Construction 2024 Comparisons

The UAE consists of “onshore” and “offshore” jurisdictions.

Onshore UAE

Onshore UAE refers to the civil law jurisdiction governed by the federal laws of the UAE and the laws of the seven Emirates, these being Abu Dhabi, Ajman, Dubai, Sharjah, Umm Al Quwain, Ras Al Khaimah, and Fujairah. The primary legal instruments governing construction activity in onshore UAE are Federal Law No. 5 of 1985 (the UAE Civil Code) and Federal Law No. 50 of 2022 (the UAE Commercial Code).

There are several provisions within the UAE Civil Code which apply specifically to construction (or muqawala) contracts. For the most part, these are non-mandatory provisions which apply where the relevant construction contract is silent.

Offshore UAE

Offshore UAE refers to the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM). Both are common law jurisdictions with their own civil laws and court systems.

In the DIFC, construction contracts are primarily regulated by DIFC Law No. 6 of 2004 (the DIFC Contract Law).

By contrast, the ADGM adopts the common law of England (including the principles and rules of equity) and a number of English statutes, subject to certain modifications or amendments. 

As in many jurisdictions, construction projects in both the onshore and offshore UAE often adopt standard form contracts published by the International Federation of Consulting Engineers (FIDIC). In particular, it is common to see the FIDIC Red Book and White Book used or adapted for UAE based projects.

Additionally, there are a number of bespoke local standards adopted by government departments. For instance, the Abu Dhabi government has adopted the Abu Dhabi Government Conditions of Contract, which are mandated for use by Abu Dhabi government departments when procuring construction or design-and-build projects, respectively, in the Emirate. While these standards are based on the 1999 FIDIC Red and Yellow Books, they have been amended to shift risk from the employer to the contractor.

It is also common for local and international developers and contractors to adopt their own, internal, standard contracts as a starting point for contract negotiations. At times, these internal standards are based on the FIDIC contract suite, but they are often heavily amended based on the jurisdiction in which the contracts will be used and each entity’s own individual requirements.

There are a wide range of companies and institutions that act as employers on UAE-based construction projects. For example, it is common to see the following:

• a local residential developer acting as an employer on large-scale housing developments;
• a local or international energy company acting as an employer on an independent water and power plant or other renewable energy projects; and
• a governmental or semi-governmental entity acting as an employer on public utility and transportation projects, including rail and road projects.

Obligations of the Employer in the UAE

Aside from making payments and assessing any contractual claims submitted by the contractor, an employer is usually responsible for high-level project administration, such as obtaining necessary permits (for instance, building permits, building completion certificates, etc.), granting necessary site access to the contractor and any subcontractors, and issuing certificates during and at the conclusion of a project (such as certificates of practical completion).

An employer may also take on responsibilities relating to the operational health and safety issues on a project. That said, it is common for such responsibility to be contractually passed downstream to the contractor (to the extent that it is possible to do so given that tortious liability cannot be contractually limited in the UAE).

Rights of the Employer in the UAE

As with any construction project, an employer is entitled to receive a completed project that is designed and/or constructed according to the agreed terms.

Where a contractor fails to meet the contractually defined expectations of a project, an employer will usually have various contractual rights which may be exercised to protect its commercial interests, including the rights to step in, set off, and to make demands against any bank guarantees and performance bonds. Additionally, where the works are defective and a contractor fails to remedy their work following notice to do so, the employer may also (subject to agreement to the contrary) request the court to allow them to hire a separate contractor to complete the works at the original contractor’s expense (Article 877 of the UAE Civil Code).

The Employer’s Relationship with Contractors, Subcontractors and Financiers

As in most jurisdictions, the employer’s predominant relationship in the UAE will be with its contractor, and obligations owed by the contractor to the employer will then typically flow down to one or more subcontractors. On many projects, particularly large-scale or complex projects, the employer may also have a relationship with external financiers, who often have rights to ensure the delivery of the project, such as step-in rights in the event of a default by the contractor, or rights to take over the project if the employer becomes insolvent.

On PPP projects, it is very common to see special purpose vehicles (“SPVs”) specifically established to submit a bid to the relevant procuring entity with such SPVs often being comprised of multiple international developers. Also commonly seen are international construction companies, specialist contractors with expertise in specific project types (for instance, some contractors may be particularly suited to the engineering and construction of oil and gas facilities) and local contractors.

Obligations of the Contractor in the UAE

The primary obligation of a contractor in the UAE is to perform the works with the due skill, care, and diligence required under the contract, industry standards, and UAE law. Additionally, contractors are typically required to ensure the timely completion of a project. As contractors sit between the employer and subcontractors in the contractual “chain”, they typically take on the responsibilities to:

• manage and supervise subcontractors completing work on the project – both from a time and quality perspective; and
• pass claims and change requests received from subcontractors upstream for consideration by the employer.

