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Investment in construction industry is continuing in an upward trend in the United Arab Emirates, after experiencing a slight dip in the year 2020. Post this phase, which was also the direct result of the covid-19 pandemic, the industry has gained further momentum with the boost brought in by the UAE hosting the world expo. There has been a considerable increase in the rising demand for construction particularly from the tourism and hospitality sectors and also an increase it the government spending on infrastructure. The projected rebound for the construction industry as a whole is therefor at a 3% to 4% rise.
FIDIC Governance:
When it comes to the legal standards predominantly relied upon in construction contracts in the UAE, it is the International Federation of Consulting Engineers or more commonly referred to just as 'FIDIC''. Wherein, the FIDIC Red Book is common for the traditional construction model of 'design, bid and build'. While, the FIDIC yellow book is more suitable for construction model of 'design and build' projects. The construction contract can either be in English or in certain cases the parties choose it to be both in English and Arabic, however English is more or less considered the business language in these sectors. It is to be noted when a bilingual contract is being entered into between the parties the Arabic language version will supersede the English version as this is by the UAE laws, therefore parties should be careful when entering into bilingual contracts.
Pursuant to the FIDIC framework, parties to a construction contract are commonly categorized as:
'Employer or client': which is usually the party who is initiating the construction work
'Contractor': refers to the party who has been employed by the employer to conduct certain parts of the work such as e.g. Design works
'Sub-Contractor': further the employer and the contractor can sub-delegate further separate works to a sub-contractor.
Choice of Law and Forum:
We have seen both 'arbitration', as well as separately 'local courts' to be the chosen dispute resolution forums. Further, since the subject matter of construction contracts involve a real estate matter, article 19 of the Federal Law No. (5) of 1985 on the Civil Transactions Law of the United Arab Emirates and its amendments (Civil transactions Law) becomes applicable which imposes the applicability of the UAE laws in real estate matters.
Article (19)
1. Contractual commitments in form and context shall be governed by the law of the State where the common residence of the contracting parties is located. Should they have different residences, the law of the State where the contract is made shall apply, unless the parties agree otherwise, or the conditions show that another law is to be applied.
2. However, the law on the location of the real estate is the law to be applied on contracts made in this regard.
Before entering into a construction contract, it is vital that the contracting parties conduct proper technical, commercial and legal due diligence. It is critical to ascertain the accuracy of the written contract and to ensure the enforceability of the contract as per the legal rules and regulations of the UAE. This is particularly so, as terminating a construction contract can be a lengthy, costly as well as tedious process, and hence proper legal due diligence is key to ensuring a successful contract.
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.
