The construction industry in the United Arab Emirates (UAE) has experienced rapid growth over the past few decades, fuelled by visionary development projects and a booming real estate market. Understanding construction contracts in the UAE is crucial for investors, contractors, and other stakeholders involved in the region’s infrastructure and property development. This article provides an overview of key aspects of construction contracts in the UAE, including legal frameworks, types of contracts, and key considerations for parties involved. 

Legal Framework Governing Construction Contracts in the UAE 

The legal framework governing construction in the UAE is based on three primary sources of law: 

• Federal Laws and Decrees, which apply uniformly across all Emirates. 

• Local Laws, enacted by individual Emirates but aligned with federal laws. 

• Shari’ah, a legal system rooted in Islamic principles. 

Each Emirate enacts its own laws, which can be monitored through their respective municipal websites, such as those for the Abu Dhabi City Municipality, Dubai Municipality, and other municipalities across the UAE. The UAE also has two major financial free zones—Dubai International Financial Centre (DIFC) in Dubai and Abu Dhabi Global Market (ADGM) in Abu Dhabi—each with its own legal system based on common law. DIFC operates under laws developed by the DIFC Authority, incorporating international standards and common law principles, and has specialized courts, including a Technology and Construction Division. ADGM’s legal system follows English common law, supplemented by ADGM regulations, and includes its own courts and financial services regulator. Additionally, free zones across the UAE impose distinct regulations to ensure compliance with building standards, environmental laws, health and safety guidelines, and other technical requirements. The UAE construction industry is also governed by laws related to employment and labor.  

This blog is a part of our Construction Disputes in the UAE: An Overview blogpost.

At the heart of construction law in the UAE is the Civil Transactions Law, commonly known as the Civil Code, which forms the legal foundation for construction contracts. This law governs contract formation, interpretation, execution, and remedies for breaches, while incorporating Islamic legal principles. Notably, Article 246 of the Civil Code requires parties to perform contracts in good faith, adhering not only to the express terms but also to legal, customary, and transactional standards. Muqawala contracts, which specifically cover construction contracts, are also governed by the Civil Code, providing default provisions in the absence of specific agreements between the parties. 

A key provision under the Civil Code is Article 880, which addresses decennial liability, holding contractors and architects liable for defects or destruction in buildings for a period of 10 years. Another important law is the Commercial Transactions Law, also known as the Commercial Code, which emphasizes that commercial agreements, including construction contracts, are binding unless they conflict with mandatory legal provisions. 

The above-mentioned legal framework ensures that all construction projects in the UAE are carried out in accordance with established laws and standards, protecting the interests of both employers and contractors. 

FIDIC Governance in UAE Construction Contracts 

In the UAE, construction contracts often rely on the legal standards set by the International Federation of Consulting Engineers, commonly known as FIDIC. The FIDIC framework is widely recognized for setting international standards in construction contracts, ensuring fairness and transparency. These contracts come with special conditions designed to address unique project requirements, such as the scope and duration of work. Among the most common FIDIC contracts is the Green Book (1999), a Short Form of Contract suited for small projects valued under $500,000. The Green Book is ideal for straightforward projects that do not require specialist subcontracts, with an authorized person from the employer handling the Engineer duties. One of its standout features is the inclusion of Rules for Adjudication, which is relatively rare in international contracts. 

Another prominent contract is the Red Book (1999), commonly used for projects where the employer is responsible for the design. This contract is not limited to civil engineering projects but focuses more broadly on procurement types. While the employer handles the design, the Red Book allows some degree of contractor involvement in the design. It also provides example forms for Tender, Contract Agreement, and Dispute Adjudication Agreement, with an Engineer employed by the employer overseeing the project’s administration and supervision. 

The Yellow Book (1999), on the other hand, is designed for projects where the contractor manages both design and construction. Like the Red Book, it includes sample forms for key documents but shifts the focus towards contractor-led design. The Orange Book (1995), initially developed for specific project types, now reflects a broader range of procurement strategies. It assigns total design liability to the contractor, making it an ideal choice for turnkey projects, where the contractor provides the employer with a fully functional facility. 

For more complex projects, such as those involving process, power, or private infrastructure, the Silver Book (1999) is often used. This contract is intended for experienced contractors who take on full responsibility for both the design and execution of the project. The Silver Book is structured to ensure cost certainty, transferring many risks—such as ground conditions—to the contractor. This form gives the employer limited control, with no Engineer referenced, further emphasizing the contractor’s dominant role in the project’s completion. 

Additionally, Public-Private Partnerships (PPPs) represent a growing trend in the UAE. These contracts encourage collaboration between government agencies and private enterprises, especially in sectors traditionally managed by the state. PPPs focus on a balanced distribution of risks, benefits, and responsibilities between the parties, ensuring mutual benefit. 

