UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance

Archive for May 23, 2010

The Importance of Document Management for Construction Claims in the UAE

Not only is a well-drafted construction contract which complies with UAE law necessary for successful dispute resolution, however, the parties to the contract must also document details in writing in a strategic manner in order to provide evidence to support and refute claims. 

For example, according to Al Tamimi, one should keep the following documents:

  • Pre-contract documents such as tenders, taking-off sheets, contractor’s rates build up records, etc;
  • The contract and all appendices including  i.e. bills of quantities, drawings, and specifications;
  • Works programs including i.e. baseline, current progress, and as-built program;
  • Drawings;
  • Daily communications by fax, phone, and/or e-mail;
  • Daily records such as i.e. site diary, plant and manpower records; health and safety records, material delivery records, etc.;
  • Notices given in accordance with the contractual method agreed;
  • Signed minutes of meetings by all parties attending;
  • Progress reports;
  • Counter-signed timesheets or other man-hour measuring documents relevant to the dispute;
  • Cost analysis for hiring equipment, plant, etc.
  • Financial records such as day work, plant hire, purchase and delivery orders, invoices, and all accounting records.
  • Written approvals, amendments, instructions, requests, confirmations, certificates, etc.

 

However, document production and management should be done strategically with the intention of using the documents for future litigation and/or arbitration.  Furthermore, it is important that the documents are generated by authorized parties so that the documents may be used successfully as evidence in litigation or arbitration proceedings.  All correspondence generated by the employer, engineer, architect, and contractor should be strategically thought out before being generated and reviewed afterwards with the mindset that these documents may be used in future litigation for or against them.  In regards to architects, this is especially important if the architect is supervising the execution of the design as the architect would be liable with the contractor for ten years for major defects.

Solid and comprehensive documentation may also serve to help a court or arbitration panel calculate remuneration for additional work carried out by the contractor.  Article 888 of the Civil Transactions Law, Federal Law No. 5 of 1985 states:

“If no consideration for the work has been specified in the contract, the contractor shall be entitled to a consideration of the equivalent plus the cost of materials provided by him for performance of the work.”

Contractors also need to keep extensive records to refute delay and disruption claims by the employer.   It is advisable for contractors to notify the employer of all expected delays with a comprehensive itemization of anticipated costs resulting from such delay. 

In the event of additional works, the contractor must also notify the client in order to recover the additional cost of the work.  As mentioned previously, in order to help the courts calculate the remuneration owed to the contractor, the contractor should maintain extensive documentation of the additional work, especially if it is a variation which exceeds the revised plan agreed to with the mutual consent of the client.  However, it is important to note that if the job contract was concluded on the basis of a design agreed upon for a lump- sum consideration, the contractor is not entitled to claim for remuneration for extra works.  Therefore, it is best for the contractor not to agree to work on such a lump-sum basis in the UAE. 

Furthermore, it is best for the contractor not to make a ‘substantial’ variation to the works as agreed upon with the client as the client has the option to dissolve the contract and pay the contractor the value of the work completed thus far in such a case.

Article 886 of the Civil Transactions Law, Federal Law No. 5 of 1985 states:

  1. “If a contract is concluded according to a unit based measurement and in the course of the work it appears that for execution of the layout agreed upon, it will be necessary to exceed the estimated measurement substantially, the contractor must immediately inform the client of this expressing the expected increase in the price; and if he fails to do so, his right to recover the differential cost of the excess in the measurement shall be extinguished.
  2. However, if the excess required for performance of the layout is substantial, the client may dissolve the contract and suspend the execution without delay and pay to the contractor the value of the work completed by him as estimated according to the conditions of the contract.”

 

Paragraph 2 of Article 886 explicitly states that if the additional works are ‘substantial’ the client can dissolve the contract and pay the contractor the value of the work completed by him or her.

Article 887 of the Civil Transactions Law, Federal Law No. 5 of 1985 states:

  1. “If the job contract is concluded on the basis of a design agreed upon for a lump sum consideration, the contractor must not claim any extra payment for performance of such a layout.
  2. If an amendment or addition has been made to the layout with the consent of the client, the agreement made with the contractor concerning such an amendment or addition shall be observed.”

 

As for the employer, he or she should maintain comprehensive documents in order to refute excessive claims for additional works, variations, and other claims by the other parties to the contract.  Furthermore, if the employer desires to terminate the contract and/or remove the contractor from the site under UAE law, extensive documentation of errors and/ or breaches of contract may serve the employer well in future litigation, especially in calculating damages. 

Documentation during the works period could make or break any future litigation or arbitration between the disputing parties.  Remember to prepare and maintain all documentation as if one was already in litigation and in this way, one can limit their liability and help ensure effective dispute resolution and smooth progress in the construction process.

Employer’s Risks under UAE Construction Law vs. FIDIC 1999 Red Book

FIDIC Contract

17.3 The risks referred to in Sub-Clause 17.4 below are:

a. war, hostilities (whether war be declared or not), invasion, act of foreign enemies;

b. rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war, within the Country;

c. riot, commotion or disorder within the Country by persons other than the Contractor’s personnel and other employees of the Contractor and Subcontractors.

d. munitions of war, explosive materials, ionizing radiation or contamination by radio-activity, within the Country, except as may be attributable to the Contractor’s use of such munitions, explosives, radiation, or radio-activity.

e. pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonic speeds;

f. use or occupation by the Employer of any part of the Permanent Works, except as may be specified in the Contract;

g. design of any part of the Works by the Employer’s Personnel by others for whom the Employer is responsible; and

i. any operation of the forces of nature which is unforeseeable or against which an experienced contractor could not reasonably have been expected to have taken adequate preventative precautions.

17.4  Consequences of Employer’s Risks:

If and to the extent that any of the risks listed in Sub-Clause 17.3 above results in loss or damage to the Works, Goods, or Contractor’s Documents, the Contractors shall promptly give notice to the Engineer and shall rectify this loss or damage to the extent required by the Engineer.

If the Contractor suffers delay and/or incurs Cost from rectifying this loss or damage, the Contractor shall give a further notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to:

  1. an extension of time for any such delay, if completion is or will be delayed, under Sub-clause 8.4 [Extension of Time for Completion],
  2. payment of any such Cost which shall be included in the Contract Price.  In the case of sub-paragraphs (f) and (g) of Sub-Clause 17.3 [Employer’s Risks] reasonable profit on the costs shall also be included.

After receiving this further notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters.

UAE Civil Transactions Law, Federal Law No. 5 of 1985:

 

Article 894:

If the contractor starts the execution and then becomes unable to complete the job for reasons beyond his control, he shall be entitled to the value of the completed work, and to the expenses incurred by him in the course of the execution to the extent of the benefits acquired by the client.

UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance