This is the first article in a series of short articles which will look at some of the basic features of construction and engineering contracts under the law of the United Arab Emirates.  This article will start the series by looking at how a contract for construction work is treated under UAE law. 

A construction contract is a particular form of contract: in addition to meeting the general law requirements for a valid contract, under the law applicable in the UAE there are special statutory provisions that are applicable to such a contract.

Before looking at these requirements, it is worth restating the fundamental importance of the contract in the construction industry: it should define the relationship between the parties and their respective roles and objectives, fairly apportion risk and reward, and address such matters as to how issues that arise are to be managed, addressed and resolved.  All too often the contract is imposed by one party on the other – a take it or leave it approach; it is unlikely to be to the benefit of either party that a party is required to take on a risk that it cannot fairly manage, or an obligation it cannot properly comply with or perform.

In terms of the law of contract, Articles 124 to Article 275 of the UAE's Federal Civil Transactions Law No. 5 of 1985 (Civil Code) set out the general law provisions for the formation, validity, effect, and dissolution of a contract.  Article 125 states that:

"A contract is the coming together of an offer made by one of the contracting parties with the acceptance of the other, together with the agreement of them both in such a manner as to determine the effect thereof on the subject matter of the contract, and from which results an obligation upon each of them with regard to that which each is bound to do for the other.  ..."

Article 1301 of the Civil Code stipulates that offer and acceptance are critical to the formation of a contract conclusion, and Article 129 sets out the 'necessary elements' which need to be agreed by parties for a valid contract, namely: the subject matter of the contract must be possible, defined (or capable of being defined), permissible, and there must be a lawful purpose for the obligations arising out of the contract.

Under Article 872 of the Civil Code, a contract to make a thing or to perform a task is called a muqawala; this captures the essence of, amongst other things, what is generally known as a construction contract. 

Articles 872 to 896 of the Civil Code deal with a muqawala contract, and for anyone dealing with construction contracts in the UAE they must be familiar with these provisions: those provisions address not just the employer, or the contractor, but also subcontractors and certain designers.  Whilst those Articles are not comprehensive, they do set out certain rights and obligations, provide for what could be called a lien2, address issues concerning subcontracting, and termination of the muqawala.  One provision that receives more attention than most much attention is Article 880, which provides for a qualified 10 year liability period.  Those provisions may also serve to 'plug' some gaps in the parties' agreement.

Article 873 makes provision for the nature of the muqawala and such a contract can take on a variety of forms – for example, it can be a pure build contract where the employer provides the materials or, it can be on the other side of the spectrum, namely a design and build or even a turnkey contract.  Article 874 of the Civil Code goes on to provide the requirements for the conclusion of a valid muqawala and says:

"In a muqawala contract, there must be a description of the subject matter of the contract, and particulars must be given of the type and amount thereof, the manner of performance and the period over which it is to be performed, and the consideration must be specified."

It is important that these key conditions are met; the subject matter must be sufficiently described; the detail in which the subject matter is defined, will of course depend on the nature and complexity of the project – some projects may require a more detailed scope of works than others, a time for completion must be specified, as must the consideration for the work to be performed.  If the price for the work is not specified, the contractor is entitled to fair remuneration, together with the value of materials provided3 (this is an exception to the general contract rule that a price must be specified).

As a matter of UAE law some contracts must be in writing to be valid, but this is not a requirement for a muqawala.  That said, the large majority of construction contracts are made in writing, and it is well advised that this is done – not only for evidentiary purposes but to provide the parties with a greater degree of certainty and support when executing the works.

The emphasis on a well drafted and properly executed construction cannot be made enough – the execution and timeous completion of a project will be largely determined by effective implementation of the construction contract which ultimately addresses the relationship between the parties, and which has a significant bearing on the success of the project.

Footnotes

1 "A contract shall be made by virtue solely of the confluence of offer and acceptance, subject to the specific provisions laid down for the making of the contract by law." See also Article 125 of the Civil Code.

2 Article 879, Civil Code.

3 Article 888, Civil Code.

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.