Construction Law & Practice

6/2/2014 Construction Law & Practice by Charles Ingmire as featured in The European Lawyer (Thomson Reuters)
http://www.galadarilaw.com/articlesandpublications_Details.aspx?id=8 1/15
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March 21,2013

UAE
Galadari Advocates & Legal Consultants
Charles Ingmire

1. Construction industry overview for the jurisdiction

1 .1 Comment on the size and importance of the construction industry (eg what is its size in
relation to the GDP of the jurisdiction? How many people does the industry employ? Is the
industry profitable?).

The United Arab Emirates (UAE), formed in 1971, consists of seven emirates: Abu Dhabi,
Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain. The best known and
the most developed are Abu Dhabi (the capital) and Dubai, and those two Emirates will be
the primary focus of this chapter.

To market itself the UAE has created, with great flair, some of the most iconic real estate
projects and Dubai is home to five of the six tallest hotels in the world including the Burj Al
Arab, in the shape of a boat sail; the man-made peninsular The Palm Jumeirah; and the
recently completed Burj Khalifa, the tallest building in the world at 829 metres.
It was said that in 2008, almost a quarter of the worlds cranes were to be found in Dubai
alone. True or not, this anecdotal claim was illustrative of the lightning metamorphosis of
Dubai. The capital, Abu Dhabi, and Sharjah have also developed but to a lesser degree in the
last decade.
At its height, Dubai attracted an estimated 35 per cent of the projects, 14 per cent of capital
investment and 25 per cent of the jobs created in the Middle East North Africa (MENA)
region, and contributed to an estimated 20 per cent of a growth in GDP of nearly 8 per cent
in 2008 [Dubai Department of Economic Development figures]. This growth therefore
represented a local spike, which is hard to contextualise against a background of global
boom and recession. The UAE government reported that GDP shrank by around 2.1 per cent
(the IMF put this figure at 3.2 per cent) to 914.3 billion dirhams in 2009, with construction
accounting for 10.7 per cent of this figure.
Construction reportedly contributed 8 per cent to the countrys GDP even in 2009, possibly
through infrastructure investment such as the Dubai Metro, the Burj Khalifa, the Al
Maktoum International Airport, and new road and bridge projects as contributors to
economic growth. [UAE Economic Report 2009].
In terms of UAE employment, the construction industry accounted for an estimated 48 per
cent of all workers in 2008, nearly two million workers, which was approximately double the
figure for 2006. [UAE Yearbook 2010]. In terms of its importance, the vast majority of these
workers were expatriates, so the suspension of many of the construction projects did not
have an impact on unemployment figures in the same way that it would with a domestic workforce: the
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unemployed had to quickly acquire alternative sponsored employment or
leave the UAE.
For the corporate survivors of the recession, the industry appears to remain profitable,
albeit at a reduced level. One of the largest listed construction companies in the UAE
[Arabtec] recorded a profit of 958 million dirhams in 2008 and 307 million dirhams in 2010.
Smaller companies with a lesser international reach are likely to have been more adversely
affected.

1.2 Is it a local domestic industry? Does it have international reach? Do overseas
contractors and professional consultants operate in the jurisdiction?

The majority of construction companies operating in the UAE are domestic. Tenders are
predominantly won by local contractors, and the international element is typically made up
by foreign sub-contractors and consultants, usually operating from branch offices and with a
local sponsor. The Burj Khalifa is perhaps the best-known example of international
collaboration in the UAE between developer EMAAR (UAE), and a main-contractor joint
venture between companies from the UAE, South Korea and a Belgium-UAE company.
The international reach of the UAE's construction industry is largely within other GCC
countries.

1.3 What are the challenges to/difficulties experienced by construction clients seeking to
undertake works in the jurisdiction?

The first challenge for a foreign construction company or consultant is to find a suitable
local partner (sponsor). Federal Law No. 8 of 1984 Concerning Commercial Companies states
that every company incorporated in the UAE must have one or more national partners
whose share must not be less than 51 per cent of the company capital (Article 22). The
financial effect of this is modified by Article 19, which states that If the Memorandum of
Association does not specify a certain percentage of profit or loss for a partner, his share
thereof will be proportional to his share of capital and Article 227 which provides for profit
and loss to be equally divided amongst the shares, unless it is otherwise stipulated in the
Memorandum.The alternative is to set up in one of a number of Free Zones and to pay an
annual licence fee, this is only an option for companies whose work or project is also in the
Free Zone.
All limited liability companies (LLCs) are regulated by Department of Economic Development
(DED) and the local municipality. The DEDs primary role is to regulate companies
incorporated under the Commercial Companies Law, keep commercial registers, grant
annual trade licences, and issue letters of no objection for any proposed new project or
activity which affects the planning, construction and development of the emirate. From a construction and
engineering standpoint, the most immediate challenge is the
weather. UAE cities are almost invariably coastal, and allowance must be made for building
in an aggressive coastal environment with a high water table. Temperatures can also reach
50 degrees Celsius, so allowance must be made in programming, and for measures such as
overnight working. Concreting, for instance, which is highly time and temperature reliant
(ice is understood to have been added to the mix for the Burj Khalifa), may have to be
carried out at times that conflict with noise restrictions.
Labourers are expatriates. To employ an expatriate employee, an application must be
approved by the Ministry of Labour prior to his entry into the UAE. The construction
workforce is largely unskilled with a number of languages spoken.

