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Contracts and performance
Standard contract forms
What standard contract forms are used for construction projects in your jurisdiction? To what extent do parties deviate from these standard forms?
Many contracts follow the FIDIC 1999 form. It is generally the case that the architect/engineer will draft and provide changes and deviations from the FIDIC agreement; each engineering office will have its own standard changes. Some engineering offices have their own standard contracts that are similar to FIDIC contracts, while others may differ greatly.
Definition of ‘construction work’
How is ‘construction work’ legally defined?
‘Construction’ is defined in Article 872 of the Civil Transaction Law (Federal Law 5/1985) as any transaction whereby a party promises to build an object or to perform work for consideration paid by the other party.
Are there any rules or restrictions on the governing law of construction contracts?
Parties are at liberty to select the governing law and the dispute resolution forum in the construction contract.
Are construction contracts subject to any formal requirements?
There are no formal requirements for construction contracts.
Are there any mandatory or prohibited provisions in relation to construction contracts?
There are certain implied mandatory terms, including that the contractor is responsible for any loss caused by its acts and any structural problems affecting the building (along with the architect). Parties may not contract out of such provisions.
Can any terms be implied in construction contracts?
Terms may be implied in construction contracts by statute.
How are risks typically allocated between parties to construction contracts?
Risks arising from the works, the site and delays are generally the contractor’s responsibility. Risks of collapse or fracture in the structure are the responsibility of the architect and contractor (with a limitation period of 10 years). As for the suitability of the design, this is generally on the architect or designer unless otherwise agreed.
Limitation of liability
How and to what extent can parties to construction projects contractually limit or exclude their liability?
The parties are free to limit their responsibility, except for the risks and responsibilities that the law prescribes and makes mandatory (eg, the responsibility for the building not collapsing).
How are liquidated damages typically calculated and to which liabilities are they usually applied?
Liquidated damages are generally agreed at the outset as a sum representing either:
- the employer’s loss for each day of delay, reflecting the actual loss expected; or
- the rental returns that were expected.
How are force majeure clauses treated in your jurisdiction? Is there a legal definition of force majeure events?
Force majeure is an established concept in the United Arab Emirates. If force majeure makes the performance of the contract impossible, the corresponding obligation will cease and the contract will be automatically cancelled (Article 273 of the Civil Code). Article 273 also notes that, in the case of partial impossibility, the part of the contract which has become impossible to perform will be extinguished.
It is not possible to successfully argue that a contract which has become economically unviable to perform constitutes force majeure; in such circumstances, the courts may apply other articles allowing for the extension of time for performance or amend the terms of the contract where they feel that the burden is too high on a party.
General performance obligations
What are the general performance obligations of contractors and employers?
Contractors are generally required to have their own equipment to perform the contract and to perform in accordance with the contract. The employer must receive the project on conclusion of the contractor’s performance, unless there is a lawful excuse not to hand over the project.
How are project delays typically handled? Do any set rules, restrictions or procedures apply in this regard?
Project delays are typically covered under liquidated damages or delay penalty clauses in the contract. These clauses generally stipulate a daily amount, with a cap of 10% of the contract value. In the absence of agreed clauses dealing with delay, the courts and experts may find that a delay caused loss. If the relevant party can prove its losses, it may claim such losses from the counterparty.
To what extent can the parties make variations to the contract? Do any set rules, restrictions or procedures apply in this regard?
The parties may make any variations to the contract as they wish. However, the parties will be unable to enforce any clause that contravenes any mandatory rules or clauses.
What are acceptable grounds for the termination of a contract?
Acceptable grounds for the contractor’s termination of the contract are generally based on non-payment by the employer. Acceptable grounds for the employer’s termination of a contract are generally based on the contractor’s delays in completing the works, or not providing a performance bond (or otherwise maintaining one throughout the contract period).
Remedies for breach
What remedies are available for the breach of construction contracts?
Remedies for breach are generally based on one party’s request that the courts terminate the parties’ relationship, rather than specific performance. Remedies that the courts will award include:
- direct losses and consequential losses (in certain circumstances), as well as any contractual damages agreed (eg, liquidated damages); and
- interim orders (eg, freezing the liquidation of performance bonds or cheques in another party’s hand).
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