REALWorld Law

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

There is no local standard suite of construction contracts that are used in Dubai. Generally, the Dubai construction market has used an amended FIDIC style of contract however other forms of bespoke contracts are used, depending on the size and nature of the deal. It is important to note that in contracting with Local Government Departments in Dubai, Law No. 12 of 2020 concerning contracts of Government Departments in the Emirate of Dubai applies. Certain provisions about who can contract with the government departments, specific tendering requirements and performance bond stipulations are all provided for under the law.

Last modified 3 Apr 2023

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

The vast majority of projects in the UAE have been delivered using the traditional construct only contract method. This means that the parties designing and constructing the works are engaged under separate contracts.

The main parties involved in a construction project are as follows:

Employer/client

This is the party procuring the work (typically, a land owner or land developer). In relation to building contracts, this entity is usually referred to as the 'employer'. Generally regarding contracts of appointment of professional consultants, the party is commonly referred to as the 'client'.

Contractor

A main building contractor is engaged by the employer to carry out and complete the works. This contractor will usually, in turn, engage sub-contractors to carry out and complete separate parts of the works.

Professional team

The team of professional consultants appointed can be broken down into two categories, the principal consultants being as follows:

Designers	Non-designers
Architect of record	Quantity surveyor
Civil and structural engineer	Contract administrator
Mechanical and electrical (or building services) engineer	Project manager (usually in larger projects only)

Financier

This is the term used to describe the banks and other institutions and parties (for example, government organisations in the case of urban infrastructure and cultural/sports projects) who provide finance to the employer towards the development (and require security in return). Depending on the size of the project, there might be a single bank or a syndicate of banks.

Last modified 3 Apr 2023

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Under the most common method of procurement used in the UAE, the building contractor is responsible for the construction of the works, but not for the design.

Force majeure is provided for in Dubai law through the operation of the Civil Code. A party that is unable to perform its obligations because of an unforeseeable event outside its control can rely on the provisions of the Civil Code in order to avoid liability for non-performance of the agreement. This risk is usually also contractually prescribed in addition to the statutory requirements.

The FIDIC standard building contracts contain a force majeure clause allowing the contractor additional time to complete the works. A force majeure clause should be construed with close attention to the words that precede and follow it and with due regard to the nature and general terms of the contract.

Last modified 3 Apr 2023

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

The Dubai Government has historically paid private or government contractors to build roads, government offices, schools and hospitals, funded by oil revenues. They would pay to have buildings built, then in addition pay an operator to run them. However, the Dubai Government is now looking for opportunities to utilise the public-private partnership (PPP) model in the domestic market.

Last modified 3 Apr 2023

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

There is no statutory prohibition in Dubai on entering into a fixed-price contract. Commercially, fixed-price contracts are often negotiated as well as the circumstances in which such fixed-price can change. There are two main factors in a typical construction contract which provide for an alteration to the price. They are:

1. Instructed variations to the works
2. Other events which should they occur, and for which the contractor is not responsible (such as employer breach), would cause him to incur loss and/or expense

Whilst it is theoretically possible to draft a construction contract where the price is fixed (by omitting the factors just mentioned), the commercial reality is that both the employer and the building contractor will want to have some flexibility built into the contract; the employer will usually want to have the right to instruct variations and the contractor will certainly want the right to claim for losses suffered and expenses incurred for which it is not blameworthy. In essence, what parties usually mean when they talk about a 'fixed price contract' is a lump sum contract where the contractor's entitlement to additional money is limited, for example there are no fluctuation provisions and/or the events which would usually entitle the contractor to recompense for loss and/or expense are restricted. Parties may often refer to a 'guaranteed maximum price' contract which, again, is unlikely ever to truly mean this - employer changes and/or other possible occurrences will be excluded from the guaranteed maximum price figure.

Last modified 3 Apr 2023

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

There are certain insurances required by the law. All contractors must take out employer's liability insurance which covers loss, damage, injury or disease caused to an employee of the company. Contractors must also take out public liability insurance if members of the general public or customers visit the contractor's premises or the contractor attends theirs. The contractor is then covered if injury to person or damage to property is caused by the contractor or his company.