1.4 What are the current trends in the industry?

Dubai, in particular, came under a critical spotlight as a result of its highly visible economic
problems and the shelving of some major projects such as the Dubai World archipelago.
Delay claims and non-payment claims have become the norm and, no doubt will result in
increased caution at all levels of the procurement chain for domestic projects. The larger
contractors are seeking contracts in regions less affected economically or by social unrest,
such as The Kingdom of Saudi Arabia and Qatar. Until the social upheaval in countries which
were directly subject to the so-called Arab Spring in 2011 dies down, there may be a
refocusing on development in MENA region countries perceived by investors to be stable.
The UAE must rank highly amongst these.
The market will doubtless be of a less international flavour in the short to medium term. A
number of consultants have left the UAE with unpaid invoices. We will doubtless see
something of a sea change towards more strategic foreign investment and thoughtful
inward investment in the future. There has been increased interest from Chinese investors
across the MENA region.
Although, of course, it is open to the parties to vary and renegotiate any element of their
contracts, the tendency is for contractors to seek to enforce their full contractual
entitlement which cannot easily be met by cash-strapped developers; conversely, rather
than seeking to renegotiate the contract, developers have been known to sustain the
development by engaging a replacement contractor, who may also not be paid. Although
developers may feel that they have political support in doing so because of the
municipalitys drive to complete so-called unfinished ghost buildings, experience shows
that the courts are standing their ground against such practices.
Environmental research being undertaken in the UAE may one day perhaps make it an
exporter of environmental construction techniques. The Masdar City project in Abu Dhabi is
focused on utilising and developing renewable energy sources and academic institutions
elsewhere are carrying out research. The Heriot-Watt University in Dubai, for example, is researching the
traditional, simple yet effective Persian wind tower (barjeel) building cooling
designs to establish whether they are of viable commercial application in modern buildings.

1.5 What competition laws affect the industry? How are they enforced and is regulation
effective?

There is limited competition law regulation in the UAE. It is principally found in the
Consumer Protection Law No. 24 of 2006 and implementing Regulations. A Federal
Competition Bill is currently being drafted by the Department of Legal Affairs, Ministry of
Economy.
The provisions require, as a necessary element of a monopoly or price fixing, that the
prohibited acts constitute damage to the national economy.
The Commercial Code also contains provisions on unlawful competition at Articles 64-70.
Article 66 states that a trader shall not be allowed to resort to methods of fraud or deceit in
the sale of his goods. This would be of application to the sale of construction materials.

1.6 Does bribery, the making of facilitation payments or other corruption exist in the
industry? What bribery/anti-corruption laws apply to the jurisdiction? How are those laws
policed? Is this effective?

Arguably, the necessity for company sponsorship by a UAE national amounts to a form of
facilitation. The sponsor, who receives a percentage of the companys profit, is often from a
well-connected family who is able to make business introductions, give the sponsored
company a leg-up in the procurement of business and solve administrative headaches. This
is not a criminal activity but akin perhaps in other jurisdictions to engaging a former
politician on the board of directors. In any event, it plays a large part in enabling a foreign
company to more effectively do business.
There is specific legislation to combat corruption. Articles 234-239 of the Federal Penal Code
Federal Law No. 3 of 1987 make acceptance of a bribe by a public official a criminal offence,
the offeror or facilitator can also face a penalty. UAE Federal Law No. 4 of 2002 on money
laundering criminalises bribery, embezzlement, fraud, breach of trust and related offences.
The UAE Federal Civil Service Law prohibits civil servants from performing acts for other
persons, either with or without payment, except with the permission of the relevant
minister. Further, civil servants may not have interests in businesses or contracts related to
the work of their ministry, and may not combine their office with any other offices, although
they may serve on the boards of charities or companies with state shareholding. If a
company wishes to provide gifts or hospitality to UAE public officials, then certain criteria
must be met.
The UAE is a member of the IMF, and has ratified the United Nations Convention against
Corruption 2003 (UNCAC Treaty) by Federal Decree No. 8 of 2006. In addition to the public sector, the Treaty
requires the UAE to take measures to prevent corruption involving the
private sector, enhance accounting and auditing standards in the private sector and, where
appropriate, provide effective, proportionate and dissuasive civil, administrative or criminal
penalties for failure to comply with such measures. (Article 12)
It is also of note that the new UK Bribery Act 2010, which will come into force later in 2011,
has overseas reach for UK citizens and companies. Local custom or practice is no defence.
The year 2008 saw a number of UAE industry and finance giants embroiled in high-profile
corruption and bribery cases and investigations. The Dubai government launched a
crackdown, with the aim of implementing a zero-tolerance policy towards corruption in
public and private real estate and financial firms. However, no specific data is currently
available by which to measure the effectiveness of the policing of the legislation.


2. Legal overview for the jurisdiction

2.1 Is the jurisdiction a common law jurisdiction or is the law codified?

The jurisdiction is one of codified law. The Law of Civil Transactions of the State of the
United Arab Emirates, known as the Civil Code, was brought into force pursuant to Federal
Law No. 5 of 1985 on 29 March 1986.
Abu Dhabi is the seat of the Supreme Council, which is the highest legislative authority. It
approves federal law drafted by the Council of Ministers and the National Assembly. These
bodies, together with the Judiciary of the Union, were established by Article 45 of the
Constitution, which became permanent in 1996.
The primary sources of law are federal laws and decrees, which are applicable throughout
the UAE, and local decrees and orders applicable at emirate level and Sharia (Islamic) law. A
secondary source of law is trade custom and practice, which is incorporated into the law by
Civil Code Article 46(1) and has governing force as long as it is long standing and has not
fallen into disuse.
The Law of Commercial Transactions, known as the Commercial Code, was brought into
force pursuant to Federal Law No. 18 of 1993. There are federal laws to regulate other areas
(maritime affairs, intellectual property, etc) but it is primarily the Civil Code that deals with
questions of contract law.

2.2 Are there any specific construction laws or codes relating to the standards of
design and work?

There is currently no federal or, indeed, emirate-level construction law, and no federal
construction code. The primary source of law pertinent to construction operations is found
in the Civil Code at Articles 872-896. These articles relate to Muqawala contracts,
interpreted as the making of things, or carrying out of work or a task. These articles, therefore, govern
the formation and operation of construction contracts and issues such as
termination of contract and limitation of liability.
The Muqawala articles do not govern standards of design and work qualitatively but
perhaps obliquely, by rendering a contractor or consultant liable in certain circumstances.
Historically, as long as constructing parties conformed to published and accepted
international standards, the authorities were satisfied. This approach is changing.
Federal Law No. 24 of 1999 for the protection and development of the environment
(Environment Law) contains pertinent legislation for instance in relation to pollution.

