United Arab Emirates: An overview of EPC Contracts in the UAE

An Engineering, Procurement and Construction (EPC) contract is an all-inclusive contract framework, which requires the contractor to complete an agreed scope of work by an agreed completion date, in return for an agreed lump-sum contract price. The main purpose of EPC Contracts is to limit responsibility for the performance of the works to the main contractor and minimise other contractors' cross claims.

Governing law and interpretation

EPC Contracts are commonly used in complex construction projects in the UAE, especially in public-private partnership projects and are increasingly governed by local laws and regulations. With this in mind, contractors must take note of mandatory legal provisions, such as those concerning the enforceability of notice periods, liquidated damages (LDs), issuance of access permits, labour laws and health, safety and environmental regulations.

In the UAE, most EPC Contacts are drafted and executed in English. Nevertheless, the use of bi-lingual contracts is not unusual, particularly when dealing with governmental and semi-governmental entities/ bodies. It is certainly advisable to avoid dual language contracts to avoid any linguistic discrepancies, especially with technical terminologies often found in EPC Contracts. When this is not possible, it is advisable to provide for a provision that determines which of the two languages prevails in the event of any discrepancies or ambiguities. UAE law applies rules of literal interpretation. In the event of ambiguity, UAE law expressly provides that the judge/ arbitrator will need to interpret that ambiguity by determining the parties' common intention.

Scope of work

EPC Contracts require the contractor to perform all "necessary" works, even when those are not expressly described. Any change order/variation is likely to be considered as changing the scope of works, essentially inviting the contractor and employer to agree on the parameters of such change/variation, against an agreed price for it. EPC contracts typically provide that the contract price may be increased, or additional costs may be recovered, under a change order/variation, if there is:

  1. a change in law that adversely affects the contractor's costs of performance and/or its ability to perform the work according to the agreed schedule;
  2. an act or omission by the employer that adversely affects the contractor's costs of performance;
  3. a change in the scope of work; or
  4. a specific force majeure event.

Where the contractor considers that an external factor means it requires additional time to complete the works, it will seek an extension of the agreed schedule – or Extension of Time (EOT). The EPC contract commonly provides a framework for variations and EOT. That framework often includes its own time limits that usually imposes on a contractor a strict period for submitting a claim for variation or EOT. Contractors should always be aware of the jurisdiction in which they are operating, as time-bar provisions are not always applied strictly in some jurisdictions. In a jurisdiction like the UAE, where the principle of fairness and the concept of good faith are deeply enshrined, courts may adopt a more liberal application of time-limits, subject to the evidence and circumstances of the case. Nevertheless, it is sensible for contractors to try to comply with time-limits or to offer a valid excuse for failing to comply (which excuse might be unawareness of the event causing the variation or delay). An incomplete or unclear design is often the root cause of variations and EOT claims, with "design creep" commonly increasing the scope of the contractor's work. It is always advisable to start a project with a defined and documented design.

Performance guarantees and delay damages

Liquidated damages (LDs) are commonly found in EPC Contracts and usually are the employer's sole remedy for delay in the completion of the works. LDs provide a pre-estimated figure that a contractor agrees to pay the employer, for every week/day it is late completing the works, especially when guaranteed targets for the specific performance parameters are not met. UAE laws are generally soft in this area and do not apply the same prohibitions surrounding penalties that exist in common law. The UAE courts have the power to assess the validity of LDs, to ensure that the claimed amount of damage is equal to the loss an employer has actually suffered. The UAE courts can only do so if an application in that respect is made by any of the parties and regardless of any agreement to the contrary.

Further, LDs can be claimed as a right under UAE law without the need to evidence any harm suffered as a result of the delay. Indeed, UAE court precedents have shifted the burden of proof to the contractor, to prove that LDS are not/should not be enforceable.

Any dispute over the validity of LDS inevitably involves an analysis of the period of delay assessed and any entitlement to an EOT. Delay claims are essentially factual and the availability of contemporaneous records are often key to their success. Investigation and identification of culpable delay events in 'real time' is essential to submitting a successful EOT claim. Typically, EOT claims should address the attributable delay, the reasons thereof, the time-impact of such delay on the completion of the works, any mitigation and acceleration measures the contractor has taken, the resulting time extension and prolongation costs, if any. Broadly speaking, not all delays will affect overall completion, especially when the event causing the delay happened during a period of float.

Importance of risk allocation

There are many risks inherent in a construction project. For example the project not completing on time, or not conforming to specifications, and costs exceeding budget. The essential rule in risk allocation is that the party who is best able to manage the risk, at optimum cost, should assume that risk. EPC Contracts keep the risk with the contractor, rather than the employer, given that the contractor has been appointed to deliver a facility to the standard stipulated by the employer. However, not all risks are assumed by the contractor, such as site risks when there is no opportunity to perform geotechnical surveys.

Site risks are common and involve the possibility of extra costs and delay, due to difficult access, weather or soil conditions. The employer will want to pass all site risks to the contractor, unless the latter was not previously allowed to inspect the site during the bid process, in which case the contractor will not wish to take on site risks or, alternatively, would price higher to guard against unforeseen costs caused by site conditions.

Dispute resolution

Most EPC Contract incorporate multi-tier dispute resolution clauses with arbitration usually at the heart of every clause. Direct negotiations has always been the first in a series of attempt to settle any misunderstanding between the parties in an amicable fashion. Expert determination is sometimes offered as an option for both parties to seek guidance from an unbiased and independent third party expert. The International Chamber of Commerce (ICC) is often named as an appointing authority if the parties fail to agree on the identity of an expert. Third party expert determination is usually relied on whenever the dispute relates to the determination of technical matters, more so than the legal or factual aspect of a particular claim.

If expert determination is not considered sufficient for a final and binding dispute resolution mechanism, arbitration will be. Within the UAE, it is common to have dispute resolution clauses in EPC Contracts that provide for arbitration under the ICC Rules or under one of the notable arbitration centres in the UAE, such as the Dubai International Financial Centre-London Court of International Arbitration (DIFC-LCIA) or the Dubai International Arbitration Centre (DIAC). In June 2018, the UAE enacted a new federal arbitration law, making it more appealing for contractors and owners to opt for the UAE as a "seat" of arbitration. This is because (a) the process of enforcing arbitral awards before UAE Courts has been simplified and shortened, and (b) the law provides a more arbitration-friendly framework, and (c) previous grounds for annulling arbitral awards have been extensively modified and are now more in line with international standards and best practice.

It should be noted that the approach to enforcement of domestic awards is different in the major free zones in the UAE (the DIFC and the ADGM Courts, which have their own court systems, independent of the onshore UAE Courts). The DIFC Courts and ADGM Courts are subject to different arbitration laws, but it would be true to say that those jurisdictions already have effective arbitration laws.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions