Subcontracting in UAE

Transcription

1 Subcontracting in UAE PMI, PMP, PMBOK and the PMI Registered Education Provider logo are registered marks of the Project Management Institute, Inc. Contents The need for Subcontracting Legal framework Contractual framework 1. Incorporation of Terms 2. Privity 3. Main Contractor s Responsibility 4. Nomination by Employer 5. Payment and back-to-back Provisions 6. Limitations and Caps on Liability Q & A 1

2 The need for Subcontracting Cost optimization Coordination Specialization Liability Transfer Employer needs Legal framework The UAE laws allow the Main Contractor not to only subcontract certain parts of the works but rather the whole of the works, unless 1- The construction contract contains a provision to the contrary or 2- Where the nature of the job requires the Contractor to do the job himself or if the Employer so requires. The relationship between Main and Sub-Contractors remains governed by the same provisions governing the relationship between the Main Contractor and the Employer 2

3 Legal framework The UAE Civil Transactions Code (Law No. 5/1985) Article (890) 1. The Contractor may assign all or part of the work to a Sub-contractor if nothing in the terms of the contract prevents him, or if the nature of the work does not require him to do it himself. 2. The Main Contractor shall remain responsible toward the Employer Article (891) The Sub-contractor must not claim anything from the dues of the Main Contractor unless the Main Contractor refers him to the Employer Contractual framework FIDIC Red Book 1999 as an Example Clause 4.4 Main Contractor shall NOT Sub-Contract the whole of the Works (Employer can terminate the Contract under Clause 15 if the Contractor does Sub-Contract the Whole of the Works) Main Contractor shall get the Engineer s consent of Sub-Contractors Main Contractor is liable for the acts and omissions of any Sub-Contractor (No Exception for Nominated Subcontractors) Clause 5 Nomination of Sub-Contractors Provisional Sums Main Contractor s right to object Payment to Nominated Sub-Contractors 3

4 Incorporation of Terms It is not unusual that subcontractors get hired through the issuance of a letter of acceptance, purchase order or similarly named documents. Such documents tend to set out the basic terms of the subcontract and in many instances incorporate either the standard subcontract form and/or the main contract itself. The question that sometimes arises is whether these incorporated terms apply. The answer will depend on how clear is the wording of the provisions incorporating these terms. A clear wording would be something along the lines of It is agreed between the parties that the terms of document X will apply by incorporation and will be deemed part of this subcontract. As such, it is quite important for subcontractors to ensure that they are aware of the terms being incorporated as part of their subcontract and must insist on being provided with such terms. Privity The doctrine of privity of contract is a cornerstone concept of the UAE law. This principle means that the rights and obligations arising from a contract are only enforceable between the parties (privies) of that contract and no third party (privy) may exercise such rights or obligations. In the context of a subcontract, which is a contract between a main contractor and a subcontractor, this means that the Employer being a third party to this subcontract has no rights or obligations in relation to this subcontract. However, due to the nature of construction projects and the Employer desire to be in control of certain aspects of the project, the Employer in practice does retain some rights (through the Main and sometimes the Sub-contract) in respect of the Subcontract such as the requirement for the subcontractor to provide certain warranties for the work carried out directly to the employer or if the employer retains the right to have Subcontracts assigned to him if the Main Contract is terminated. These terms are usually found in the main contract rather than the subcontract itself. This situation will create many problems such as agency problems, lack of control on the Sub- Contractor etc 4

5 Main Contractor s Responsibility The Main Contractor under the majority of contracts remains liable for the performance of his Subs The standard form of FIDIC Contracts are grey in relation to the limitation of the Contractor s liability in case of Employer s interference in the contractual relationships between the Main and Sub contractors Clause 4.4 in the FIDIC Red Book 1999 doesn t (for example) exclude the Nominated Sub-Contractors from the Main Contractor s liability However, Courts interpretation to Article 890 of the CTC differs Caution is required in comparison between the last two points Nomination by Employer The Following are common problems related to Nomination by the Employer 1- Sub-Contractor Price (if not PS Item) 2- Sub-Contractor Price (Vendor lists) 3- Sub-Contractor s performance 4- Control over Sub-Contractor 5- Payments to Subcontractors 6- Termination of the Sub-Contract 7- Agency 5

6 Limitations and Caps on Liability Liquidated Damages Performance Security Subcontractors delaying each others Force Majeure (Sub-Clause 19.5 in FIDIC Red Book 1999) Q & A For further discussions Abdelkader Badawi Ibrahim (LinkedIn) (WU) Dr_project_management@yahoo.com 6