Abu Dhabi
At an emirate level, Abu Dhabi is pursuing a green building and sustainable infrastructure
policy, and has chosen to adopt codes published by the International Code Council. The new
Abu Dhabi Code will be comprised of eight of the International Building Codes, including,
amongst others, codes for building, fire, energy conservation, plumbing and mechanical
works.
Abu Dhabi launched a sustainability initiative in April 2010 called the Estidama programme,
with a green building rating system called the Pearl Rating System. The pearl benchmarks
range from 1 to 5, with pearl 5 being the highest standard achievable only if the building has
a positive net effect on the environment. Pearl 1 is mandatory for all developments in Abu
Dhabi and Pearl 2 is mandatory for all government projects.
In January 2011, the Health Authority of Abu Dhabi launched new design standards for
healthcare facilities.

Dubai
Dubai has its own Building Code Regulations & Construction Specifications (February 2004).
Further, the plans for all building works in Dubai have had to comply with the green building
standards of the Dubai Municipality since 1999. As part of Dubai Strategic Plan 2015, the
Dubai Electricity and Water Authority (DEWA) published the Green Building Regulations
(2010). The regulations will apply to the design of all new buildings, to achieve efficiency in
the use of electricity, water and renewable energy and reduce greenhouse emissions.
Permits are required from the Dubai municipality for activities relating to water usage
(sewage/drainage, liquid waste) and to air pollution. The environmental standards are
monitored by the municipality, which has the power to clean up at the polluter's expense, to
enforce discontinuance of drainage or to cancel building permits. Furthermore, the operator
of a facility is required to perform monthly tests and to send the results to the municipality.
The UAE created the Federal Environmental Authority (FEA) in 1993. The FEA has prepared
draft environmental protection legislation to bring cohesiveness to a fragmented system of
environmental protection.
Civil defence and utility companies have introduced local interpretations on international
standards, which are often more detailed than the original international standard.
2.3 What is the inter-relationship of statute/code and case law?

There is no tradition of judicial precedent, but although past judgments have no binding
effect on subsequent decisions, cassation court judgements can be submitted as evidence
and taken into consideration by the court.
Notable court decisions are reported in the UAE Gazette, the Dubai Gazette and Ras Al
Khaimah Gazette.

2.4 Is the national law subject to/influenced by any supervening authority (such as the
European Union)?

The national law is not subject to any supervening authority. The UAE is a signatory to a
number of international conventions including: the New York Convention, Riyadh
Convention, GCC Convention, ICSID Convention, Washington Convention and a number of
agreements for judicial cooperation and recognition enforcement of judicial decisions
(including arbitral awards). Any award must be consistent with UAE public policy and also
enforceable at the point of origin.
International jurisdiction of the courts is provided for in Articles 20-24 Civil Procedure Code
(Federal Law No. 11 of 1992). Any agreement that seeks to remove jurisdiction from the
UAE courts shall be void where the parties have a connection by domicile or an obligation
which is to be effected in the UAE (Article 24).
In order to enforce foreign judgments, Article 235 Civil Procedure Code provides that certain
criteria must be met. These criteria include that: the award or judgment must have been
made with proper jurisdiction; that the UAE did not have jurisdiction to hear the dispute;
the parties were called to attend and were represented; the matter is finally decided; and
the award or judgment does not conflict with a previous ruling or order, or contravene
propriety or public order.

2.5 In federal jurisdictions, what is the inter-relationship between state and federal
laws?

Federal law is applicable to the whole of the UAE. The local governments of the seven
emirates are constitutionally permitted to regulate matters that are not the subject of
legislation by the federal government. In the event of a conflict of laws, federal law takes
precedence.
Dubai and Ras Al Khaimah have elected to maintain their own court systems, which have
sole jurisdiction to hear cases brought in those emirates. Federal courts, and those of Dubai
and Ras Al Khaimah have a three-tier structure (Court of First Instance, Court of Appeal,
Court of Cassation). As the Constitution prescribes, the Ras Al Khaimah and Dubai courts
apply federal law first and then the law of the emirate.
2.6 Are there registration or licence requirements for consultants or contractors
carrying out business in the jurisdiction?

All companies must obtain a Trade Licence and Commercial Registration Certificate from the
Department of Economic Development.
Business activities fall into three categories for the purposes of licences: commercial
licences (covering all kinds of trading activity); professional licences (covering professions,
services, craftsmen and artisans); and industrial licences (establishing industrial or
manufacturing activity).
The alternative is to set up in a free zone, but free zone companies are not permitted to
trade nationally outside their free zone, although international work or trade is permitted. It
would therefore make little sense for a consultant or construction company to set up in a
free zone.
As part of Abu Dhabis 2030 Vision, Regulations 1, 2 and 3 of 2009 have made it
compulsory for Engineering Consultants Offices, Contractors and Engineers to be classified
in order to work in Abu Dhabi. This is an administrative process, which is valid for 2 years,
and has a number of requirements such as the submission of evidence of prior experience.

2.7 Is there a specialist construction/civil engineering court and/or body of lawyers?

There is no specialist construction/civil engineering court or body of lawyers.

2.8 Is there a limitation period (time limit) for claims arising from the design or
construction of works?

It is a principle of UAE law that rights do not expire solely by the passage of time except that
a lawful excuse is required to justify the delay in bringing a claim (Article 473 Civil Code).
The primary limitation period for traders is 10 years from the date that the obligation should
have been settled (Article 95 of The Law of Commercial Procedure, Federal Law 18 of 1993.)
The traders are those who carry out listed activities and this includes contractors pursuant
to Article 11 (2).
In relation to claims against engineers and experts, the limitation period is five years (Article
475 Civil Code). If an architects work is restricted to making plans, to the exclusion of
supervising their execution, then they shall be liable only for defects in the plans. (Article
881 Civil Code).
In the case of any total or partial destruction of the works, or a defect which threatens the
stability and safety of a building, the supervising architect and the contractor under his
supervision are jointly liable for 10 years from delivery of the work to compensate the
employer unless the contracting parties intend that such installations should last for a
period of less than 10 years (Article 880 Civil Code). This is a strict liability provision so
regardless of fault, and the court of Cassation has found that it can include problems caused by the land, such as
subsidence. Article 883 states that no claim for liability shall be heard
after three years from the collapse or discovery of the defect.
The limitation long-stop provision is 15 years and without lawful excuse the right to bring a
claim does lapse. However, a judge cannot unilaterally decide not to hear a case (Article 488
Civil Code) so limitation is a defence which can be expressly or impliedly waived. Parties
cannot contract out of the limitation provisions (Article 882 Civil Code).
If there is written acknowledgement (of liability) or paper proving any of the rights (cause
of action) a claim can be heard up to 15 years from payment becoming due (Article 477(2)
Civil Code).

