The International Federation of Consulting Engineers (FIDIC) is an international organization best known for developing standard contracts forms for the construction and
engineering industry. Due to the rapid construction growth during the last 20 years and international cooperation, FIDIC contracts are commonly used on construction projects in UAE. However, peculiarities of legislation and special needs of owner or contractor usually lead to modification of FIDIC Contracts. Thus, there are certain things you should now while working with FIDIC contracts in the UAE.
According to FIDIC, several books are containing standard conditions for specific contracts. The main of them are:
- The Red Book establishing Conditions of Contract for Construction for Building and Engineering Works designed by the Employer;
- The Yellow Book establishing Conditions of Contract for Plant and Design-Build.
Within UAE, construction contracts are mainly regulated by the Federal Civil Transactions Law No. (5) of 1985, under the Muqawala (contract to make a thing or to perform a task) Section and other legislative acts.
The FIDIC contract forms provide the parties with the option to choose the governing and interpretation language to be used in the contract (especially in cases concerning the proceedings or arbitration). Therefore, parties are free to choose UAE Civil Law and other relating legislation as governing law of the construction contract.
Parties to the contract
Construction contracts within UAE legal framework usually engage the two leading “players”:
- Employer (sometimes known as client) – party initiating the construction works (land or developer);
- Contractor – party that is engaged by the employer or client to design conduct, and complete certain parts of the works. Usually, by the prior consent of Employer, the Contractor can nominate Sub-Contractor
to carry out separate works.
FIDIC defines the construction contract parties in the same way. However, when it comes to FIDIC, the new ‘player’ occurs, namely the Engineer. Engineer is to be the independent agent carrying out supervision over the construction and quality of work. Despite that,
Engineer often acts on behalf of the Employer.
Both FIDIC and UAE Civil Law requires parties of the construction contract to act in their good faith. It means that Contractor is responsible for providing the Employer with works of the highest possible quality. Unfortunately, when it comes to building, there is no insurance against construction mistakes. That’s why FIDIC Books impose on the Contractor a separate obligation to promptly notify the Employer of any construction defect or mistake, while Muqawala does not contain the corresponding provision.
Price of the contract
As in many other industries, cost of the carried out works in building industry is of great essence. Therefore, there are many approaches to calculate that cost. FIDIC contract conditions use remeasurement contract, which means that the final cost of the works is established on the basis works that have been carried out. When it comes to UAE, especially concerning the governmental sector, lump sum fixed price contracts are widespread. It means that the price for all the works is agreed before the works begin. Also, under UAE law, the government entities are entitled to increase contract price by up to 30%. Therefore, the difference lays also in the risk of discrepancy that under FIDIC is carried out by Employer and in AUE – by Contractor.
In construction agreements, party’s liability arises from their obligation to act in good faith. Therefore, within the FIDIC language that requires to notify the Employer about the Construction, the Contractor’s liability is to provide proper remedies for the defects in
the works established after the works have been completed. When those remedies are provided, Contractor is no longer liable for the defects. Concerning that, UAE Civil Law is far stricter by imposing in Article 880 of UAE Civil Law a joint liability on the contractor and the designer for 10 years with respect to the defects that may result in building collapse. Therefore, this provision is to be noted while using FIDIC contracts in UAE.
Termination of the contract
If parties agree to carry out construction under UAE Iaw, they should know that Article 267 of UAE Civil Law prohibits the termination of contract by the unilateral will. When it comes to practice, individuals and private entities are applying the FIDIC with the belief that Employer has the right to terminate the contract without any consequences by providing a Contractor with a termination letter. In such cases, parties should be aware of damages claims against Employer under Article 879 of the UAE Civil Law.
FIDIC contracts forms state that conflict parties should turn to a Dispute Adjudication Board (DAB) at first. Recently, the DAB recognition was an issue to examine by the Dubai Courts. In summary, the DAB clause is recognized and apply in UAE if there is a performance of the contract by both parties. Such performance in the meaning of law is concluded as the consent to arbitration. There are many other complexities while using DAB clause in UAE, and if you are interested in this topic, please reach to our previous article on FIDIC.
Application of FIDIC contracts in UAE is accompanied by certain provisions of domestic law that should be taken into account. Also, FIDIC Books differs from each other depending on the edition. For example, in the 2000s, use of the 1999 Red Book in UAE was not so widespread, since, on the contrary to the 1987 edition, it contained DAB clause advantages of which were unclear. Therefore, it can be difficult to choose the proper type and edition of the FIDIC and bring it in line with UAE legislation.
What can we do?
If you are thinking on working with FIDIC contracts in UAE, we will be happy to provide you with an explicit consultation on FIDIC, as well as draft such contract most preferably for your situation and your contracting party by adding the necessary provisions under UAE law and eliminating those which are disadvantageous.