Given that contractors often assume responsibility for the site, it is common to see contractors having obligations in respect of health, safety, environmental regulations, and compliance with local labour laws.

Rights of the Contractor in the UAE

Contractors will have the right to expect timely and complete payment for work completed (subject to the specific payment terms of their contract). Some contractors may also be granted the right to rely on project specifications and design provided by the employer, although this is commonly excluded in UAE construction contracts and, due to the imposition of decennial liability under the UAE Civil Code, it is recommended in any event that contractors complete a thorough technical review of design documents before commencing construction.

During the course of a project, the contractor will typically enjoy the right to access the construction site or sites so that they may carry out contracted works without interference. To the extent that access is not granted or the project is delayed, changed, or varied in any way by the employer, contractors may also exercise their right to claim additional costs and extensions of time. However, where a delay or change is the fault of the contractor, such remedies are typically unavailable.

The Contractor’s Relationship with Employers, Subcontractors and Financiers

The role of the contractor on a construction project can often be administrative, as sitting between the employer and the subcontractors will often see the contractor receiving and passing on notices both upstream and downstream.

While the engagement between a contractor and project financiers is typically limited, there are certain circumstances in which a financing party may be able to exercise rights to force the employer to terminate its agreement with the contractor or to step-in and replace the employer, which will often require a novation of the subcontract to the financier or a party selected by the financier to continue the project.

There is a wide variety in the types of companies that may act as subcontractors in the UAE, and the specific subcontractors engaged will depend upon the requirements of each project. However, in broad terms, subcontractors will often be as follows:

• design contractors – generally architects and engineers; these tend to be contractors engaged directly by the employer as “consultants” or by the contractor as subcontractors;
• labour contractors – these are typically involved in the completion of basic civil construction work; in the UAE, labourers may be either skilled or unskilled, and will in all cases be supported by more specialised trade or speciality contractors;
• trade contractors – contractors from all construction “trades”, such as electricians, plumbers, and carpenters;
• specialty contractors: – those completing more niche services such as complex steelwork, landscaping, HVAC installation, or completion of internal fit-outs in specialised projects such as hospitals; and
• service contractors: – companies offering services such as scaffolding hire, portable site office rentals, and equipment hire.

Obligations of the Subcontractor in the UAE

As with head contractors, subcontractors are typically required to perform the works under their contract with the due skill, care, and diligence required under the contract, industry standards, and UAE law. Subcontractors will also have obligations in respect of timely completion of work, and will usually be expected to promptly raise any issues or concerns with their work or the project more broadly to the attention of the head contractor so that they may be resolved.

Rights of the Subcontractor in the UAE

The rights of a subcontractor are largely the same as those of a head contractor. For instance, subcontractors have the right to:

• receive timely payment for their work pursuant to the conditions of their contract;
• claim variations, extensions of time, or costs arising from changes to their scope of work or unforeseen delays outside their controls; and
• access the construction site to perform contracted works (assuming site access is necessary for the relevant scope of works, as some subcontractors may work from a separate site or office).

The Subcontractor’s Relationship with Employers, Contractors and Financiers

As subcontractors are engaged by the contractor, their engagement with the employer is typically limited. Subcontractors will usually have very limited exposure to financing parties.

Various types of companies and institutions operate as financiers in respect of UAE based projects, including banks and lending institutions, private equity firms, wealth funds with infrastructure portfolios, and the federal or Emirate governments and government owned investment corporations such as the Investment Corporation of Dubai.

Obligations of the Financier in the UAE

Financiers provide funding for the project, sometimes in the form of a single injection of funds, although more commonly through milestone-based disbursements (for instance, a certain amount of money will be disbursed during the design phase, with additional funds throughout construction phases).

Rights of the Financier in the UAE

It is common for financiers to have extensive rights to monitor and guarantee the progress of the project, including rights to step in and take over the project as needed. Financiers also commonly have the right to enforce security interests by calling on bonds or bank guarantees if doing so becomes necessary.

While not all financing arrangements require repayment of the principal financing sum during construction (although many will), it is common for financiers to have rights to collect an income in respect of revenue-generating assets such as energy generation facilities and toll roads.

The Financier’s Relationship with Employers, Contractors and Subcontractors

The financier’s predominant relationship is with the borrowing party, which will typically be the employer in a construction context. While the financier may have some limited engagement with the contractor, this is likely to be limited to project oversight and the financier will not be likely to engage in day-to-day operations or with subcontractor parties.

As discussed in 2.3 The Subcontractors, designers will typically be architectural or engineering firms and will be responsible for the preparation of design documents and specifications necessary to produce a structure that complies with employer requirements and is structurally sound. Certain projects may also require more niche design expertise, at which point it is possible for companies providing services such as landscaping and water feature design to be retained.