2.9 Are there any commonly used methods for contractors to manage risk (eg
decennial insurance)?

Insurance is a key feature of risk management. It should be noted that the effect of the
strict liability provisions in Articles 880 Civil Code may mean that a consultant or a
contractor may not be covered by their policy as some standard insurance policies can be
dependent upon a finding of negligence, an element which would not necessarily be present
in, for instance, a case of subsidence. Insurance against decennial liability may also not be
widely available.
Insurance is regularly required from the contractor to cover loss or damage to plant and
equipment and workmens compensation insurance covering workers compensation is
mandatory. In essence, it covers the financial implications of an accident and blood money
compensation payable in the event of a fatal accident.
Professional indemnity insurance is typically carried as elsewhere.
Parties are free to fix the compensation payable in the contract (Article 390 Civil Code), but
such a liquidated damage provision may be altered by a judge to reflect actual loss, any
agreement to the contrary will be void. (Article 390(2) Civil Code).
Fast-track construction was the norm in the UAE, with inadequately prepared designs, or
even concept, leading to massive claims for variations which caused cash flow and financing
problems and which made settlements of invoice disputes a Gordian knot. Closer attention
to documentation and financial tracking will hopefully follow.

3. Building and civil engineering procurement strategies

3.1 What are the common methods of procurement (ie the structure of the contracts
between all of the participants in a construction project) for the jurisdiction?

It is perhaps surprising, given the international flavour of the construction community in the
UAE and, in particular, the involvement of expatriate construction professionals, that a wider variety of
procurement routes has not been more successfully explored. Construction
procurement in the UAE is almost invariably traditional, or occasionally design and build.

3.2 What are the legal and commercial advantages and disadvantages of each method
of procurement identified?

The legal advantage of the traditional procurement route is that the employer retains more
control. This form of procurement is valued in the UAE as local employers particularly have
historically sought to retain a high level of input and control over design details and to vary
works as the works progress. This in turn resulted in a trend for substantial variation claims.

3.3 What methods of procurement are most commonly adopted?
Traditional procurement has historically been a more prevalent choice than design and build
in the UAE. It is considered that there are a number of reasons for this. A short drive around
Dubai, where the majority of construction work took place in recent years, will be sufficient
to illustrate what is probably the main reason for this choice, which is the large number of
bespoke, highly specified buildings. Transfer of design risk and control to the contractor is
more popular in less highly designed, or repeat projects.

3.4 Are early qualification or pre-qualification processes used in public and/or private
construction projects? If so, describe how these work.

Some public and private sector employers in the UAE require both contractors and
consultants to complete a pre-qualification form. For example, Dubai Municipality has a pre-
qualification form which requires information in respect of: domestic and international
experience; a company organisation chart; and a financial statement including evidence of
the companys accounts for the previous three years.

3.5 How do contractors work (eg do they maintain a direct labour force and other in-
house capability or is all work sub-contracted)?

Contractors tend to maintain a direct labour force, and additionally source labour through
agencies. Typically, labour is sourced from India, Pakistan, Bangladesh and Sri Lanka.

4. Building and civil engineering contracts/forms of appointment

4.1 Are standard forms of building contract published? If so, by whom? What are they?
How widely are they used?
The UAE does not produce its own standard form contracts. Instead, international contracts
such as FIDIC are utilised.
FIDIC contracts are the most commonly used, in particular the FIDIC 1987 and FIDIC Red
Book 1999 Conditions. The latter provides conditions of contract for construction works
where the design is carried out by the employer.
Standard form design and build contracts such as the FIDIC Yellow Book were gaining in
popularity prior to the global economic slowdown. Design and build contracts have been
used on major projects such as the construction of Dubai Metro, the second phase of which
(the Green Line) was completed in September 2011. Other standard forms such NEC 3, are
used, but rarely.
Government projects in Abu Dhabi have utilised a form of contract based upon FIDIC since
2007. Used by all government departments, it is considered to be weighted in the
employers favour.
Use of a standard form such as FIDIC is less of a benefit in a civil jurisdiction than in a
common law jurisdiction where the clauses have been the subject of published judicial
scrutiny.
Article 258 of the Civil Code provides that the courts may take into account the intentions of
the parties particularly in circumstances where the wording of the contract is not clear and
of course, subject to negotiation, one always has the opportunity to amend standard forms.
The main advantage of the adoption of internationally recognised standard forms is that
they are published in English, well known and trusted. This saves time and therefore money,
but can also lead to complacency, poor or inconsistent amendments, and amendments
which conflict with Federal Law. A project manager recently described FIDICs use as blind.
Standard forms typically include a dispute resolution mechanism, usually arbitration, and a
choice of law option, which subject to the negotiation powers of the parties might allow for
the legal seat to be outside the UAE.
Government forms tend to be more heavily weighted in favour of the employer. In some
instances this weighting has been codified. According to Law 6 of 1997 the Dubai
government departments are entitled to increase the stated quantities in the contract by up
to 30 per cent of the original contract price without allowing for any increase in the original
contract price. In other words, an increase of up to 30 per cent will be deemed to be within
the contract price and will supersede any corresponding conditions of the FIDIC contract.

4.2 What other standard form building and civil engineering documents (eg appointments
and security documents) are published?

International standard form contracts are used, in whole or in part, or incorporated by
reference into bespoke contracts.

5. Anatomy of a building/civil engineering contract
5.1 What are the common constituent parts of a building or civil engineering contract?

Building or civil engineering contract documents normally consist of a Form of Agreement,
Particular Conditions of contract; General Conditions of Contract; security documents;
technical specifications, drawings, pricing information, soil test report. Clauses which cover:
the identity of the parties, when the works are to start and finish and what happens if there
are delays including whether liquidated damages should be paid, the contract price and
payment provisions, variations, insurance and risk provisions, general risk and responsibility
clauses, termination provisions for both employer and contractor/consultant, details of
whether and in what circumstances the builder can suspend the works, what happens at
handover and when the builder reaches practical completion and clauses relating to how to
deal with claims/disputes should they arise.

