REALWorld Law

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

The most popular standard forms of construction contract are from FIDIC, the French-based International Federal of Consulting Engineers. Consultancy contracts tend to be bespoke forms. Abu Dhabi’s Procurement Law provides that where government departments are procuring construction and/or engineering services, standard forms issued by the government, based on FIDIC contracts, are to be used.

Last modified 31 Aug 2020

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

The main parties involved in a construction project are normally:

1. Employer/client
2. Contractor
3. Funder
4. Architect (or engineer) of record
   
   All construction projects require an architect of record by law. The architect of record (as well as the contractor) is named on the building permit. A consultancy firm needs a special licence in order to act as an architect of record.
   
   All submissions for permits are made in the name of the architect of record, whether the architect of record prepared the application (and any designs in them) or not. Under the Abu Dhabi specific building law, an architect of record is liable in certain circumstances for defects in the design of the works (regardless of whether the architect of record prepared the designs or not) and for defects in the construction of the works (on the basis that the architect of record is expected to have supervised the construction of the works, whether or not the architect of record, or another consultant, in fact supervised construction).
5. Professional team

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

Last modified 31 Aug 2020

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

Common methods of procurement in Abu Dhabi include 'traditional' procurement, where the building contractor is responsible for the construction of the works, but not for the design, and to a lesser extent, design and build (D&B) procurement, where the building contractor also takes on responsibility for design of the works. It is uncommon in the UAE for the appointment of design consultants to be novated to a D&B contractor.

Force majeure is provided for in Abu Dhabi 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 contract.

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 31 Aug 2020

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

The Abu Dhabi 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 pay to have them run. As such, PPPs have been uncommon in Abu Dhabi, and generally limited to government procurement programmes for water and power projects.

Following the rise of PPP in Europe and PFI in the UK, the Abu Dhabi Government introduced the PPP model into the domestic market and has since closed numerous PPP deals where the Abu Dhabi Government has provided land and infrastructure and private firms have invested capital. For example, the developments of ICAD, Paris-Sorbonne University, New York University and Cleveland Clinic.

Law No. 22 of 2015 (the ‘PPP Law’) was introduced in August 2015 and aims to encourage further private sector investment in local development projects, and the Department of Municipal Affairs announced in 2016 that the Abu Dhabi Government is encouraging the use of further PPPs by offering one hundred development projects valuing Dh15 billion to private investors in the next four years. These measures are likely to lead to an increase in the use of PPPs in the future.

Last modified 31 Aug 2020

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 Abu Dhabi 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.

Last modified 31 Aug 2020

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

The federal law does not require any specific construction-related insurance to be taken out in respect of development projects, however 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 third parties  or damage to property is caused by the contractor. Project specific professional indemnity insurance (PI) that covers negligence is required to be maintained by design & build contractors and consultants for the duration of the limitation period under their appointment contracts.

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; and
• product liability insurance that covers risks caused by any product supplied.

Last modified 31 Aug 2020

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

Employers will usually require a 10% performance bond and an advance payment bond. In Abu Dhabi these bonds are nearly always ‘on demand’ in nature (meaning that the surety would release bond monies on written demand from the employer).

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, any 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 31 Aug 2020

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 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

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 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

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.

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

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

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

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

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

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

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

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 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

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

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

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

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

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

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

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

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