Another procurement method that is increasingly common is design-build, where a single contract is awarded for both design and construction. This integrated approach promotes collaboration between the designer and the builder from the outset, ensuring unity and cooperation throughout the project’s lifecycle. 

FIDIC forms significantly influence UAE construction law practices and serve as a foundation for adjusting contractual provisions to meet specific project requirements. There is a clear trend toward increasing design responsibility for contractors, especially in larger planning and construction projects. Moreover, bespoke contracts, including PPPs, are becoming more prevalent, reflecting the evolving demands of the UAE construction sector. 

Contracts governed by FIDIC can be drafted in English or, in some cases, in both English and Arabic. However, English is generally regarded as the business language in the construction sector. It is important to note that under UAE law, when parties opt for a bilingual contract, the Arabic version will take precedence over the English version. Therefore, parties must exercise caution when entering into bilingual agreements to ensure consistency between the two versions and avoid any unintended discrepancies. 

Under the FIDIC framework, parties involved in construction projects are categorized into three main roles. The Employer (or client) is typically the party that initiates the project and commissions the construction work. The Contractor is employed by the employer to carry out specific parts of the work, such as design or construction tasks. Additionally, the contractor or employer may hire a Sub-Contractor to delegate specific tasks or works, allowing for further specialization and efficiency in the execution of the project. 

Key Provisions in Construction Contracts 

Several key provisions must be addressed in construction contracts to minimize disputes and ensure clarity for both parties. Some of the essential provisions include: 

• Scope of Work: Clearly defining the scope of work is crucial to avoid misunderstandings and scope creep. The contract should provide a detailed description of the work to be performed, the deliverables, and specific project milestones. 

• Payment Terms:  Construction contracts should outline the payment structure, including when and how payments will be made (e.g., lump sum, progress payments, or milestones). It is also essential to specify how variations, if any, will be handled. 

• Time for Completion and Delays: The contract should specify the expected completion date and the consequences of any delays. Provisions regarding liquidated damages for delays, extension of time, and force majeure events (unforeseen events beyond the control of either party) should also be included. 

For further insights on this topic, please refer to our detailed article here. 

• Variations and Change Orders: Construction projects often experience changes in scope or unforeseen issues that require adjustments. The contract should detail how such variations will be managed, including the approval process and compensation. 

• Defect Liability Period: After the project completed, the contractor is usually responsible for any defects for a specified period, known as the defect liability period (DLP). The contract should outline the duration of this period and the contractor’s obligations during it. 

• Dispute Resolution:  Given the complexity of construction projects, disputes can arise. It is common for contracts in the UAE to include arbitration clauses to resolve disputes efficiently and privately. The choice of arbitration forum, such as DIAC or ADCCAC, and the governing law should be clearly stated in the contract. 

Regulatory and Compliance Requirements 

In construction contracts within the UAE, both arbitration and local courts are common choices for dispute resolution. However, since construction contracts often involve real estate matters, Article 19 of the UAE Civil Transactions Law (Federal Law No. 5 of 1985) mandates the application of UAE laws in such cases. Before entering into a construction contract, it is crucial for the parties to perform thorough technical, commercial, and legal due diligence. Ensuring the contract’s accuracy and enforceability under UAE law is essential, as terminating a construction contract can be a complex, costly, and time-consuming process. Proper legal due diligence helps mitigate these risks and supports the successful execution of the contract. 

For a deeper understanding of the nuances of suspension and termination in construction contracts, refer to our detailed article on the topic here. 

In addition to the contractual provisions, construction contracts in the UAE must adhere to various regulatory requirements. This includes obtaining necessary approvals from local authorities such as the Dubai Municipality or Abu Dhabi Municipality for building permits and ensuring compliance with local safety standards, building codes, and environmental regulations. 

 Tips for Investors and Contractors 

• Engage Legal and Technical Experts: Given the complexities of UAE construction law, it is advisable for both employers and contractors to engage legal counsel and technical experts who understand local laws and practices. 

• Clarify Terms Early: Avoid potential disputes by clearly defining contract terms upfront, including payment terms, scope of work, and risk-sharing provisions. 

• Arbitration as a Preferred Method: Consider including arbitration clauses in the contract to ensure that any disputes are handled in a private and efficient manner. 

• Be Aware of Regulatory Compliance: Ensure that your project meets all regulatory requirements, as non-compliance could lead to fines, project delays, or even contract termination. 

Construction contracts in the UAE are governed by a mix of civil and commercial laws, along with various regulatory requirements. By understanding the different types of contracts, key provisions, and legal framework, investors and contractors can navigate the complexities of the UAE construction industry more effectively. Engaging with legal and technical professionals early in the process can help mitigate risks and ensure the successful execution of construction projects in this rapidly developing market.