5.2 When and how does a contract become legally enforceable (ie how are contracts
concluded)?

A binding, legally enforceable contract, is one which has agreement (offer and acceptance)
where the majilis (negotiation session) has concluded (Article 136 Civil Code) over the
essential elements, a subject matter capable of definition and a lawful purpose (Article 129).
Additionally intention to contract, capacity (ie both parties have the mental capacity to
understand the contract) and legality. Silence can equate to acceptance particularly where
there has been prior dealing between the parties and the offer is related to such dealing or
if the offer will bring about some benefit to whom the offer is made. (Article 135 Civil Code).
A standard form contract signed by both parties usually covers all requirements. Contracts
can also be formed orally or evidenced both orally and in writing.

Civil Code Article 246(1) provides that it is a duty of parties to perform their contract in a
manner consistent with the requirements of good faith.

5.3 What are the principal obligations of the client under a building/civil engineering
contract (eg in relation to possession of the site, payment for the works, etc)?

The client's principal obligation is payment of the contract price and to take over the works
when completed. The client may also have additional obligations to assist the
contractor/consultant, as follows:

to ensure timely access to the building site;
to obtain building permits/approvals (although this is often dealt with by
consultants); to provide timely approvals and instructions that may be necessary for the
contractor to proceed with the works; and
coordination with other contractors/consultants retained directly by the employer
(one of the consultants may act as lead consultant to undertake this task).

5.4 What are the principal obligations of the contractor under a building/civil
engineering contract (eg in relation to standard of performance, time for completion of
the works, etc)?

Generally, the building contractor is obliged to execute and complete the works in
accordance with the provisions of the contract. The contractor normally assumes
responsibility for the plant and site until the taking over certificate is issued.
Dependent on the contract, the contractor is frequently obliged to complete the work
within a certain period of time, failing which liquidated damages might be due to the client.
The contractor is also frequently obliged to make known any discrepancies, errors or faults
in the contract documentation.

5.5 Is it possible for the client to vary the works being undertaken? If so, how?

With most standard form contracts, including FIDIC, a client can vary works but it is normally
subject to a set procedure of approval and valuation to allow additional payment to the
contractor.
Contractors should bear in mind Article 886 of the Civil Code, which provides that if an
estimated quantity is going to be exceeded by a significant amount, the contractor should
immediately notify the employerif he does not do so he shall lose his right to recover the
excess costs over the value of the measured quantity. Further, Article 886(2) provides that
the employer is then entitled to withdraw from the contract and to suspend the execution,
albeit that the contractor is entitled to be paid for the works completed.

5.6 What health and safety matters are addressed by the contract?

Most standard form contracts include provisions that oblige the contractor to ensure
compliance with all applicable safety regulations in the region in which they are working and
to take care of the safety of people on site.

5.7 What insurances are required by law? Are any other insurances commonly required
by the terms of building and civil engineering contracts?

The only insurance currently required by law is medical insurance, which is currently
compulsory for all expatriate workers in Abu Dhabi only. It should be noted that in cases of labour accidents and
occupational diseases the employer shall pay the employee's
treatment expenses at government or private hospitals until he recovers or his disability is
proven. Article 144 of Federal Law 8 of 1980
Insuring goods is not a legal requirement, and is a matter of risk and dependent on the
requirement and negotiation between contracting parties. Areas subject to insurance
include insuring the plant, machinery and works and employers/public liability.

5.8 How does a building/civil engineering contract address the interests of third parties
(such as banks providing funds for a project and occupiers of the completed project)?

A common method of addressing third party interests used in other jurisdictions is collateral
warranties. With the collateral warranty, the contractor, sub-contractor or consultant
warrants to the third party that the main contract, sub-contract or consultancy agreement
has been performed in accordance with the contract, failing which the third party has direct
recourse against the party providing the warranty. Collateral warranties are not widely used
in the UAE and, in general, FIDIC does not provide standard form collateral warranties.
It is common for security to be required from the contractor by the employer in the form of
tender bonds, advance payment guarantees, performance and retention securities. In PPP
contracts there is usually a direct contractual link between the funder and both the hard
and soft contractor.
To prevent developers misapplying funds, Dubai Law No. 8 of 2007 provides that an escrow
account must be set up to ensure that the funds are being used for the purchasers project.
This is regulated and enforced by the Real Estate Regulatory Authority (RERA). Penalties
include imprisonment and fines of not less than 100,000 dirhams.

5.9 Can a building/civil engineering contract be terminated before completion? If so,
how?

Article 892 of the UAE Civil Code provides that a contract of Muqawala [contract of work]
shall terminate upon the completion of the work agreed or upon the cancellation of the
contract by consent or by order of the court. However, Article 893 provides that if any
cause arises preventing the performance of the contract or the completion of the
performance thereof, either of the contracting parties may require that the contract be
cancelled or terminated as the case may be. Article 893 therefore allows a contract of
Muqawala to be cancelled or terminated if performance is prevented or completion is
prevented.
Where a contract is silent, a party may seek an order for termination from the court. Such
an order may not be granted and the court may simply order the obligor to perform its
obligations. Standard form contracts are not usually silent but contain specific termination provisions
setting out the circumstances in which the contract can be terminated. Article 271 Civil Code
provides that it is possible for parties to agree that a contract shall be regarded as being
cancelled spontaneously without the need for a judicial order upon non-performance of the
obligations arising thereout.
Cancellation of a contract can occur by order of the court, by mutual consent, or by
operation of law (for example through clear impossibility of performance Article 273, or
defective work Article 877 Civil Code). As long as there is a clear termination provision in the
contract then the courts should respect that agreement. The FIDIC-based standard form
adopted by Abu Dhabi government allows for termination by the employer.

5.10 Is the law relating to sub-contracts different to that for the principal or head
contract? If so, how?

Section 3 of Chapter 3 of the Civil Code Articles 890 and 891 deal specifically with sub-
contracting. Article 890 provides that a main contractor may sub-contract the works unless
precluded from doing so by the contract. In doing so the main contractor unsurprisingly
remains liable to the employer. Article 891 is discussed below in 5.11.