Obligations of the Designer in the UAE

Designers are obligated to develop design documents, including drawings, specifications and plans, that meet project and regulatory requirements. Designers will typically engage with both the employer and subcontractor throughout the project to ensure that the end result complies with the employer’s needs and is able to be built by the contractor.

Rights of the Designer in the UAE

A designer is entitled to receive compensation for their design services, which may be a lump-sum payment in the event of a limited scope of design (such as design of internal signage for a residential apartment building) or on ongoing payment terms in the case of more key design contractors such as the architect.

Subject to the terms of their contract, some architects may have rights over the intellectual property in their design work. However, designers will typically be given moral rights over their design in accordance with Articles 5 and 31(3) of Federal Decree Law No. 38 of 2021 (the UAE Copyright Law).

The Designer’s Relationship with Employers and Contractors

Under UAE law, the designer has a fairly unique relationship with the contractor. Due to the existence of “decennial liability” under the UAE Civil Code, both the designer and contractors are jointly liable to the employer for a period of at least ten years for total or partial destruction of buildings or fixed constructions designed by the designer and erected by the contractor in accordance with that design (Art. 880 of the UAE Civil Code).

Typically, a project’s scope of works will be determined by the various high-level documents prepared by the employer which outline the objectives of the project and its minimum requirements. While the employer will usually be responsible for the accuracy of such documents, there have been instances where contractors have agreed to ensure that the works are completed in accordance with a particular industry standard or a level of care, regardless of the accuracy of the employer’s documentation. This is on the basis that the contractors are better placed to bear such risks and are engaged for their experience and skill. Consequently, it is common for contractors to accept certain levels of design risk even if they had no input in the preparation of the design.

There have also been instances of contractors taking on design responsibility, in which case design subcontractors may prepare detailed design documentation based on the high-level documents provided by employers. This is popular among employers looking for a “single point” of responsibility (ie, the contractor), rather than having to manage multiple contractors for different packages of work. It is therefore seen most commonly in EPC contracts.

Key documents used to define the scope of works in the UAE include the following.

• Programme of requirements: the programme of requirements is a document that sets out both the functional and operations needs for a project. This is the “foundational” document of any project, and will be the guide for development of more detailed technical documentation at a later stage.
• Technical specifications: these present the requirements and standards of quality, performance and materials that are to be used on a project, and will often go into detail on considerations such as building materials, construction methodology, installation requirements, and quality control procedures.
• Design drawings: design drawings are graphical representations of a project, including spatial layout, dimensions, architectural and structural elements, and other key details necessary for project construction.
• Bill of quantities: the bill of quantities is an itemised list of quantities and types of construction materials, labour, and equipment necessary for construction works and is used to calculate the costs and resourcing requirements of a project.

Specialist financial and technical advisors are frequently engaged by employers to assist in the preparation of the above documents. Indeed, on large-scale projects which are financed, multiple advisors will be engaged acting for procurers, sponsors and lenders.

Parties are free to agree on their respective contractual rights and obligations relating to variations.

Where a variation is requested by the employer, the method for determining the scope and price will depend entirely on the form of contract. In an EPC contract, generally the contractor will be requested to indicate the cost and time implication of the variation, and the employer (or engineer or other representative) will determine the additional cost and any extension of time. Contracts usually permit the contractor to request a variation, with the determination of time and cost determined in the same way.

If there is no pre-agreed method of valuing a variation, Articles 885 and 888 of the UAE Civil Code allow the contractor to receive fair reimbursement for the works performed. However, such reimbursement is usually limited to direct cost. 

While the division of design responsibility as between the employer, designer and contractor will vary from project to project, it is common for the employer to provide the contractor with its minimum requirements and, more often than not, detailed design specifications. Additional design work may be carried out by the employer’s design consultant or, in some instances, the contractor or a subcontractor.

In large-scale EPC contracts, as in other jurisdictions, the responsibility for the design process is almost entirely on the contractor.

Even if the contractor is engaged on a “build-only” basis, the imposition of decennial liability under Article 880 of the UAE Civil Code results in the contractor being jointly liable with the designer for a period of ten years (or a longer agreed period), in the event of any partial or total destruction of the works or the presence of defects that threaten the structural integrity of the works. As such, contractors should always review and verify whether the design documents are appropriate and fit for purpose, even if they are not directly involved in the design work. Insurance policies covering such risks are available in the market and, as far as we are aware, effected and maintained for all projects.

As set out in 2. Parties each of the employer, contractor, and subcontractor take on distinct roles in the construction of a project.

