REALWorld Law

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

Abu Dhabi law is based on a civil law system which means that the law is developed though constitutions, legislative codes and statutes. Judges’ decisions may be referred to, but a judge’s decision is not considered law as it would be in a common law system.

Further, as Abu Dhabi is one of the emirates comprising the United Arab Emirates, it has a combination of law specific to the Emirate of Abu Dhabi and laws which apply to all of the emirates (called federal laws). In the case of construction law, the main sources of law are:

• The federal law regarding civil transactions (including a section on muqawala (work) contracts which applies to both construction and consultancy contracts) – the Civil Code (Civil Transactions Law) [Federal Law No.5 of 1985 (as amended)]
• The Abu Dhabi specific law regarding building and construction – the Building Law [AD Law No. 4 of 1983 (as amended)].

In addition to these two main sources of law, there are numerous other federal and Abu Dhabi specific laws which do not deal solely with contracts for building works, however they often affect these contracts. For example, the Labour Law [Federal Law No. 8 of 1980 (as amended)] which governs employment matters.

Last modified 31 Aug 2020

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

Nearly all commercial entities carrying on business in the Emirate of Abu Dhabi must have a trade licence from the Department of Economic Development. Additionally, all consultants and contractors working in Abu Dhabi must have a ‘classification licence’ which will allow them to work in particular sectors and for projects up to a particular size. The other permits required are dependent on which municipality where the site is located: the Abu Dhabi Municipality, the Al Ain Municipality or the Western Region Municipality. While the details of the permit regime vary from municipality to municipality, 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 developer to have obtained all the relevant approvals referred to below
• An approval from the Urban Planning Council (UPC). The UPC approval is subject to certain time limits – see Enforcement for Abu Dhabi
• A Preliminary Environment Review (PER) and licence from the Abu Dhabi Environmental Agency
• A permit relating to the access road and internal road network from the Department of Transport, which might only be granted following submission of a traffic effects study
• An approval of the plan for disposal of hazardous waste issued by the Abu Dhabi Waste Management Centre
• Permits from Abu Dhabi government entities regarding utilities, such as a permit from ADDC (Abu Dhabi Distribution Company) for water and electricity, a permit from Etisalat for telecommunications and a permit from ADSSC (Abu Dhabi Sewerage Services Company) for sewerage services
• A No-Objection Certificate (NOC) from Civil Defence. Depending on the nature of the project, NOCs may also be required from ADNOC (Abu Dhabi National Oil Company), ADCCH (Abu Dhabi Centre for Culture and Heritage), ADAC (Abu Dhabi Airports Company), the Critical National Infrastructure Authority, and the UAE Armed Forces, or other Abu Dhabi government entities

Building works must comply with relevant standards to obtain some permits from Abu Dhabi government entities regarding utilities.

Last modified 31 Aug 2020

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

Health and safety laws and requirements are governed by both the federal law of the UAE and the law of the emirate of Abu Dhabi. The principal law governing entities and employees is Federal Law (8) of 1980 as amended ('Labour Law'). In addition various Decisions of the Ministry of Labour and Social Affairs are also relevant.

The Labour Law and Ministerial Decisions set out the main standards suitable for occupational health and safety and imposes obligations on both the employer and the employee. An example of these obligations is the obligation on the employer to display the health and safety requirements on site in a prominent position and in the language of the employees. Training must be conducted on the dangers of not complying with the instructions as well as other general preventative measures to be taken.

The Labour Law needs to be taken into consideration after the completion of construction. The obligations under it are ongoing.

In addition to the federal law, Abu Dhabi has  passed legislation which initiates the Environmental Health and Safety Management System (EHSMS) for the emirate. This system is to be managed by the EHSMS Higher Committee, the EHSMS Centre and the Environmental Agency of Abu Dhabi and covers both environmental and health and safety policies and regulations. This system requires nominated entities to create an Environmental Health and Safety Management System to comply with the Abu Dhabi EHSMS. As part of the Abu Dhabi EHSMS, a number of regulatory instruments (including Codes of Practice) have been issued and are mandatory. The current version of the Abu Dhabi EHSMS (including the Codes of Practice) is available on the official website of the Abu Dhabi EHSMS Centre.

Last modified 31 Aug 2020

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

Environmental protection is governed by the Ministry of Environment and Water (MEW) federally. The MEW is empowered to delegate its powers to a 'Competent Authority' for each emirate, and the Environmental Agency of Abu Dhabi is tasked as being the Competent Authority for all environmental protection laws and regulations within the emirate of Abu Dhabi (AD).

The federal laws which regulate environmental protection affecting the building and construction industry include:

• Federal Law (24) of 1999 concerning the protection and development of the environment;
• Federal Cabinet Resolution (37) of 2001;
• Federal Law (23) of 1999 concerning the exploitation and protection and development of living aquatic resources; and
• Federal Law (1) of 2002 regulating radiation.

Abu Dhabi has a significant legislative framework in relation to environmental protection. The main laws which relate to the building and construction sector are as follows:

• Law (21) of 2005 for managing waste in Abu Dhabi
• Law (23) of 2007 establishing the Abu Dhabi Council for Urban Planning
• Resolution 42 of 2009 concerning the Environmental Health and Safety Management System
• Other local regulations, decisions and orders which pertain to specific areas of environmental protection relating to building and construction.

Developers and contractors alike are required to undertake environmental impact assessments and stringent environmental protection preventative measures must be taken. ESTIDAMA, the  environmental accreditation system, is  mandatory throughout the emirate. The Urban Planning Council will normally specify as part of the approval application process which Estidama rating the project is required to meet.