5.11 Are contractors fully responsible for the works and products of their sub-
contractors and suppliers? Do clients have direct rights against sub-contractors and
suppliers? Do sub-contractors and suppliers have direct rights against clients?

UAE law specifically precludes sub-contractors from filing claims directly against the
employer for anything due to him from the main contractor unless there has been an
assignment of the right (Article 891 Civil Code).
Contractors remain responsible to the employer for the works of their sub-contractors
(Article 890(2) Civil Code). Subcontractors and suppliers do not normally have rights against
client employers (see 5.10).

6. Anatomy of an appointment of a professional consultant (architects, engineers,
etc)

6.1 What are the common constituent parts of a consultants appointment?

A consultants appointment normally contains clauses relating to: the contract terms;
schedule of services; payment (fee rates or schedule of services with stage payment fees
allocated to tasks or stages); limit of indemnity; insurance; termination provisions; and
disputes.
6.2 What are the principal obligations of the client under a consultants appointment
(eg to provide information, to pay for the services, etc)?

The clients principal obligations are usually to: pay the consultants fees; obtain and provide
the consultant with all necessary information (including reports and other relevant
documentation) in the clients possession which relate to the project/services to be
provided by the consultant; to respond to the consultants requests for additional
information required in a timely manner; to provide instructions/approvals in a timely
manner; and instruct other consultants/contractors to provide the consultant with all
necessary information.

6.3 What are the principal obligations of the consultant under a consultants
appointment (eg the standard to which the services are provided, the timing of the
performance of services, etc)?

The principal obligations of a consultant are to: carry out its services with the skill and care
reasonably to be expected of a professional person experienced in the provision of like
services; to liaise with other consultants, contractors and any other professionals engaged
by the client; and to notify the client of the personnel to be engaged in carrying out the
services.

6.4 Who owns the intellectual property (eg copyright) in the work of a designer?

Copyright is described in UAE law as a moral right (Civil Code Article 111). Ownership usually
depends on the contractual provisions as the client and consultant normally decide who is
to retain copyright. If the client retains copyright then normally there will be a clause
providing that all fees be paid before the client obtains such right. A compromise can be
agreed whereby the consultant retains copyright but grants a licence to the client to allow
the client to copy and use the pertinent document for purposes relating to the project.
If the contract is silent in relation to copyright then Federal Law No. 7 of 2002 Concerning
Copyrights and Neighbouring Rights provides that: Provided that the designs are original,
then the owner of copyright in those designs will be the person who created them.
Copyright in plans and drawings does not therefore belong to the main stakeholder in a
project unless the contract so provides.

6.5 What health and safety matters are addressed by a consultants appointment?

Contractually, health and safety matters tend to fall to the contractor. Federal health and
safety law tends to relate to employment law only, and local health and safety law is very
fragmented, but again tends to relate to employment law rather than specific issues of
health and safety on a construction site.
6.6 What insurances are required by law? Are any other insurances commonly required
by the terms of a consultants appointment?

Insurance is not required by law, but frequently consultants are contractually required to
provide evidence of workmens compensation insurance, public liability insurance and
professional indemnity insurance.

6.7 How does a consultants appointment address the interests of third parties?

Generally, a consultants appointment will seek to avoid conferring direct contractual rights
on third parties.

6.8 Can a consultants appointment be terminated before completion? If so, how?

A consultants appointment can normally be terminated before completion either in
accordance with the Muqawala termination provisions under Chapter 3 section 4 Civil Code
or pursuant to the contract usually for material breach of contract by the consultant, or in
the event of the insolvency of the consultant.
Typically a consultant is contractually entitled to terminate (or suspend) in similar
circumstances and for non-payment.
Notice is usually required. Fees, expenses and compensation are normally provided for in
mutual termination.

7. Disputes

7.1 How are disputes resolved? Are the principal dispute resolution methods effective
(in terms of cost, time and providing access to justice)? Is there a system specifically for
resolving construction disputes?

Disputes are resolved by litigation through the UAE court system, the Dubai International
Financial Centre (DIFC) Court or by contractual arbitration. Court litigation involves
commencing a case in the Court of First Instance. There is a Court of Appeal and the highest
court of appeal is the Federal Supreme Court. The Federal Supreme Court presides over the
highest level of appeal from the courts of all of the emirates except Dubai and Ras Al
Khaimah, which have opted to maintain their own independent Courts of Cassation.
Cases pursued against the federal government must be commenced in the Federal Court
(not in Dubai or Ras Al Khaimah).
As a civil law system, previous judgments are not legally binding but can be presented as
persuasive argument before the court. In terms of effectiveness, the average time to ruling at first instance was
134 days in 2009
(Dubai Courts Annual Report). From a construction dispute perspective the drawbacks of the
court system are that most standard form construction contracts have been drafted in
English and in line with foreign common law principles; correspondence is also usually in
English. For this reason, decisions are harder to predict (especially as there is no specialist
court). From a litigants perspective, there is a question of whether the key points are lost
when documents are translated for the court. There is no automatic disclosure of
documents, cross-examination of parties or experts, or of argued oral submissions on the
law, although these can be sought. The experts are appointed by the court on technical
issues and their evidence is rarely overruled. Perhaps most significantly, although the Civil
Code provides for the award of costs, typically only token amounts of less than AED 4,000
are awarded. It should be noted that the Dubai International Arbitration Centre (DIAC) rules
are silent in relation to legal costs and are therefore at the discretion of the Tribunal.
In a ground breaking move designed to bolster the business sectors confidence in the legal
system, Dubai has introduced a parallel court system as an alternative to the UAE Federal
court system. The Dubai International Financial Centre Court (DIFC Court) is based in the
DIFC free zone. It is an English common law based legal system currently headed by Chief
Justice Michael Hwang SC. The creation of the DIFC required amendment to the Constitution
of the UAE because the court falls outside of the Federal court system. Use of the DIFC was
for some time restricted to parties licensed to operate within the DIFC and disputes arising
from or related to a contract performed in whole or in part within the DIFC. As of 31
October 2011 the limitations on the jurisdiction of the court have been removed and
contracting parties can now choose the DIFC Court to hear disputes.
There is no specific system for resolving construction disputes in the UAE.