At a high level, the following will be required:

• the employer will be responsible for obtaining necessary permits for construction, providing site access, and making payments to the contractor to ensure continued cashflow;
• the contractor will be responsible for liaising between the employer and the subcontractors and ensuring execution of the works in accordance with the employer’s specifications and requirements (subject to buildability issues in the same); and
• the subcontractors will be responsible for specific workstreams instructed by the contractor in line with the employer’s requirements – for example, installation of electrical wiring in a new office building, or plumbing works in a residential tower; the contractor’s supply chain is often subject to oversight from the employer, particularly in relation to critical components of the works.

Each party involved in a project will usually bear some responsibility for the site. Broadly speaking, the employer’s responsibility is to provide access to the site and, to the extent possible, to inform the contractor of any pre-existing site conditions of which it is aware (for instance, pollution, underground obstacles, and geotechnical conditions). The contractor will typically inspect the site before entering any contract for construction works to satisfy itself as to the site conditions. In the event of latent site conditions which could not have been discovered through reasonable inspections, the contractor will typically be entitled to the associated delays and/or costs.

Once the employer provides the contractor with access to the site, responsibility and liability connected with the site (including operational health and safety liability) will typically pass to the contractor, subject to any limitations of liability provided in the relevant contract. By way of example, projects procured by government entities in Abu Dhabi often provide relief to contractors for any adverse site conditions encountered in the first 12 months of construction, as this is when such conditions are most likely to be discovered. However, this is not universally applied across the region.

There are several permits required to complete construction works in the UAE. Typically, the process of obtaining necessary permits is the responsibility of the employer, although the task of obtaining “no-objections certificates” will usually fall to the contractor. While it is not possible to provide a comprehensive list of permits in the UAE, as these will vary between different types of projects and depend upon the rules of the Emirate where construction will take place, most projects will require a building permit and (on completion) a Building Completion Certificate. It is also very common to need permits for civil works and for utility connections such as water and sewage – although this, again, depends on the type of project.

During the defects liability period, it will typically fall to the contractor to maintain the works, including repair of any damage. However, some employers may separately elect to enter a contract for maintenance of the works, commencing immediately after practical completion. In these circumstances, the contractor may only be involved in rectification of major defects, and the maintenance contractor might handle more “everyday” maintenance activities.

After the conclusion of the defect liability period, it is common for employers to hand over maintenance obligations to a dedicated maintenance contractor, who may also be responsible for operation of the works under an operation and maintenance contract. More specialist maintenance for mechanical equipment and technology may be separately contracted to the manufacturer of the equipment or a specialist maintenance contractor.

Projects in the UAE will see the procurer engage the project company in respect of a variety of functions. In a PPP arrangement, the Project Company is often responsible for the finance, design, procurement, construction, operation and maintenance of the project. 

On certain projects (for example, wind and gas projects) it is common to see the original equipment manufacturers of specialist components (ie, turbines etc.) engaged pursuant to a long-term service agreement (which runs concurrently with the overarching operation and maintenance contract) to maintain such specialist components given their bespoke nature.

However, the specific functions for which a party is responsible will ultimately depend on the project, the employer’s risk tolerance and the nature of its business.

Tests for completion of works are typically undertaken by the contractor (who will likely also be responsible for remedying any defects identified during testing). The testing structure varies from project to project, and different projects have different tests; by way of example, waste to energy projects have “must-run” tests which are not common in solar projects. For more specialised mechanical, electrical, and technological items an employer may separately engage a specialist third party to provide commissioning and testing services.

Following practical completion of a project and the commissioning and testing of the works, a taking-over certificate will typically be issued by the project engineer, at which point the employer will take over the works.

If the employer begins to use any part of the works before a taking-over certificate is provided, this may constitute a “tacit takeover” and result in the employer becoming liable for the site in any event. Provision to this effect can be found in the commonly used 1999 FIDIC Red Book, in which clause 10.2 provides for tacit takeover. However, where employers prepare their own bespoke forms of particular conditions such a clause is frequently amended along with concepts such as deemed acceptance which are more contractor friendly.

Per Article 884 of the UAE Civil Code, where the employer fails, without reasonable cause, to take over the works once completed by the contractor, the employer will have no claim against the contractor during that period if the work “perishes in the hands of the contractor or becomes defective, without any trespassing or neglect from the latter”.

After takeover, the employer will typically return parts of any retention monies and bank guarantees or performance bonds, with the remaining balance usually returnable at the conclusion of the defects liability period.

The defects liability period typically commences upon issue of the taking over certificate and typically lasts for 24 months. That said, it is open to the parties to agree to a shorter or longer period.

During the defects liability period, the contractor remains obligated to remedy, at its own cost, any defects or to complete any works that are found to have been left incomplete. If the contractor refuses to remedy or complete the works, the employer will typically have a right to:

• remedy the defect or have the works completed by a third party at the contractor’s expense;
• exercise any rights of set-off in respect retention sums; and/or
• call upon remaining bank guarantees or performance bonds.

