The Fidic form of contracts has been in the Middle East since the 1970s, yet it is far from popular. Adam Webster looks at legal issues that should be borne in mind when negotiating Fidic-based contracts.
THE legal systems of the Middle East are founded upon civil law principles (most heavily influenced by Egyptian law, which is itself based on the Napoleonic Code) and Islamic Shariah law – the latter constituting the guiding principle and source of law.
The impact of Shariah law depends on the jurisdiction. For example, charging interest is prohibited under Saudi law, whereas only prohibitive interest will be unenforceable in the UAE. In the UAE and other civil law jurisdictions in the Middle East (including Bahrain, Saudi Arabia, Kuwait and Oman), legislation tends to be formulated into a number of major codes providing for general principles of law with a significant amount of subsidiary legislation. Unlike common law jurisdictions, there is little, if any, precedent and we can only surmise what decision a court may arrive at on any given point.
The Fidic forms of contract have been in use in the Middle East since the 1970s. Indeed, the abbreviation “Fidic” (Fédération Internationale des Ingénieurs-Conseils) has become synonymous with the Middle East. It is somewhat paradoxical that the majority of Middle East countries, which source their law from a mixture of civil and Shariah law, have based their conditions of contract on the Fidic form despite the fact that the Fidic conditions of contract are based largely on English common law principles.
Historically, the public sector (in Gulf countries especially) has promoted Fidic as the accepted standard and the private sector has followed suit. There is no apparent rhyme or reason for this, and although Fidic is the established form of construction contract in the region, it is far from popular. It is interesting to note that whilst Abu Dhabi has officially adopted the Fidic form for its standard government contracts, it remains to be seen whether Dubai will follow suit.
According to a recent survey conducted by Norton Rose’s Middle East offices, most developers and contractors responded that they choose to use Fidic forms largely through habit (indeed 94 per cent of respondents said that they primarily use Fidic or modified Fidic contracts, largely because it is well-established and recognised within the region). That said, many respondents also complained that Fidic is too rigid and breeds an adversarial relationship. The current downturn may give contractors and developers time to reassess their contractual models and consider other forms of contract, including Institution of Civil Engineers (ICE), New Engineering Contract (NEC) and partnering contracts. However, few respondents expected that there will be a change in approach towards contracts in the short term.
Unlike in the UK and other common law jurisdictions, countries in the Middle East do not have a specific body of construction or engineering-related laws and precedents, despite the fact that particular problems recur. Although civil codes can give some comfort and confidence to foreign developers and contractors, the uncertainty that often surrounds the interpretation of such laws should not be dismissed out of hand. While it is true that there are principles common to most legal systems, there are some quite significant differences, and often, in the context of construction and engineering projects, these have the capacity to be problematical if not addressed from the outset. As such, it is necessary to have an appreciation of and be aware of the relevant civil code articles and local law nuances which may impact on certain Fidic conditions.
Obviously, the issues vary from country to country as the local laws are not identical. That said, they are often quite similar and, as such, it is possible to highlight some of the key legal issues that should be borne in mind when negotiating Fidic-based contracts.
• In most (if not all) Gulf jurisdictions, it is not possible for contractors to contract out of liability for major structural defects, which threaten the total or partial collapse of a building for a period of not less than 10 years from the date of practical completion.
• Further, whilst it is possible for parties to ascertain and limit damages from the outset of a contract, if the actual damage sustained as a result of a breach is proven to be well in excess of any agreed cap, a court/arbitral tribunal may look beyond the cap and award damages that are quantifiably closer to the actual losses incurred.
• Contractors may also be precluded from claiming payment if payment certificates have not been issued in respect of work performed. Careful consideration should, therefore, be given to the wording of Fidic (or any other standard form or bespoke contract) to ensure that the time for late payment runs from the date on which the interim and/or final payment certificate, as opposed to the date on which the contractor’s application for payment, is made.
• The local laws of most Gulf nations permit parties to a contract to agree on the circumstances in which a contract can be terminated, including provisions that determine the contractor’s employment, but not all of the contractor’s obligations under the contract. In Bahrain, as in Qatar and Egypt, an employer may terminate a contract and stop work at any time before the completion of the works, provided he compensates the contractor for all the expenses he has incurred for the work completed and the profit he would have made if he had completed the works. The court may, however, on application of the employer reduce the compensation for loss of profit, if it sees fit. There is no such provision under the UAE law, however, and in certain circumstances, a court order may be required to terminate a contract. Drafting could be included in contracts governed by the UAE law to provide that the parties agree that they may be terminated without a court order if such termination is in accordance with the termination provisions, but it is not certain that this will be effective if challenged.The Fidic form of contracts has been in the Middle East since the 1970s, yet it is far from popular. Adam Webster looks at legal issues that should be borne in mind when negotiating Fidic-based contracts.