7.2 Is Alternative Dispute Resolution (ADR) used? If so, identify any industry bodies
promoting the use of ADR

Dubai Law No. 16 of 2009 established the Centre for Amicable Settlement of Disputes,
which is affiliated to the Dubai courts. The Centre handles smaller disputes of up to AED
20,000, but not disputes with the government or those under the jurisdiction of the DIFC,
or those under the existing jurisdiction of the courts.
It is compulsory for parties to refer disputes to the Centre, which would otherwise be heard
before the Dubai courts, for conciliation in order to bring about settlements. Cases proceed
to the courts only if parties have been unable to reach settlement within one month of the
referral to the Centre.
UAE arbitration proceedings are currently governed primarily by Articles 203-218 of the UAE
Civil Procedure Code (Federal Law No. (11) of 1992). The Ministry of Economy has produced
a draft bill for commercial arbitration based on the UNCITRAL Model Law on International Commercial Arbitration
and in collaboration with a number of legal experts from the Abu
Dhabi Conciliation and Arbitration Centre.
Regulations concerning arbitration and disputes arising out of contracts to which the Dubai
government or any of its subsidiary departments is a party are set out in Law No. 6 of 1997.
Dubai has its own arbitration centre, the Dubai International Arbitration Centre (DIAC)
which operates under the Dubai Chamber of Commerce and Industry. Abu Dhabi has the
Abu Dhabi Commercial and Arbitration Centre (ADCCAC).
The DIFC enacted its own DIFC Arbitration Law in 2008 pursuant to DIFC-LCIA rules and also
based on the UNCITRAL Model Law. In addition, the DIFC has had mediation rules since 17
February 2008.

8. Security documents

8.1 Identify the security documents which are common to construction and civil
engineering projects. In relation to each form of security identify the party giving the
security, the party receiving the benefit of the security and the purpose of the security.

Parent company guarantees are given which come into force at the same time as the
contract. Given by the contractors parent company to the employer on the project, they
usually guarantee the due performance of all the contractors obligations and liabilities
under the contract, and that in the event of failure by the contractor to perform, the parent
company will indemnify the employer from damage, losses and expenses arising from such
failure. The reality is that the parent may be based in a different jurisdiction and somewhat
insulated from liability. Additional security in the form of bonds, such as on demand bonds
from the contractor to the employer, are regularly used.
Theoretically, a contractor or an architect may register a priority right over buildings or
other works in order to secure payment. Article 1527, section 1, of the Civil Code provides
that amounts due to contractors and architects who have undertaken to construct buildings
or other installations, or to reconstruct, repair or maintain the same, shall have the status of
a priority right over such structures, but to the extent to which the value of the land has been
enhanced thereby as at the time of sale.
For projects that stalled as a result of the recession, the Tayseer initiative from Dubai Land
Department involves evaluation of all such projects based on pre-defined criteria. Projects
judged to have the highest possibility of completion will be approved and included in the
programme. A number of banks are providing the funding for the scheme and there are
over 100 projects under the scheme. Security includes guarantees that suppliers of
materials are paid in a timely manner. In essence, banks that have signed up to a Tayseer
Programme Agreement with the Land Department provide mortgages for homebuyers in relation to specific
approved projects in order to stimulate the homebuyer market and inject
capital into the project.
A developer can apply to register his project in the programme with the Land Department.
Having passed certain qualifying standards, a project becomes eligible for selection by the
signatory banks.

9. Health and Safety and Employment Law

9.1 What health and safety laws exist?

There is no single federal health and safety law so provisions and protections vary between
emirates. Federal Law No. 8 for the year 1980 Regulation of Labour Relations (Labour Law)
as amended incorporates health and safety provisions and is supplemented by Ministerial
Order 32 of 1982.
The Labour Law stipulates that the employer must provide adequate protection (at its
expense) from hazards, injuries, occupational diseases, fire and machinery, and protection
as approved by Ministry of Labour and Social Affairs. The employee has a duty to use
protective equipment and clothing provided and to abide by all the employers safety-
related instructions. Employers must display detailed instructions concerning fire prevention
and protect employees from dangers. The instructions must be in Arabic and the language
of the employees.
There is also provision for first aid kits, washrooms and drinking water. An employer must
arrange medical check-ups and cover medical treatment resulting from a workplace injury.
Compensation is payable if the employee dies as a result of a labour accident or
occupational disease (Article 149). The amount of compensation for permanent partial
injury is tabulated and categorised by injury.
Ministry of Labour regulations include a prohibition on working in exposed areas between
12 and 3pm during the summer (15 June to 15 September).
Abu Dhabi health and safety law is limited to local Law 16 (2005) Article 14, which prohibits
an establishment or an individual from practising any work or conducting any activity
adversely affecting a persons health or safety of the environment without a licence from
the local authority.
Abu Dhabi seems to be at the centre of a drive for comprehensive regulation and has
initiated the Environment, Health and Safety Management System Regulatory Framework
(EHSMS) Decree 2009 in this sector, which applies to all new projects or those subject to
major modification.
Other sources of regulation include: the Dubai Municipality Code of Construction Safety
Practice; the Abu Dhabi Code of Practice for Construction Projects; and EHS Regulations.

9.2 Is health and safety a significant issue for the industry?
The UAE has been in the international spotlight as a result of poor labour camp conditions,
and, more recently, poor site safety leading to fatal accidents. Whilst it appears that there
are efforts being made to improve conditions, the existing legislation could be said to lack
the detail required, thereby allowing poor practice. The primary failing is that of employers
and contractors who are in loco parentis of people who often have low levels of literacy in
failing to insist on reasonable living conditions and wages for their workforce, and of the
inspectorate in failing to police or in levying insignificant fines on offending companies.
Greater accountability for the management of companies that permit poor working
practices is required.
It has fallen to interested bodies to fill the void such as Build Safe UAE which produced Best
Practice Guidelines for Labour Camp Accommodation.

9.3 What risks does a client face in relation to health and safety?

The employer is strictly liable to make payment in the event of permanent injury or death in
accordance with Schedule 2 of the Labour Law (see 9.1). The sums for death of employees
are capped at a very low level, however, employers can face a claim for compensation of up
to AED 1 million. Workers compensation insurance is readily available in the market.
It is unheard of for company directors to be prosecuted in relation to breaches of safety
regulations, but site foremen or safety officers are usually held by the police in the event of
an accident until it has been established that a crime has not been committed.