It is common for contracts in the UAE to extend the defects liability period in respect of any specific sections of the works that are found to be defective and then remedied during the defects liability period. Often such extensions are for periods commensurate with the original defects liability period but subject to an overall limit (for instance 48 months from issuance of the taking over certificate).

Most construction contracts in the UAE will be priced on a lump sum or remeasurement basis (ie, payment under a schedule or rates or bill of quantities). While some parties may elect to use a costs-plus or “reimbursable” method to establish the contract price, this method is unusual in the UAE.

Typically, payment will be contingent on inspection and certification of works as “complete” by the contract administrator. This can be on a fixed periodic basis (for instance every month or every quarter) but is also commonly completed on a milestone basis, particularly for complex projects involving multiple design and/or construction phases.

It is uncommon for contracts in the UAE to provide for indexation of prices. Indeed, in respect of lump sum contracts, Article 887 of the UAE Civil Code provides that, subject to any agreement to the contrary, the contractor will have no claim to an increase in price required for execution of the works. 

In the event of a large fluctuation in price, (again subject to agreement to the contrary) Article 886 of the UAE Civil Code allows the employer (once informed by the contractor) to “release himself from the contract and stop the execution without delay and pay the contractor the cost of the work done by him estimated in accordance with the terms of the contract”. If the price increases significantly and the contractor does not inform the employer, the contractor will forfeit any right to recover the increased expenses of the work.

Accordingly, the position at law is particularly friendly to employers and seeks a greater proportion of risk sit with the contractor in the event the relevant contract does not provide for indexation.

Indexation is only usually seen on projects where a certain element of the price is uncertain or applicable over a long duration. This mechanism is often resisted by employers as it undermines (to an extent) the “fixed price” approach and creates uncertainty as to the total costs at the outset.

While payment mechanisms vary project to project, construction contracts for UAE projects frequently require the employer to make advance payments and/or progress/interim payments to assist the contractor with its cashflow management. The use of milestone payments is also common in UAE construction contracts, tying payments to the contractor to the completion of contractual milestones to encourage timely progress in line with the programme.

In the event of non-payment, contractors and sub-contractors are usually entitled to suspend works.

Invoices in the UAE are commonly issued by either email or as a hard copy; however, many international employers and contractors will additionally or alternatively use invoicing tools built into internal construction project management systems.

The employer usually initiates the planning process by providing high-level documentation relating to the project objectives and technical specifications to the contractor. However, the contractor will typically be responsible for the development of a detailed construction methodology and a programme that accords with the timing requirements of the employer. It is not uncommon for an in-house or external project manager to be retained to assist in day-to-day coordination of activities in line with the construction programme. Parties are also increasingly using project management software to coordinate site activities.

There is no automatic entitlement to additional time under UAE law. As such, the allocation of time-related risk is a matter for the parties agree.

In the event of delays, the contractor is typically required to notify the employer of the event or circumstance giving rise to the delay and provide the details of any extension of time and/or costs claimed.

Following the receipt of such notice, the employer will usually be required to review and make a determination of the contractor’s claim, either by issuing a variation order to extend any time for completion or by rejecting the contractor’s claim. Employers are usually required to make such determination within a certain period of time (although some contracts do not require response within a set period).

For any time-related costs arising from delay events which are on the employer’s account, the contractor is usually entitled to claim such costs (except in the case of force majeure), except for indirect cost.

Where there is a finding of concurrent delay, the onshore UAE courts are likely to apportion the liability between the parties by applying the provisions of the UAE Civil Code, including Article 246 (good faith), Article 290 (power to reduce damages if damage caused by claimant) and Article 291 (power to apportion liability).

By contrast, the courts of the DIFC and the ADGM are more likely follow the English law approach by awarding additional time but not prolongation costs to the contractor.

In the case of delays by the contractor, the employer may be able to claim liquidated damages (which, pursuant to Article 390(2) of the UAE Civil Code, must be equivalent to the prejudice suffered). The employer may also be able to call upon any performance guarantee or terminate the contract, particularly if the delay constitutes a fundamental breach of contract or in circumstances where a longstop date is reached.

If the delay is caused by the employer, the contractor will typically be entitled to an extension of time and costs associated with the delay.

Parties are free to agree on the procedure relating to extensions of time. However, as a general rule, a contractor will typically need to provide the employer with a notice requesting an extension of time, within a set number of days from becoming aware of an event of delay or a change that will increase the time required to complete the project.

It is common for construction contracts to include provisions which state that the contractor’s entitlement to an extension of time is conditional upon strictly complying with the notification regime, and that a failure to comply will result in a time bar. However, while UAE law recognises the parties’ freedom to contract, there are various provisions in the UAE Civil Code which could support the contractor’s attempts to overcome the potentially harsh outcomes of a time bar. In particular, it is common to see contractors rely on provisions such as Article 106 (abuse of rights) and Article 246 (good faith).

