Summer is here at last and as temperatures are expected to soar
for the next few months, the UAE Government has just extended the
summer midday working break. Until recently this break applied
between 12.30pm and 3.00pm in July and August only, but pursuant to
Ministerial Resolution 443 for 2010, this has now been extended by
a month and will now apply from June 15 to September 15. Most
Contractors have welcomed the decision to extend the break but
stress that it must be applied uniformly throughout the
industry.
While it goes without saying that the safety and welfare of the
workforce takes priority, the extension to the break will have an
impact on productivity. This could affect Contractors and Employers
alike. Contractors could find themselves falling behind the
programme for the completion for the Works whereas Employers could
find themselves faced with potential claims for late completion
from third parties. The new Resolution highlights an important
question as to who bears the risk of a change of law? As ever, the
rights and responsibilities of the parties will depend on the
wording of the Contract between them.
Negotiation of the Contract
The risk of a change of law is, in all likelihood, something that
the parties will discuss and agree on when negotiating the
Contract. If the Contractor is asked to accept this risk then he
will no doubt include an amount in respect of its occurrence in his
tender. If the proposed contract sum is too high from the
Employer's perspective, the Employer will seek to negotiate a
lower amount by accepting a greater degree of risk and taking
responsibility for risks such as changes of law. The parties will
need to ensure the Contract is carefully drafted to reflect the
risk profile that has been agreed between them.
The Employer's Perspective
Where the risk of a change of law has been allocated to the
Contractor, the Employer will want to ensure that the Works proceed
on schedule notwithstanding the occurrence of the change of law.
Depending on the wording of the Contract the Employer might be able
to require the Contractor to accelerate the Works if progress is
too slow to complete within the programme or if it appears that
progress has fallen or will fall behind the programme.
One example of this is clause 8.6 of the 1999 Conditions of
Contract for Construction produced by FIDIC (the Red Book) which is
one of the most commonly used forms of building contract in the
region. Taken in isolation, this clause permits the Engineer to
instruct the Contractor to submit a revised programme and a report
describing the methods the Contractor proposes to use to expedite
progress to complete the Works within the contractual time for
completion. The Engineer may require the Contractor to adopt these
methods at its own cost, and if the Employer incurs additional
costs as a result (such as additional supervision costs) these may
also be recovered from the Contractor.
Again, depending on the wording of the Contract, the Employer is
likely to be able to levy delay or liquidated damages against the
Contractor for delayed completion. The relevant clause in the Red
Book is clause 8.7 which requires the Contractor to pay the delay
damages to the Employer for every day which elapses between the
date the Contractor is supposed to complete the Works according to
the Contract and the day the Works are actually completed.
Where the risk of change in law has been allocated to the
Contractor, careful drafting of the Contract will be required to
ensure that the Employer can require the Contractor to comply with
his obligations to complete the Works on time as the Employer will,
in all likelihood, have agree to pay a higher contract sum to the
Contractor.
The Contractor's Perspective
Where the Employer has accepted the risk of a change of law, when
that risk arises, the Contractor will look to the Contract to
obtain relief. Many standard form building contracts will allow
some relief to the Contractor in such circumstances. Again, taking
the unamended Red Book as an example, under clause 13.7 of this
Contract, if the Contractor is delayed or incurs additional cost as
a result of changes in Laws (including the introduction of new Laws
or the modification of existing Laws made less than 28 days before
the submission of the Contractor's tender which affect the
Contractor's performance of his obligations under the Contract)
the Contractor will be entitled to an extension of time and to
payment of his costs.
The term 'Cost' is defined in the Red Book and does not
include profit. This clause does provide the Contractor with some
relief but will still need amendment if the parties have agreed
that the Contractor is to receive profit in respect of having to
perform the Works for a longer period than was initially
envisaged.
Conclusion
On the whole changes of law affecting building works are not
regular occurrences, but when they do occur they can, depending on
the nature of the change, have serious consequences for the
performance and completion of the Works. In this instance, the
extension to the midday break is unlikely to cause Contractors too
many problems as the delay caused by the extension is not likely to
be significant and Contractors might well be able to regain the
time lost. Notwithstanding this Employers and Contractors need to
ensure that their Contracts are carefully drafted so that the risk
of the occurrence of a change of law is adequately dealt with and
reflects the agreement reached between them.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.