Guest Articles

Undoubtedly, this has lured several international contracting houses to invest in the UAE by setting up subsidiaries of its home office within the region. After the honeymoon stage, construction companies soon realize that there are distinct differences in performing construction projects in the UAE when compared to performing construction projects “back home”. 

In our extensive experience within the region, we find that these distinct differences often, if not always, turn on matters of cultural customs. If not properly understood, these distinct differences often result in construction projects within the UAE experiencing time and cost overruns, which become expensive disputes to resolve.

The extent of the huge costs around construction disputes become evident on reading the Dubai International Arbitration Centre’s Report for 2023 which saw new disputes of more than AED 5.5 billion being registered. Of the total dispute value, 40% were disputes relating to construction contracts, 14% were disputes relating to real estate and property contracts and 13% were disputes relating to service provider contracts. In essence, the construction value chain represented 67% of the total value of disputes registered during 2023. 

Whilst the adage “prevention is better than cure” is apt for the construction sector with the UAE, we still find that companies entering the UAE construction sector struggle to appreciate and adopt a proactive approach to understanding:

1. The customs

2. How standard form contracts interact with the law

3. The common trouble points 

In our experience, we find the common thread to be the lack of access to suitably experienced mentors who understand that the custom around the principles of contract management is extremely important when negotiating and executing construction projects within the UAE.

The Customs

One of the most important rules when doing business within the UAE is to understand the business style of the person you will be engaging with on your construction projects. 

Family values and friendship are a vital part of the daily business interaction. The focus, therefore, should be on becoming friends first, not business partners. In the construction sector, amongst other sectors, you will often find that the contract is often referred to as a last resort. Therefore, a common occurrence is that construction claims for extension of time and additional payment may not be submitted in accordance with the times stated within the contract. Instead, these claims will be resolved by negotiation between the parties, often towards, if not at the end of the project. 

Moreover, we find that negotiation, whilst intense, is a lot less aggressive and more conciliatory. Therefore, do not expect to get the full value of your claim, be prepared to make certain concessions!

How Standard Form Contracts Interact with the Law

One spin-off from the customs is that time bars in standard form contracts may not always be upheld by the law. 

We have several war stories where Western engineers relied on a time-bar clause to reject a Contractor’s claim, or where a Western main Contractor relied on a time-bar to reject a Sub-Contractor’s claim. Unfortunately, in our war stories, the reliance on the time-bars stated within the Contract was not upheld.    

This is because there are various prescriptive periods which, unlike other countries, are not always contained in one specific statutory reference. Instead, there are various prescriptive periods provided under various legislations in the UAE, whilst some are specific to an Emirate. 

Common trouble points:

In our experience, the most common trouble point is the failure to balance culture and the legal requirement. To overcome this, we recommend the following:

1. Do not copy and paste contractual clauses commonly used in Western Construction Contracts you are familiar with, because they may not be enforceable in the UAE.

2. Implement a robust Contract Administration focus on all construction projects.

3. Be prepared to negotiate but prepare your construction claims as you would prepare a referral to adjudication/arbitration.

4. Trigger the dispute resolution clauses early to avoid delays in closing out your construction claims.

Conclusion

To minimize the risk of disputes and to facilitate fair and effective resolution of disputes across the construction supply chain within the UAE, requires a multifaceted and balanced approach which should include implementing a robust soft skills business interaction program, hard skills construction contract administration program and dispute resolution strategy. Finally, continuous learning with a focus on staying informed and adapting to the fast-changing construction landscape within the UAE, will assist companies to position themselves to respond to new challenges effectively, as and when they do arise.   

Decipher, a DeSimone Company, is a Construction Advisory and Training organization with over 25 years of experience in managing, executing and advising clients on mega construction projects within the region. 

Our team comprises construction professionals (mostly dual qualified in matters of law and technical aspects of construction management) who have real life experiences of early-identification and avoidance of disputes across the pre-contract, contract award and post-contract award stages of construction projects within the GCC region, UK, Africa, Americas and Europe. 

Our consultants are subject matter experts who have accepted appointments as Expert Witness and have been instructed to present oral and written Expert reports on matters of construction delay and cost overruns that tend to arise on construction projects, authored several books on the subject of construction claims and have presented training on the subject of construction claims management and the principles of contract management.

You can contact Mark Watson at [email protected]