Extensions of time are often measured against the contract programme. It is also common for the employer or contractor to retain a delay consultant to review any entitlement to additional time from a technical perspective.

Pursuant to Article 273 of the UAE Civil Code a party intending to rely upon force majeure to excuse non-performance of a contractual obligation must prove the following:

• that the event was unforeseeable;
• that the event made it impossible to perform the obligation;
• that the event could not have been avoided; and
• that the event was not caused by the obligor.

While force majeure is legislatively derived in the UAE, it is possible for parties to agree to the scope of what will constitute “events of force majeure” – provided nothing in such agreement contradicts the express terms of the UAE Civil Code (for instance, parties cannot agree that impossibility of performance is not required).

Typically, agreements will contain a list of events that will qualify as events of force majeure, for instance: war, extreme inclement weather, natural disasters, or pandemics. However, parties are ultimately able to agree to a clause that is as broad or as narrow as they desire, and a common method of constraining application of a force majeure clause is to impose a geographical limitation (for example “inclement weather events inside the UAE”, rather than just “inclement weather events”).

In the event of temporary, partial or total impossibility of performance, the UAE Civil Code confirms that force majeure can be established. Where impossibility is total, the corresponding obligation is extinguished and the contract will be rescinded. Where the impossibility is only partial, the contract will be extinguished to the extent of the impossibility. In all instances, the force majeure will only excuse non-performance of affected obligations.

If a party to a construction contract can establish that an event of force majeure resulted in delay, the default position in the UAE is that said party will be entitled to additional time, but not costs, for that delay.

Parties are free to agree on the allocation of risk associated with unforeseen circumstances.

For example, when it comes to site-related risks, projects procured by government entities in Abu Dhabi often provide relief to contractors for any unforeseen adverse site conditions encountered in the first 12 months of construction, as this is when such conditions are most likely to be discovered. However, this is not universally applied across the region.

One exception to this rule is the designer and contractor’s decennial liability under Article 880 of the UAE Civil Code, which does not require any element of fault or foreseeability to be established.

There is no concept of “disruption” under UAE law, and claims for disruption will typically be a matter for contract. However, in the absence of an express disruption clause in a contract, contractors in the UAE may be able to claim damages in respect of a disruption by bringing a general claim for damages if the disruption is caused by the employer’s breach of contract. This places an evidentiary burden on the contractor, who must be able to show a nexus between the employer’s breach of contract and the damage suffered.

The UAE Civil Code specifies a limited number of liabilities that cannot contractually be excluded. These include the following:

• decennial liability for partial or total collapse of works or a defect that threatens the integrity of those works (Article 880);
• fraud or gross negligence (Article 383); and
• personal injury, criminal acts or death (Article 296).

The concepts of wilful misconduct and gross negligence exist in the UAE and are governed under the UAE Civil Code. Specifically, under Article 383, any person who is obligated to “preserve a thing or to act with prudence in … performance” of an obligation is required to exercise the care of a reasonable person, and failure to exercise such care gives rise to liability. Additionally, Article 383 specifies that liability for gross negligence or fraud cannot be excluded.

Subject to the liabilities that expressly cannot be contractually excluded in the UAE (as detailed in 6.1 Exclusion of Liability), it is generally open to parties in the UAE to agree to contractual limitations of liability, including liability for consequential and indirect loss.

It is common in the UAE for a contractor to indemnify the employer for any losses (including indirect losses) arising out of works completed by the subcontractors or other third parties. It is less common, but not unheard of, for the employer to indemnify the contractor for loss.

Contracts usually, as a matter of course, contain overall caps on the contractor’s liability under the relevant contracts subject to customary exclusions (breach of confidentiality, IP infringement, amounts recovered under insurances etc.). Whether indemnities sit outside the liability cap is often hotly negotiated.

In any event, it is important to note that UAE law does not clearly distinguish between assessing damages on an indemnity basis as opposed to a breach of contract basis and may require a party to prove breach of contract to recover its losses.

Guarantees in the UAE are a matter for contract and will typically take the form of a bank guarantee. Typically, bank guarantees for UAE based construction projects will be for between 5% and 10% of the contract sum, with 50% of that amount returned to the contractor following practical completion and the remaining 50% returned upon conclusion of the defects liability period. While it is common in many jurisdictions for contractors to injunct attempts by the employer to call on bank guarantees, courts are unlikely to award such relief in the UAE, particularly where a bank guarantee is expressed to be “on demand”.

As in many jurisdictions, construction contracts in the UAE will typically require the parties put in place a variety of insurance policies. Common policies include “construction all risk”, “third-party liability” and “professional indemnity“ policies. There are typically also separate policies of insurance for employees and equipment.