THE legal systems of the Middle East are founded upon civil law principles (most heavily influenced by Egyptian law, which is itself based on the Napoleonic Code) and Islamic Shariah law – the latter constituting the guiding principle and source of law.
The impact of Shariah law depends on the jurisdiction. For example, charging interest is prohibited under Saudi law, whereas only prohibitive interest will be unenforceable in the UAE. In the UAE and other civil law jurisdictions in the Middle East (including Bahrain, Saudi Arabia, Kuwait and Oman), legislation tends to be formulated into a number of major codes providing for general principles of law with a significant amount of subsidiary legislation. Unlike common law jurisdictions, there is little, if any, precedent and we can only surmise what decision a court may arrive at on any given point.
The Fidic forms of contract have been in use in the Middle East since the 1970s. Indeed, the abbreviation “Fidic” (Fédération Internationale des Ingénieurs-Conseils) has become synonymous with the Middle East. It is somewhat paradoxical that the majority of Middle East countries, which source their law from a mixture of civil and Shariah law, have based their conditions of contract on the Fidic form despite the fact that the Fidic conditions of contract are based largely on English common law principles.
Historically, the public sector (in Gulf countries especially) has promoted Fidic as the accepted standard and the private sector has followed suit. There is no apparent rhyme or reason for this, and although Fidic is the established form of construction contract in the region, it is far from popular. It is interesting to note that whilst Abu Dhabi has officially adopted the Fidic form for its standard government contracts, it remains to be seen whether Dubai will follow suit.
According to a recent survey conducted by Norton Rose’s Middle East offices, most developers and contractors responded that they choose to use Fidic forms largely through habit (indeed 94 per cent of respondents said that they primarily use Fidic or modified Fidic contracts, largely because it is well-established and recognised within the region). That said, many respondents also complained that Fidic is too rigid and breeds an adversarial relationship. The current downturn may give contractors and developers time to reassess their contractual models and consider other forms of contract, including Institution of Civil Engineers (ICE), New Engineering Contract (NEC) and partnering contracts. However, few respondents expected that there will be a change in approach towards contracts in the short term.
Unlike in the UK and other common law jurisdictions, countries in the Middle East do not have a specific body of construction or engineering-related laws and precedents, despite the fact that particular problems recur. Although civil codes can give some comfort and confidence to foreign developers and contractors, the uncertainty that often surrounds the interpretation of such laws should not be dismissed out of hand. While it is true that there are principles common to most legal systems, there are some quite significant differences, and often, in the context of construction and engineering projects, these have the capacity to be problematical if not addressed from the outset. As such, it is necessary to have an appreciation of and be aware of the relevant civil code articles and local law nuances which may impact on certain Fidic conditions.
Obviously, the issues vary from country to country as the local laws are not identical. That said, they are often quite similar and, as such, it is possible to highlight some of the key legal issues that should be borne in mind when negotiating Fidic-based contracts.
• In most (if not all) Gulf jurisdictions, it is not possible for contractors to contract out of liability for major structural defects, which threaten the total or partial collapse of a building for a period of not less than 10 years from the date of practical completion.
• Further, whilst it is possible for parties to ascertain and limit damages from the outset of a contract, if the actual damage sustained as a result of a breach is proven to be well in excess of any agreed cap, a court/arbitral tribunal may look beyond the cap and award damages that are quantifiably closer to the actual losses incurred.
• Contractors may also be precluded from claiming payment if payment certificates have not been issued in respect of work performed. Careful consideration should, therefore, be given to the wording of Fidic (or any other standard form or bespoke contract) to ensure that the time for late payment runs from the date on which the interim and/or final payment certificate, as opposed to the date on which the contractor’s application for payment, is made.
• The local laws of most Gulf nations permit parties to a contract to agree on the circumstances in which a contract can be terminated, including provisions that determine the contractor’s employment, but not all of the contractor’s obligations under the contract. In Bahrain, as in Qatar and Egypt, an employer may terminate a contract and stop work at any time before the completion of the works, provided he compensates the contractor for all the expenses he has incurred for the work completed and the profit he would have made if he had completed the works. The court may, however, on application of the employer reduce the compensation for loss of profit, if it sees fit. There is no such provision under the UAE law, however, and in certain circumstances, a court order may be required to terminate a contract. Drafting could be included in contracts governed by the UAE law to provide that the parties agree that they may be terminated without a court order if such termination is in accordance with the termination provisions, but it is not certain that this will be effective if challenged.
Gulf Construction