Abu Dhabi has  passed legislation which initiates the Environmental Health and Safety Management System (EHSMS) for the emirate. This system requires nominated entities to create an Environmental Health and Safety Management System to comply with the AD EHSMS. As part of the AD EHSMS, a number of regulatory instruments (including Codes of Practice) have been issued and are mandatory. The current version of the AD EHSMS (including the Codes of Practice) is available on the official website of the AD EHSMS Centre.

Last modified 31 Aug 2020

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

The main agreements are with:

• ADDC (Abu Dhabi Distribution Company): ADDC must provide two separate approvals in relation to the supply of water and the supply of electricity. The developer will be responsible for the cost of building any connecting infrastructure.
• ADSSC (Abu Dhabi Sewerage Services Company): ADSSC must approve the connection to the public sewerage system. The developer will be responsible for the cost of building the connecting pipeline and other infrastructure.
• Department of Transport: The Department of Transport must approve the development of any part of the road network. This development will be carried out at the developer’s expense.
• GASCO (Abu Dhabi Gas Industries Limited): GASCO must approve any proposed connection to the natural gas grid. The developer will be responsible for the cost of building any connecting infrastructure.

Last modified 31 Aug 2020

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

A wide variety of provisions apply to consultancy and construction contracts by statute. For example:

• The Civil Code imposes certain conditions on muqawala (work) contracts, including in relation to liability for defects and termination.
• The Building Law requires that consultancy services be carried out with reasonable skill and care. The burden of proof falls on the party claiming that the supplier of the service (design and build contractor, design sub-contractor or consultant) has failed to use reasonable skill and care.

Last modified 31 Aug 2020

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

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 readily effective legislative system dealing with security of payment to the contractor and/or subcontractors for private contracts.

The Abu Dhabi Executive Council issued a circular in 2019 instructing government departments and state-owned companies to pay contractors and suppliers within 30 days of receipt of undisputed invoices. This directive shows the government's proactive approach to tackling the cash flow problems that contractors and subcontractors face in the UAE construction industry.

Last modified 31 Aug 2020

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

There is no statutory prohibition in Abu Dhabi 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 prohibition in Abu Dhabi 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. Under the Civil Code, a judge (and possibly an arbitrator) at his/her discretion can adjust the LDs to reflect the actual loss suffered.

Last modified 31 Aug 2020

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

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.

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 31 Aug 2020

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

Abu Dhabi construction contracts generally follow the principles of UK standard construction contracts pursuant to which ‘completion’ involves the works being 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. In addition, it is usually a contractual requirement for the contractor to have procured a Municipal Completion Certificate from the authorities and/or a building completion certificate from the General Directorate of Civil Defense in order to achieve completion. The Municipal Completion Certificate or building completion certificate generally allows the works to be used and occupied.

Completion is usually achieved to the satisfaction of a third-party certifier such as the architect or engineer who has the discretion to certify completion where minor items are incomplete.

Last modified 31 Aug 2020

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

Under Abu Dhabi law, limitation periods are set out in the Civil Code and the Commercial Transactions Code, which provides for a limitation period of 10 years. In a contract claim, the 10-year limitation period will run from the date when the contract was breached, which for latent defects is likely to be the date of practical completion, however the limitation period for initiating a claim for major defects affecting the stability or safety or a structure under the decennial liability provisions of the Civil Code is 3 years from the collapse or discovery of the defect. 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 31 Aug 2020

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

Although the relevant provisions of the UAE and Abu Dhabi law are not particularly clear, it is generally considered that, in the absence of a contractual liability, a contractor will not normally be liable to an end user of a building if the end user was not the employer of the contractor under a building contract.

Last modified 31 Aug 2020

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

Broadly, the Civil Code provides an extended warranty period for contractors, and in certain circumstances design and supervision consultants, for a period of 10 years following completion of the works (commonly known as decennial liability). This provides the employer with blanket protection for 10 years from the delivery of the work for any ‘total or partial collapse’ of a building, and for any defect affecting stability or safety of a structure. The period of time can be extended by the contract but cannot be reduced.

The decennial liability is joint for both the architect (designer) and the contractor, however the architect’s liability is limited to defects caused by its design, if it is not also responsible for supervising the works. The employer can join both the designer and the contractor in actions for compensation without being able to decide whether the defect is caused by the design or by construction of the building.

Last modified 31 Aug 2020

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

Third party rights may be obtained through specific provisions in the UAE Civil Code. However, it is common practice for third parties to 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.

Last modified 31 Aug 2020

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

There are no courts that specialise in construction disputes, however there are plans to create specialist construction courts in Abu Dhabi in due course. Until that time, construction cases are dealt with by the Courts like any other commercial case.

Last modified 31 Aug 2020

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

Commercially, arbitration is the preferred method of dispute resolution because court proceedings are before non-specialist judges and in Arabic only (for many construction contracts the common project language is English). Most government entities prefer arbitration through the local Abu Dhabi Commercial Conciliation and Arbitration Centre, although their Rules are less familiar to international arbitration practitioners.

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

Last modified 31 Aug 2020

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

There is no legal requirement that the parties to a contract undertake any form of ADR.

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.

Senior management meetings are generally the most popular preliminary step before commencing formal proceedings. Adjudication, formal mediations and Dispute Adjudication Boards are less common.

Last modified 31 Aug 2020