By Dr. Chandana Jayalath

Majority of construction contracts in the Gulf region maintain the principle features of the FIDIC forms of contract, yet there are many subtle changes from the FIDIC forms of contract. These changes will eventually imbalance the even risk allocation between the parties. Many contracts drafted in one sided language biased towards the clients are a result of cut and paste exercise, for instance, sometimes; there is no provision for price escalation and variations exceeding 10 or 15 per cent. The message to contractors entering into contracts on the basis of these forms is to review them very carefully without being fooled into thinking they are simply the FIDIC versions. …

Understanding the Generality of Variation Clauses and the Variety of Broad Interpretation that Exists under FIDIC Based Contract Modalities in GulfRead More »

By MARTIN PRESTON
The UAE Civil Code governs construction (and other) contracts entered into in the UAE. As such, unlike in a common law system where, subject to certain statutory exceptions, the parties are free to agree to the content of their contract, the UAE Civil Code imports a number of requirements into construction contracts. These are mainly to be found between Articles 872 and 896. Some of the main provisions affecting construction contracts are:• Decennial liability: Article 880 of the Civil Code imposes a 10-year liability on contractors and consultants in relation to structural defects. This liability can neither be contracted out (of Article 882) nor does it appear that specific decennial liability insurance is available to cover off this risk as is the case in certain other jurisdictions with decennial liability (for example, France). However, the scope of decennial liability is limited to serious structural defects likely to result in the collapse of the building or structure rather than all defects to the works.• Liquidated damages/penalties: Either party to a contract may challenge the liquidated damages contained within a contract if the actual loss suffered is more or less than the liquidated damages (Article 390). This differs from the position under most common law jurisdictions where the enforceability of liquidated damages is determined by whether the damages were a genuine pre-estimate of loss at the date the contract was entered into. As is the case in most common law jurisdictions, however, it is rare that the courts will open up the liquidated damages agreed by the parties in their contract.

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Key issues of UAE construction lawRead More »

1. The Readers of this journal must be very familiar with the phase “pay when paid”. From time to time, it has been raised by main contractors as a defence for not paying its sub-contractors. A classic “pay when paid” clause is found in clause 11(b) of the Standard Form of Sub-Contract for use when the sub-contractor is nominated under the Standard Form of Building Contract drawn up by The Hong Kong Institute of Architects, The Royal Institution of Chartered Surveyors (Hong Kong Branch) and The Society of Builders, Hong Kong (commonly known as the “Green Form”). …

Pay When Paid: What does it mean?Read More »

By Dr. Chandana Jayalath

A contractor’s overheads are normally covered by the income of the business as a whole and, where the completion of one contract is delayed, the contractor may claim to have suffered a loss arising from the diminution of the income from the contract and hence, the turnover of the business; but the general running costs of his business continue to be expended. Were it not for the delay, the contractor’s workforce would have had the opportunity of being employed on another contract, with the result that it would have contributed towards the overhead costs during the overrun period. Also, if he can show that the staff, who would otherwise have been gainfully employed, had to devote time to dealing with the disruption or delay, he may have a claim for that too. …

Recovery of Unabsorbed Head Office Overheads in a Contract ProlongationRead More »

By Dr. Chandana Jayalath

Whenever variations are ordered that omit work, and particularly if such omissions are substantial in nature, contractors often argue that they should be entitled to claim the loss of profit that they would have earned on such works. …

Claims for Loss of Profit on Omitted WorksRead More »

By Dr. Chandana Jayalath

Termination occurs when the employer instructs a contractor to permanently stop the performance of work and leave the site. Construction contracts specify each party’s rights, obligations, and remedies for termination. Termination on construction projects often results in claims and disputes; therefore, the decision to proceed with this option should not be taken lightly. …

Termination Claims in NutshellRead More »

By Dr. Chandana Jayalath

The term good faith, bona fide in Latin, is used in many areas of the law but has special significance in law related to construction. It is expected that the parties to a contract will act in good faith and fair deal at all times. To meet this test, it is honesty that comes first in the conduct of the transactions in achieving a reasonable commercial standard of fair dealing in the trade. These standards are usually set out in form of specifications taken for granted in the industry. Accordingly, good faith incorporates both subjective elements by requiring honesty and objective elements by requiring adherence to standards. Although good faith and fair deal go together, it is bad faith, more easily recognizable so that a party may contest in a lawsuit when only a bad faith prevails. According to Lord Justice Bingham, good faith is in essence a principle of fair and open dealing where the parties should not deceive each other. …

Good Faith and Fair Dealing; What Does It Really Mean in Construction Contracts?Read More »