9.4 What matters should a client address in relation to health and safety?

The first matter to be addressed is to obtain and understand the relevant requirements of
the legislation, and to ensure that these are implemented and compliance is incorporated
into the contract. Where the legislation is inadequate, this should not be used as an excuse
for unethical practice.
Injuries must be reported immediately to the police and to the relevant labour department.

9.5 Are workers in the construction industry generally members of trade unions? Do
the unions effectively represent their members?

There was a move in 2006 to introduce legislation providing for trade unions. But by 2008,
nothing had materialised and the move was rejected. It is currently illegal to strike in the
UAE.

9.6 What employee burden do clients face (eg social costs and employment rights)?

Employers obligations are primarily contained in the Labour Law. Article 42 of the Labour Law makes
contractors liable for the entitlements of their sub-
contractors unpaid workers.
Chapter 5, as we have seen, obliges the employer to address matters of safety, protection
and health and social care.
Chapter 8 provides for indemnities for labour accidents and occupational diseases, Articles
142-153.
Employers are also obliged to pay for repatriation of employees.

10. Procurement

10.1 What laws govern how public bodies choose their contractors and consultants?

Depending on the nature of the project, generally the local municipal bylaws and their
regulations will be applicable.
Federal Regulation of Conditions of Purchases, Tenders and Contracts, Financial Order No.
16 of 1975 (the Public Tenders Law) applies in respect of public tenders only.

Abu Dhabi
(a) Contracting and Tendering Law No. 6 of 2008 regulates the tendering/ procurement
process in the emirate;

(b) Law No. 4 of 1997 concerning Tenders, Auctions and Stores with its Executive
Regulation for the Emirate of Abu Dhabi precedes the above. It requires a licensed
consultant to supervise the works.

Dubai
Law No. 6 of 1997 regulates contracts with the government departments of Dubai and sets
out methods of procuring contractors by the government of Dubai, which include open
(public) and closed tender processes and procedures.

10.2 Are public construction works procured on standard industry forms or upon
particular forms for government works?

The Abu Dhabi government has published modified versions of the 1999 FIDIC Contracts for
Construction and for Plant and Design-Build.
In Dubai, works are procured on the bespoke Conditions of Work for Contracts of Civil
Engineering Construction 1999. Dubais Road Transport Authority is also reported to be considering PPP for
30 per cent of its projects. The RTA has drafted a law regulating PPPs
and a manual for partnerships.

10.3 Is public procurement a significant source of work for the construction/civil
engineering industry?

Infrastructure investment is playing an increasingly significant part in the industry as the
private sector has declined. Significant power, water and health investment is planned
across the UAE. The first transport-related Public-Private Partnership (PPP) in the Gulf, the
Mafraq-Ghweifat road project, is planned for Abu Dhabi. Infrastructure spending in that
emirate alone is anticipated to be in the region of $15 billion.

10.4 Are there particular or unusual issues in undertaking public procurement?

Construction on public procurement projects may have to meet higher environmental
specifications.
Abu Dhabi Law No. 1 of 2007 stipulates strict liability for contractors using hazardous
building materials in government projects and any damage caused by them.
Unpaid invoices are a common complaint in the industry. A method of increasing pressure
on the debtor can be to seek attachment of the building under development, particularly if
the building is owned by a non-UAE company. However, attachment or seizing property
belonging to the state or government, even following a court judgment, is not permitted
under Article 247(i) Law of Civil Procedure Code. Theoretically, an arbitration award might
be executed against Dubai government-owned assets elsewhere under the New York
Convention on the Recognition and Enforcement of Foreign Arbitral Awards. A list of
government owned companies that benefit from this protection has been published.
The doctrine of sovereign immunity does not apply domestically in the UAE. The state is a
juridical person (Article 92 Civil Code) and as such can be sued. At emirate level, there is
provision, for instance in Dubai, requiring consent be given by the Ruler to being sued.
Pursuant to a 23 September 1972 order and 4 July 1992 order of the Ruler of Dubai
(collectively, the immunity orders) the rulers properties cannot be attached or seized. It is
not a total immunity, but it is an extra layer of legal process, and it has the advantage of
forcing a meeting between protagonists which may otherwise not have taken place.
Permission must be sought prior to commencing arbitration or court proceedings against a
government entity. Permission is effectively obtained from the Legal Affairs Department
(LAD) (formerly the Rulers Court) by complying with the procedure set down in Law 3 of
1996 as amended by Article 3(D)(2) of Law 10 of 2005.
Claimants must file a claim with, and obtain approval from, the Legal Advisor's Office before
commencing an action in the courts.

11. Other jurisdiction specific matters

11.1 Comment on any other matters of importance to the construction
industry/construction law which are specific to your jurisdiction or which are not
addressed under any other heading.

(a) In relation to arbitration awards, it should be noted that Articles 235 and 236 of the Civil
Procedure Code apply notwithstanding any rulings or pacts between the UAE and any
other state. This means that, theoretically at least, a foreign arbitration award that did not
comply with the provisions of Article 235 may not be enforced. The courts have refused to
ratify a foreign arbitration award on the basis that the contract containing the arbitration
clause was not signed or witness evidence not taken on oath. Dubai Aviation Corporation v.
Bechtel (2004)

(b) With a number of unfinished buildings in the UAE, an issue for the future is likely to be
the identification of the contractor responsible for latent defects under the decennial
liability provisions of Article 880 Civil Code. Competition by contractors for work is likely to
drive down tendered contract sums, but due diligence of previous construction as carried
out on such buildings is of paramount importance to the employer, replacement contractors
and the design team, as well of course to the end users.

The availability of latent defects insurance and/or decennial liability insurance is likely to be
a major consideration for those shouldering such a burden, but employers should be
prepared to share in this risk or they will find that the cost will be built in by the contractor
elsewhere or, at its worst case, that they are left with a valueless and perhaps unsafe asset
followed by lengthy litigation with an uncertain outcome.

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6/2/2014 Construction Law & Practice by Charles Ingmire as featured in The European Lawyer (Thomson Reuters)

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