Although not required by law, contractors will often take out:

• Contractor's all risk cover (CAR) that insures the construction works that are being undertaken
• Product liability insurance that covers risks caused by any product supplied
• Professional indemnity insurance (PI) that covers negligence and is almost always taken out by those contractors that perform design work

Last modified 3 Apr 2023

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Employers will usually require either a parent company guarantee or a performance bond or sometimes both. Performance bonds can be either 'on demand' in nature (meaning that the surety would release bond monies on written demand from the employer) or 'on default' in nature (meaning that, broadly, an expert's or court decision would be required to be presented by the employer before the surety would release bond monies). If the contractor is being paid an advance payment, employers will also usually require an advance payment bond.

Any funder will usually require the benefit of all of the material contracts to which the employer is a party to be assigned to it by way of security. The documents to be assigned to the funder include the construction contract itself, the guarantee to the employer of the building contractor's obligations under the construction contract and the performance bond from a third-party surety to the employer.

In addition, funders will require contractual step-in rights in the main contractor's collateral warranty agreement given to them (which is sometimes termed a 'direct agreement'), giving them (or their appointee) the right either temporarily or permanently to assume the role of the employer under the construction contract where the employer is in breach, and/or while an attempt is made to remedy the breach.

Last modified 3 Apr 2023

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Methods of payment vary according to the works. The four main types of payment are:

1. Lump sum: A pre-agreed sum that the contractor/consultant/sub-contractor will be paid to carry out either a stage or the whole of the works that are required under the contract (subject to various provisions, including variations for which the contractor may receive additional monies)
2. Measurement: The work is measured and valued according to a schedule or formula
3. Prime cost: Payment is made for the costs of the labour and materials used
4. Cost plus: Payment is by prime cost plus an added percentage for profit

Payment is usually made against the certification of completed works by the contract administrator. The inspection and certification of completed works can be made on a periodic basis (usually monthly) or a milestone basis (at pre-agreed specific milestones or stages).

There is no legislative system dealing with security of payment to contractor and/or subcontractors.

Last modified 3 Apr 2023

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

There is no statutory prohibition in Dubai on requiring a fixed time for completion of the works. Practically, all construction contracts require the works to be completed by a specified date. Instead of the employer bringing a claim for general damages (compensation) for late completion of the works by the building contractor, it is standard for the contractor to be required to pay 'liquidated damages' (LDs).

LDs are damages that are fixed and the quantum is agreed by the parties in advance. There is no express prohibition in Dubai law on penalties and no requirement that LDs be a genuine pre-estimate of loss. A typical clause requires the building contractor to pay or allow the employer to deduct LDs at a rate per day or week of delay in the completion of the works. The rate is usually set out in an appendix to the construction contract.

A local court may reject the agreed LDs. If the court feels the loss is less or more than the fixed amount, the court can reduce or increase the LDs to equate to the loss.

Last modified 3 Apr 2023

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Contractual mechanisms for dealing with variations to the works vary depending on why the variation is requested:

Employer-led changes

The standard position is that the employer has the right to request variations to the works, for which the building contractor is entitled to additional time and money. The building contractor is also entitled to raise reasonable objections to material changes.

Contractor-driven changes

Where variations are necessary due to the building contractor's error, delay or default, the contractor is not usually entitled to additional time or money under the contract. The contractor is also liable for any delays caused to the project by these variations, and where the variation means that the work has not been carried out in accordance with the contract.

Last modified 3 Apr 2023

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Dubai construction contracts follow the references in UK standard construction contracts and commonly refer to completion of the works as Practical Completion. By this point in time, the works must be complete 'for all practical purposes' so as to enable beneficial occupation, except for a few minor items; the works may be practically complete even if there are latent defects, but a certificate should not be issued if there are any patent defects.

Practical Completion is usually achieved to the satisfaction of a third-party certifier such as the architect or employer's agent (in design and build procurement) who has the discretion to certify Practical Completion where minor items are incomplete.

One this has been achieved the relevant authority (Dubai Municipality, JAFZA or TECOM) come and inspect the site and review the As-Built drawings to confirm that the building is completed in line with the design as approved previously. The building cannot be occupied until the final certificate from the relevant authority has been obtained.