Typically, if a party becomes aware of the insolvency of a counterparty in a UAE construction contract, that party will become entitled to terminate the contract. It is also common for parties to stop making payments under the contract and to attempt to call on any remaining bank guarantees to try and mitigate their potential losses, particularly if that party is an unsecured creditor.

Specific risk allocations are a matter of contract, and will be determined on a project-by-project basis. As a general rule of thumb, true “risk sharing” has not historically been a common practice in the UAE, with employers preferring lump-sum contracts due to the protection it affords under Article 887 of the UAE Civil Code (which prevents contractors from claiming increases in contract price where they have agreed to a lump sum). However, the past few years has seen a growing number of parties agreeing to contracts with “pain share gain share” provisions, although these are still fairly uncommon.

In the UAE, all construction projects must abide by Federal Decree Law No. 33 of 2021 (the UAE Labour Law), which:

• prevents employees from working more than eight hours per day or 48 hours per week unless they are a manager or supervisor (Articles 65 and 72);
• entitles Muslim employees to reduced working hours during Ramadan (Article 65);
• prevents employees from completing more than two hours of overtime per day unless necessary to prevent substantial loss or a serious accident (Article 69); and
• requires employers provide appropriate safety measures to protect employees against occupational injuries and diseases (Article 91).

Additionally, many standard form contracts in the UAE will contain express provisions in respect of personnel, including terms as to payment and housing.

Pursuant to Article 890(1) of the UAE Civil Code, a contractor is permitted to entrust the whole or part of the work to a subcontractor unless the contract with the employer prohibits doing so or the nature of the work requires the contractor to complete it themselves. Article 890(2) confirms that the contractor remains wholly liable to the employer in respect of work completed by its subcontractors (although it does not prohibit the contractor from claiming from its subcontractors in kind) and Article 891 prohibits subcontractors from claiming against the employer unless the contractor assigns the right for them to do so.

Typically, a contract will require the designer to either relinquish its intellectual property rights in its designs prepared for a project or, more commonly, to grant the employer a perpetual, irrevocable, unlimited license to use the intellectual property with a right to sub-licence. Such arrangements will typically also require the designer to give the employer the exclusive use of the design.

Article 31(1) of the UAE Copyright Law confirms that architectural designs will belong to the property owner unless otherwise agreed. However, Article 31(3) provides that they may not be changed to preserve the moral rights of the architect.

It is common for contracts to include an agreement to indemnify the employer against any liability it may incur in the event of any infringement of the intellectual property rights of a third party (for instance, a claim against the employer arising due to an architect using another architect’s design).

Pursuant to Article 257 of the UAE Civil Code, “the principle in contracts is the assent of the parties” and, accordingly, parties are generally free to agree to an array of remedies in line with general principles of contractual freedom, subject to any mandatory laws or public policy considerations.

Broadly speaking, parties in the UAE will typically agree to the same suite of contractual remedies seen on construction projects the world over. For employers, this will typically mean liquidated damages, demands on bonds, withholding of payment, exercise of set-off rights, and termination. For contractors, remedies will typically be confined to extension of time, suspension of work, termination, and general contractual damages.

As noted in 9.1 Remedies, parties in the UAE have general freedom of contract and can agree (or limit) remedies provided doing so is not contrary to any mandatory law or public policy consideration. Indeed, parties should always ensure that any limitation to available remedies is reasonable and at all times in line with the overarching requirement to deal in good faith.

While parties will not typically prohibit specific forms of remedy, it is common to agree to limitations of liability (subject to the restrictions explained in 6.1 Exclusion of Liability) that broadly carve out liability for, by way of example, consequential loss. Such clauses will also typically set a cap on damages, which is commonly 100% of the contract sum, but may be lower depending on the negotiating power of the parties. 

Sole remedy clauses are commonly seen in construction contract in the UAE but are commonly a point of contention when issues arise.

Indeed, while parties generally have freedom to contract, this is subject to the requirement that contract terms cannot contravene any mandatory law or public policy. As such, parties entering contracts governed by UAE law should take care when drafting a sole remedy clause to ensure it is not later found to be invalid.

In particular, parties should be aware of Article 390 of the UAE Civil Code. While Article 390(1) allows parties to agree in advance to an amount of damages (thereby giving rise to liquidated damages under UAE law), Article 390(2) requires these damages to be “equal to the prejudice”. To this end, parties should avoid drafting or agreeing to any sole remedy clause that could give rise to claims of unjust enrichment.

Under UAE law, parties are generally free to agree to contractual indemnities against loss of profit, loss of future profits, or indirect or consequential loss provided doing so does not contravene any mandatory law or public policy.

