Construction Contracts Issues and Practical Solutions. Shahram Safai Partner Afridi & Angell

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1 Construction Contracts Issues and Practical Solutions Shahram Safai Partner Afridi & Angell

2 About Afridi & Angell is one of the most established law firms in the UAE. The firm conducts a general corporate, commercial and disputes practice specializing in the Middle East, Africa and South Asia Our clients include regional companies, Fortune 500 multinational corporations, businesses, entrepreneurs, financial institutions, and governments who seek advice in respect of their domestic and international affairs. With respect to construction disputes, we represent contractors, owners, engineers, architects and others. Shahram Safai is a Partner at Afridi & Angell, is a Professional Engineer and holds an MBA.

3 UAE Law UAE Construction Law Issues & Dispute Resolution: Common Disputes Formation of the Contract Contract Variations and impact on the Contract Price/Time for Completion Progress/Extension of Time Claims/Liquidated Damages Payments (or delay / lack thereof) Disputes Resolution

4 UAE Law.. How does U.A.E. Law and practice deal with these common dispute areas? What are the Dispute Resolution Forums available to parties under FIDIC and U.A.E. law? Impact of UAE Law UAE Law issues have potential to impact certain clauses and concepts UAE Law and Shariah Law principles of good faith and fairness will apply

5 Contract Formation The Contract should be interpreted in accordance with its contents State Governing Law as U.A.E Draft Particular Conditions carefully Avoid hand-written changes and attaching correspondence Minimize ambiguities which may lead to Disputes

6 Variations In order for Contract Variations and claims to be effective under U.A.E. Law, the Variation or claim must be in accordance with the terms of the Contract Variations- Claims Procedure Time Barring Time Bar: As per the Contract, Contractor claims can be time-barred or value reduced by the Engineer if the relevant notice and documentation have not been filed within the period(s) stated in the Contract. U.A.E. Law does not necessarily uphold this view: a good claim never dies Under U.A.E. law a contractual time-bar alone is not sufficient reason to disqualify a claim as U.A.E. law requires: - Contract to be administered fairly and in a non-oppressive way - Contract should be administered in good faith - A party shall not be unjustly enriched

7 Variations.. Increase in Contract Price Doctrine of Changed Circumstances (Article 249 of the U.A.E. Civil Code) Increase in prices of commodities and raw materials U.A.E. law provides that the Contractor may recover the cost if the increase has rendered performance of the Contract at the original Contract Price as so oppressive as to cause the Contractor grave loss Additional recovery will be permitted if the claimant can show: Significant time has elapsed between signing and performance of the Contract; - An unexpected general event must occur - The event should be unforeseeable and unavoidable - The event should make performance of the Contract more difficult rather than impossible

8 Liquidated Damages Liquidated damages for delay are normally capped under the Contract (10% of Contract Price) Under U.A.E. law damages are assessed on the amount actually suffered by the injured party. Consequently the amount of compensation granted may be higher or lower than the amount stated in the Contract, if proven by the party challenging the amount levied; Article 390(2) of the UAE Civil Code: Liquidated damages need to be justified

9 Liquidated Damages Apply to Court/Tribunal Burden of proof is on the party seeking to increase/decrease level of LDs stated in the Contract Type of damages recoverable Direct and foreseeable (including loss of profit) not remote or consequential Examples include lost sales, additional consultant fees, financing charges Examples where Not Recoverable are: Impact on other Projects, increase in commodity price, loss of value

10 Payment Termination for Non-Payment U.A.E. law provides that an injured party may suspend performance if the other party has not fulfilled its obligations Does not mean that the Contractor can repudiate the Contract merely on the basis that the other party has not made payment There is a requirement that the Contractor follow the procedure under the Contract Recent judgments: Reciprocal obligations

11 Disputes Calling the performance security Under the Contract, Performance Bonds/Guarantee granted by the Contractor to the Employer as security for performance of its obligations under the Contract Most Contracts in the U.A.E. require on demand Bonds. Traditionally U.A.E. courts are reluctant to intervene to prevent the encashment of a Bond Recent Trend by Contractors to seek a Declaratory Judgment to stop Employers from Calling the Bond Under U.A.E. law it is possible for the Contractor to prevent encashment of a Bond if it can be shown that the Employer has no valid legal grounds to make such a claim on the Bond. This is based on U.A.E. principles of good faith and fairness

12 Statutory Liability 10 Year liability for major structural defects Applies to both Architect/Engineer and the Contractor Parties cannot contract out of this liability Extent of liability is very wide as includes all loss Whose Liability is it anyway? There is considerable scope for dispute on whether or not a defect was caused by the Consultant s design or the Contractor s method of construction Very often Experts or a Tribunal may determine joint-liability (proportional and culpability)

