contract sum, in the form of change of law clauses, are common. Subject to the terms of such clauses, the risk of an increase in the contract sum arising from “change of law” events is usually passed to the employer.

The contractual arrangement will set out the circumstances in which payments are to be made. Standard types of “right to payment” are based on lump sum arrangements or quantum meruit basis (reasonable sum claim). Typical measures for late payment include a claim for interest. If expressly included in the contractual terms, suspension of the performance of the contract can be triggered for non-payment (although this is unusual in practice). Advance and interim payments are widely adopted.

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 baseline programme can be agreed throughout the project. The issuance of milestone payments or certificates is usually 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 remedy available to the employer would be liquidated damages (usually capped to a percentage of the overall contract price). For the contractor, any non-excusable delays on the part of the employer should result in the contractor receiving an extension of time to the contractual completion date and associated costs (subject to contractual terms).

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”. Delay and quantum expert assistance would be required in order to prove the claim before the employer or, subsequently, in any dispute resolution proceeding.

Where the contract is silent in this regard, Article 631 of the Civil Code provides that: “The contractor is required to complete the work under the terms of the contract during the period agreed upon; in case of the lack of agreement on either the terms or a period, he shall be obliged to complete the work according to the customary rules of practice within a reasonable time as required by its nature.”

Whilst the concept of force majeure is recognised under Omani law, there is no 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 Oman 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 that were outside of its control and that were not reasonably foreseeable.

Pursuant to Article 172 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 172 provides as follows:

“(1) In bilateral contracts, if force majeure occurs rendering the performance of the obligation impossible to complete, the corresponding obligation shall be extinguished, and the contract shall automatically be revoked.

(2) Where the impossibility is partial, only the corresponding obligation to that part which becomes impossible to be performed shall be extinguished. Such provision shall also apply to temporary impossibility in permanent contracts.

In both cases, the creditor may rescind the contract provided that a notice is served to the debtor.”

Article 159 of the Civil Code give the Omani courts 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.

Article 159 provides as follows: “If general exceptional accidents that were unforeseen at the time of contracting occur and result in the execution of the contractual obligation, even if not impossible, becoming burdensome to the debtor and threatening the latter with serious loss, the court may, according to the circumstances and after balancing the interests of both parties, reduce the burdensome obligation to a reasonable limit. Any other agreement to the contrary shall be void.”

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 the disruption (and any 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.

As with the general conditions to prove contractual liability under Oman law, the compensation claimed should not be too remote and there should be a causal link between the breach and the damage occasioned.

Liability arising from gross fault or civil 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 considered 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 in Oman to limit risk. 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.

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.

Parent company guarantees can be provided in certain circumstances.

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 common industry practice:

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

For contractor insolvency, the 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 that the contractor shoulders the most risk, even under traditional procurement type contracts. Subject to competitive bid tendering, the allocation of risk is usually reflected in the contract price, with different mark-ups adopted by the contractor commensurate to the risk allocation. Risk sharing between the parties will be reflected in the overall price paid by the employer.

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 that has suffered a breach and seeks performance of the other’s obligations. In circumstances where the specific performance would be considered to be “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 if the contractor seriously breaches its obligations/performance, 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 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). Claims for consequential or indirect loss are restricted as a matter of law/jurisprudence.

Sole remedy clauses are used in construction contracts relating to liquidated damages. However, pursuant to Article 267(2) of the Civil Code, 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. Otherwise, contractual clauses that exclude claims for loss of profit, loss of future profits, or indirect or consequential loss are generally enforceable under Oman law, as long as they do not contravene mandatory laws or public policy.

Retention requirements are common in Oman law-governed construction contracts. 10% of the contract price, retained from each interim payment, is usually stipulated by the employer, 5% of which is released back to the contractor once taking over of the works is complete and the other 5% after the expiration of the defects liability period.

Suspension rights are not usually excluded from Oman law-governed contracts; indeed, they are becoming more common in Oman law-governed construction contracts.

A contract of muqawala shall terminate upon the completion of the work agreed or by the 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 that incurs losses as a result of the termination may be entitled to claim damages.

Article 167 of the Civil Code provides that: “The contracting parties may not rescind or modify a contract that is valid and binding unless by mutual agreement or legal action.”

Article 170 provides as follows: “It may be agreed that a contract be automatically revoked without the need of a court order in case of any default in the performance of any obligations arising therefrom. Said agreement shall not exempt from a notice thereof unless the contracting parties have expressly agreed on the exemption therefrom.”

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, post-engineer determination 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 for such or are silent on the matter, or where the court assumes jurisdiction.

Arbitration is a commonly used dispute resolution method for construction-related disputes; the Oman Standard Forms of Contract expressly provide for arbitration. 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 on 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 (DAB) is also becoming increasingly popular, particularly for those parties that have entered into a FIDIC-based standard contract with DAB provisions.