I. Common Issues On Construction Contracts
Q: Is the employer entitled to vary the works to be performed under the contract?
A: Almost all employers insert such a clause allowing the employer to have absolute power to make variations. In the absence of such a provision, any variation would be accepted by the courts as long as it does not create an unreasonable burden on the contractor.
Q: Is the contractor entitled to an extension of time and/or additional costs due to concurrent delay?
A: Generally, concurrency of delaying events will lead to an extension of time being awarded, but without additional payment. The contractor may be entitled to additional payment where it is proven that a part of the delay is not concurrent.
Q: Is there a time limit beyond which the parties to a construction contract may no longer bring claims against each other?
A: The general rule of prescription is that claims under a construction contract shall be brought forward within the time limit of 15 years (Article 473 of the Civil Code).
In cases of structural defects, the contractor shall be responsible for 10 years after handing over the works (Article 880 of the Civil Code).
Q: How are third parties to a construction contract are afforded protection against the contractor performing the construction works?
A: Other than general Civil Code provisions, third parties may seek protection through collateral warranty agreements. A collateral warranty is an agreement which is related to another primary contract (the main building contract, sub-contract or consultant's appointment). It is entered into by the person engaged or appointed under the primary contract in favour of a third-party beneficiary who is not a party to the primary contract but who has an interest in the construction project – namely, a funder, purchaser or tenant.
II. General Construction Law
Q: What are the main sources of law regulating construction contracts and building works in UAE?
A: The law of the United Arab Emirates is based on the civil law system. The purpose of the system is to minimize the court’s discretion on contrary to the common law system where the court's decisions are considered law.
The federal law no. 5 of 1985 of civil transactions contains a section on Muwawala which applies to both construction and consultancy works.
There are specific laws regarding building and construction in the different emirates such as the Building Law No. 4 of 1983 in Abu Dhabi. Also Dubai has numerous regulations, standards, codes of practice, guidelines and circulars issued by Dubai Municipality and the free zones of TECOM and JAFZA in relation to building standards, such as the Administrative Resolution No. 125 of 2001 concerning the adoption of Building Regulations and Standards in Dubai Municipality governed areas.
There are numerous other federal laws which don’t directly regulate the construction contracts but affect these contracts, e.g. the Federal Labor Law No. 8 of 1980.
III. Licenses And Permits
Q: What are the permissions, licenses or consents required by a contractor in UAE?
A: All commercial entities carrying out business in the UAE shall have a trade license from the Department of Economic Development. All contractors shall have a “contactor classification license”. The other permits required are dependent on which municipality the site is located in.
While the details of the permit regime vary across each authority, generally all contractors are required to obtain:
- A permit for civil works which includes works prior to any foundations
- A building permit which requires the contractor to submit design drawings of the proposed building to the relevant authority
- Permits from the relevant government entities regarding utilities such as water, electricity, telecommunications, and sewerage service
- Approval of the plan for disposal of hazardous waste issued by the relevant authority
- A Non-Objection Certificate from the Civil defence. Other NOCs may also be required from UAE Armed Forces or other relevant government entities
- An Environmental permit from the relevant authority
- A permit relating to the access road and internal road network from the relevant roads and transport authority