Last modified 3 Apr 2023

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Under Dubai law, limitation periods are set out in the Civil Code and the Commercial Transactions Code.

In a contract claim, the limitation period will run from the date when the contract was breached. It will be necessary, at the outset of any new claim, to determine whether or not the limitation period has expired. If it has, the claim will be 'statute-barred' and the claimant may be prevented from bringing a claim against the alleged wrongdoer. If a claim is brought out of time, the defendant will be able to plead the defence of limitation and the claimant will have the burden of proving that the cause of action arose within the relevant statutory period.

Last modified 3 Apr 2023

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Pursuant to the Civil Code, a contractor is liable for damage which he causes. Therefore, if the contractor causes property damage suffered by an end user, he will be liable under the Civil Code, subject to limitation periods. It will be necessary, at the outset of any new claim, to determine whether or not the limitation period has expired. If it has, the claim will be 'statute-barred' and the claimant may be prevented from bringing a claim against the alleged wrongdoer. If a claim is brought out of time, the defendant will be able to plead the defence of limitation and the claimant will have the burden of proving that the cause of action arose within the relevant statutory period.

Under the Jointly Owned Property Law of Dubai the owner's association has liability over any decennial liability claims which mirror the liability under the Civil Code.

Last modified 3 Apr 2023

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Broadly, the Civil Code provides an extended warranty period for contractors, and in certain circumstances architects, for a period of 10 years following completion of the works.

Last modified 3 Apr 2023

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

There is no statute providing for third-party rights. 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 (ie the main building contractor, sub-contractor or consultant) 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. These collateral warranties are also often referred to as duty of care deeds.

Last modified 3 Apr 2023

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

There are no courts that specialize in or deal with construction disputes. Construction disputes (if litigated) are likely to be resolved by the civil courts.

The parties may agree to submit to the jurisdiction of the courts in the Dubai International Financial Centre (DIFC) however as these courts are primarily commercial courts it is unclear how they would address complex construction issues.

Last modified 3 Apr 2023

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Private arbitration is used as an alternative to litigation.

Commercially, in contracts with international contractors, arbitration is the preferred method of dispute resolution. Further, the Rules of the International Chamber of Commerce (ICC) are preferred over submitting the dispute to the local Dubai arbitration body.

The United Arab Emirates is a signatory to the New York Convention on the Enforcement of Arbitral Awards which allows the enforcement of arbitration awards in the UAE.

The leading institution for construction arbitration is the Dubai International Arbitration Centre  and it is common for construction contracts to provide that in the case of a dispute, the matter is first to be referred to arbitration before being referred to the courts.

Last modified 3 Apr 2023

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Dubai Law 16 of 2009 created a forum for the amicable settlement of disputes. The Dubai Reconciliation Centre provides mediation services which the parties to the dispute must mandatorily participate in, provided that it has jurisdiction and provided that the head of the Court has referred the parties to it.

Commercially, most contracts provide for some form of ADR, whether it be a requirement for negotiation by senior management, mediation or by referral to an expert on disputes regarding technical matters.

Mediation is a method of seeking compromise by referring a dispute to an independent third party who has expertise in the field of the dispute and skills at brokering a settlement. There are two main types:

1. Facilitative mediation (where the mediator effectively tries to facilitate a settlement between the parties, but without expressing any view on the merits) 
2. Evaluative mediation (where the mediator will give a non-binding view as to the merits, the intention being that this view on the merits will engender settlement)

In relation to construction disputes, mediation is generally a facilitative process.

Expert determination plays a valuable role where the issue in dispute is narrow and specific, eg a pure valuation dispute (where the answer can be determined by a chartered accountant, a quantity surveyor or some other such professional) or a dispute concerning whether a piece of equipment meets its performance criteria (where the answer can be determined solely by an appropriate technical expert). The expert does not act in a judicial capacity and there is no general obligation on an expert to apply the rules of natural justice (this should be contrasted with adjudication, arbitration and litigation where rules as to representation etc apply).

Last modified 3 Apr 2023