As an example of liability that cannot be excluded, Article 880 of the UAE Civil Code is a mandatory provision that makes the architect and contractor jointly and severally liable for the total or partial destruction of buildings or other fixed constructions erected by them for a period of 10 years (unless the construction is not intended to last more than 10 years). To this end, a liability cap broadly excluding liability for the total or partial destruction of a building would not be permitted under UAE law.

Article 296 of the UAE Civil Code prevents parties from excluding tortious liability. As such, a provision excluding tortious liability in a contract governed by UAE law would not be valid.

Retention

It is common for parties to a construction contract in the UAE to agree to employer retention rights. Typically, as in many jurisdictions, 10% of each interim payment made to a contractor will be retained by the employer, with 50% of the total retention released after takeover and the remaining 50% released after expiration of the defects liability period.

Suspension

Typically, parties in the UAE will agree to suspension rights, with the exact scope and terms of such rights agreed under contract and accordingly different from project to project. In the absence of an express provision in the contract, there is some support for suspension at law under Article 247 of the UAE Civil Code, which gives a right of non-performance to a party in the event their counterparty fails to fulfil its contractual obligations.

Article 267 of the UAE Civil Code explains that a valid and binding contract may only be revoked, modified or rescinded in the event of (i) mutual consent, (ii) court order or (iii) a provision of law. Article 267 is expressed in almost identical terms in Article 892 of the UAE Civil Code (within the muqawala section).

The mutual consent of the parties can be expressed within the contract itself, provided it is expressed with sufficient clarity that termination occurs automatically by the Employer’s notice and that there will be no need for a court order or a further notice.

Termination for convenience clauses are also generally permissible, although are occasionally challenged on the basis of Article 218 of the UAE Civil Code, which states that a contract is not binding if there is a condition that a party may cancel it without mutual consent or an order of the court.

Parties should also be aware of the overarching obligation of good faith implied into all contracts governed by UAE law by Article 246 of the UAE Civil Code and avoid terminating a contract in any circumstances where doing so is or could be construed to be in bad faith or an abuse of rights (UAE Civil Code 106).

The parties are generally free to agree the terms on which each party is compensated in the event of termination. 

Onshore UAE

In the onshore context, construction disputes will be adjudicated by the local courts. Each of the seven Emirates has the right under the UAE Constitution either to participate in the Federal Judiciary or to maintain its own local judicial system. Currently, the emirates of Sharjah, Ajman Fujairah and Umm Al Quwain follow the federal judicial system, and Abu Dhabi, Dubai and Ras Al Khaimah maintain their own independent local courts. The local courts adopt civil law, conduct proceedings entirely in Arabic, and require the use of locally qualified lawyers. The tiers of local courts in the onshore UAE are as follows:

• Court of First Instance;
• Court of Appeal; and
• Court of Cassation.

It is common practice for the local courts to appoint a construction expert, or panel of experts, to assist the court in determining factual and technical issues arising in construction disputes.

Offshore UAE

Both the ADGM and the DIFC have their own common law court systems, in which proceedings are conducted in English. The judges in these courts are international, spanning several common law jurisdictions. The DIFC Courts also appoint several Emirati judges.

The tiers of courts in the DIFC are the Court of First Instance and Court of Appeal.

The DIFC Court of First Instance is comprised of four separate divisions, being the Civil & Commercial Division, Technology & Construction Division, Arbitration Division, and Digital Economy Court Division. Of particular relevance is the Technology and Construction Division, which is designed to provide a suitable venue for the litigation of construction disputes in the DIFC.

The structure of the ADGM Courts is relatively similar, comprising the Court of First Instance (made up of the civil division, employment division and small claims division) and the Court of Appeal.

Arbitration is the most popular form of dispute resolution for construction disputes in the UAE. The relevant Arbitration in onshore UAE is Federal Law No. 6 of 2018 (the UAE Arbitration Law). In the offshore context, arbitration may be governed by the DIFC Arbitration Law or the ADGM Arbitration Regulations, respectively, both of which are based on the UNCITRAL Model Law on International Commercial Arbitration.

There are several arbitral institutions with a physical presence in the UAE, including:

• the Dubai International Arbitration Centre (DIAC);
• the Abu Dhabi International Arbitration Centre (arbitrateAD);
• the Sharjah International Commercial Arbitration Centre (Tahkeem);
• the Saudi Centre for Commercial Arbitration (SCCA); and
• the International Chamber of Commerce (ICC).

Additionally, the London Court of International Arbitration (LCIA) remains a popular choice for resolution of construction disputes in the UAE.

Dispute Avoidance Boards, or DABs, see some use on particularly large construction projects, although are not commonplace in the UAE. Additionally, while there have been efforts to promote the use of mediation in the UAE, including through the enactment of Federal Law No. 6 of 2021 (the UAE Mediation Law), uptake has remained low, with most dispute resolution clauses in construction contracts continuing to omit any requirement for mediation.