13 Dispute Resolution Arbitration Most recognized form of dispute resolution for large projects Qualified arbitrators including construction experts Awards enforceable globally under the New York Convention on Foreign Arbitral Awards, 1958 Relatively high administrative and legal costs Parties must have wherewithal/capacity to proceed FIDIC Standard Option: Arbitration under ICC Rules Pros: Tried and tested/ High class arbitrators Cons: Enforcement, High Costs

14 Arbitration in UAE Traditional options: Dubai International Arbitration Centre (DIAC) Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC) New options: DIFC-LCIA (Accredited to London Court of International Arbitration) Emirates Maritime Arbitration Centre (EMAC) ADGM Arbitration Centre (Abu Dhabi- 2018)

15 Enforcement U.A.E. Enforcement of Arbitral Awards U.A.E. arbitration awards are enforceable in the U.A.E. Courts by virtue of the U.A.E. Civil Procedure Code International Enforcement of Arbitral Awards U.A.E. is signatory to New York Convention on Recognition and Enforcement of Foreign Arbitral Awards As such, U.A.E. arbitration award may be enforced in any of the other countries that have ratified the Convention and vice versa Enforcement improved in recent times

16 UAE Courts Generally, litigation in UAE Courts are; Low in Costs Impartial Comparatively faster But have the disadvantages of; Lack of qualified experts Language barriers (Arabic only) Enforceability outside UAE

17 New: DIFC-TCD In September 2017, the Dubai International Financial Centre Courts established a Technology and Construction Division as a specialized court for construction disputes Has specialized expert judges Parties should voluntarily accept jurisdiction of DIFC Courts in their contracts Benefits: Faster, less expensive, specialist knowledge, enforceable Disadvantage: Untested Possible new alternative to arbitration?

18 Construction Contracts In General

19 Parties to Contract The EMPLOYER The Commissioner of the Project Works. The CONTRACTOR The party who will undertake the Project Works. The ENGINEER The Administrator of the Project Works

20 Obligations The EMPLOYER Set Scope of Works Make payments The CONTRACTOR... with due care and diligence...execute and complete the Works and remedy any defects therein The ENGINEER Impartial administration (Payment Certificates, Milestones, etc.)

21 Contract Formation What is the purpose of a Contract? Basic Principles on Formation of a Simple Contract - Offer - Acceptance - Consideration Invitation to Tender - Precise Requirements - Program, Method Statement and Organization

22 Variations Contract Price Definition the sum stated in the Letter of Acceptance as payable to the Contractor for the execution and completion of the Works and the remedying of any defects therein Nature of Contract Price - Lump Sum - Remeasured - Milestone Achievement

23 Claims Contractor Claims Procedure/ Additional Remuneration; Notice provisions Contractor intention to claim Substantiation of Claim(s) Failure to Comply - Value limited to amount verifiable Payment of Claims Interim payment entitlement

24 Time Time for completion/ Rate of progress Program (Purpose) Establish manner and sequence in which Contractor intends to carry out the Works Updated to record actual progress and where no longer realistic Rate of progress too slow - Opinion of the Engineer Notification Contractor to take steps to expedite

25 Extension of Time Events entitling Extension of Time Failure to give Possession of the Site Failure and/or Delay in providing Instructions and / or Drawings Unforeseeable Conditions Variations Legal and / or Physical Impossibility Suspension of the Works (whole or in part)

26 Liquidated Damages If the Contractor fails to comply with the Time for Completion in accordance with Clause 48 then:.the Contractor shall pay to the Employer the sum stated in the Appendix to Tender for every day (or part day) which shall elapse up to the Taking-Over Certificate. The pre-ascertained amount stated in the Appendix to Tender as a price per day. The maximum sum normally stated as 10% of the Contract Price. The Employer MAY deduct Liquidated Damages Liquidated Damages are the ONLY monies due for the Contractor s default in failing to complete the Works timeouslyunless contract terminated for fault of Contractor.

27 Payment Certificates Interim Payment Certificates Within 28 days Engineer is to certify payment to the Employer Payment shall be the gross amount due to the Contractor less: Amount of Retention (until Limit is reached) Deductions that may be due to the Employer (but not Liquidated Damages) Amounts previously paid

28 Payment Employer shall pay within 28 days of receipt of the Engineer s Interim Payment Certificate (IPC) Employer may apply Liquidated Damages Failure to pay timeously entitles interest Contractor has right to slow down and/or suspend (after service of due notice(s))

29 Payment Issues Contentious Payment Issues Measured Works Contracts Payments in Measured Works contracts which are based on actual works executed- based on Bills of Quantities or Schedule of Rates: issues on determining actual works done. Materials On-Site How should materials left on site be set-off? Variations Claims Variations made during the course of the contract: issues on compliance with variations, variations in contract price, etc. Employer may have claims against Contractor for damages, incomplete works, rectification of Works. Entitled to set off?

30 Questions?

31 THANK YOU FOR ATTENDING THE PRESENTATION A wealth of presentations and reports will be available at The BIG 5 Dubai are available at

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