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Sometimes it does. Sometimes funding stalls, a board changes direction, a better price arrives, or negotiations simply run out of momentum. The question is no longer only whether a final construction contract was signed. Since 1 June 2026, UAE law expressly regulates how parties begin, conduct and end pre-contractual negotiations. That matters to developers, contractors, consultants, specialist subcontractors and suppliers using tenders, letters of intent, memoranda of understanding and early works arrangements.

This article considers negotiations governed by UAE federal law in onshore Dubai. DIFC and ADGM arrangements, and contracts governed by another law, require separate analysis. A party remains free not to conclude the main contract, but it must negotiate, disclose and protect confidential information in a way that meets the statutory standard.

A new statutory framework for pre-contract negotiations

Federal Decree by Law No. 25 of 2025 Promulgating the Civil Transactions Law replaced the former Civil Transactions Law on 1 June 2026. Articles 121 to 123 introduce an express framework for pre-contractual negotiations, disclosure and confidentiality.

The new provisions do not turn every tender, commercial discussion or draft letter of intent into a contract. Nor do they compel a developer to appoint a contractor merely because the parties have discussed terms seriously. Instead, they regulate the negotiation process itself. In construction, that process can be expensive. Parties may share design proposals, technical solutions, pricing assumptions, programme logic, funding information, site data and supply-chain terms long before the principal contract is executed.

Freedom of contract remains. Freedom to behave opportunistically during negotiations does not.

Good faith does not mean a duty to sign

Article 121 requires the initiation, conduct and termination of pre-contractual negotiations to comply with good faith. It also confirms that negotiations do not oblige the parties to conclude the contemplated contract. A party may decide that the project is no longer viable, that risk allocation is unacceptable or that approvals have not been obtained. A decision not to sign is not, without more, a breach.

The legal risk lies in the manner in which a party negotiates or withdraws. Article 121 makes a party that negotiates or terminates negotiations in bad faith liable for the actual damage suffered by the other party. The inquiry will be fact-specific. It will turn on what was said, what was known, what was withheld, the reliance encouraged, the authority held by the negotiators and the steps the other party was induced to take.

Parallel discussions with more than one bidder are normal in a competitive tender and are not inherently improper. The position may look different where an employer repeatedly represents that a contractor is selected, requests costly design development and mobilisation, and knows that it has already decided to award the package elsewhere. Equally, a contractor may face risk if it enters negotiations solely to obtain a competitor’s pricing approach, or keeps an employer engaged despite knowing that it cannot obtain the necessary licence, capacity or financial support.

Good faith should not be treated as a substitute for commercial judgment. Parties may negotiate firmly, seek better terms and protect their own interests. The discipline is one of honesty, consistency and responsible conduct, rather than an obligation to make concessions or sign a deal.

Actual loss, not the profit on an unsigned contract

The remedy under Article 121 is deliberately limited. Compensation is for actual damage. It excludes the expected benefit of a contract that was never concluded and the loss of opportunities to obtain that benefit, unless the parties agree otherwise.

For a contractor, a claim will be stronger where it is supported by contemporaneous evidence of expenditure or financial loss caused by the other party’s bad-faith conduct. Depending on the facts, this could include documented design-development fees, tender costs, authorised mobilisation, demobilisation, standing plant, staff costs, security or bond charges, and insurance costs incurred because the negotiations were presented as moving towards contract. It will not ordinarily be enough to assert the margin that might have been earned on the unsigned works contract.

Causation, mitigation and proof will be central. A party that mobilises before receiving a clear written instruction, or incurs costs outside the agreed pre-contract scope, may struggle to establish recovery. Conversely, an employer that encourages expenditure through repeated assurances but then exits negotiations in bad faith may face a harder defence. Project teams should keep a clean record of instructions, approvals, assumptions and expenditure during the pre-contract period.

Article 121 does not prevent parties from dealing with pre-contract costs expressly. A letter of intent or early works agreement should identify what work is authorised, the payment mechanism and the consequences if the main contract is not signed.

Pre-contract disclosure: a mandatory obligation

Article 122 creates a mutual duty to disclose information that is essential and decisive to the other party’s consent, where the other party’s ignorance may be presumed or it has placed trust in the disclosing party. Information with a direct and necessary connection to the proposed contract or the parties’ status is expressly treated as essential and decisive. The duty covers information and data concerning the negotiations, the proposed contract, and the practical circumstances and facts of the contractual process.

This is particularly important in Dubai construction procurement. An employer may hold information that changes the price, programme or feasibility of the works. Examples could include material site conditions, significant design constraints, an unresolved access restriction, a critical third-party approval issue, or a funding or programme assumption that is no longer accurate. A contractor may hold equally relevant information about its ability to perform, including a material licensing issue, a serious capacity constraint, or a fact that could materially affect its ability to meet the proposed programme.

The duty is not a licence for fishing expeditions. The information must satisfy the statutory threshold and the circumstances matter. But project teams should ask a disciplined question before issuing tender documents or seeking a final offer. Is there information we know which has a direct and necessary connection with the proposed deal or the other party’s decision to enter it?

The evidential consequence is important. The party alleging concealment must prove that the information should have been disclosed. The other party must prove that it informed the counterparty. Data-room indexes, tender bulletins, RFI responses, design revisions, minutes, acknowledgement receipts and a short disclosure schedule can all help show what was communicated and when.

The disclosure duty cannot be excluded, limited or waived by agreement. A clause seeking to do so is void, and breach may support a request to annul a concluded contract. Entire-agreement and non-reliance clauses may still record the parties’ intended risk allocation. They should not, however, be treated as a solution to the statutory disclosure obligation.

Confidential tender information is not free market intelligence

Article 123 deals with a familiar tender problem. Anyone who uses or discloses confidential information obtained in connection with negotiations or a contract without permission is liable under the general rules. The provision operates even if the final contract is never signed.

In practical terms, a contractor’s value-engineering proposal should not be treated as free market intelligence for use against a rival bidder. A consultant’s concept design should not be circulated to a cheaper firm for benchmarking without permission. A specialist subcontractor’s rates, construction methodology or supply-chain solution should not be passed to competitors merely because it was shared during bid evaluation.

A properly drafted non-disclosure agreement remains worthwhile. It should define the protected information, identify permitted recipients and uses, deal with return or destruction, and state the duration of the obligation. Article 123 provides a statutory starting point where confidential information is misused, but contractual controls remain valuable.

Letters of intent, MoUs and the risk of an accidental contract

The new rules do not remove the need to decide whether an interim document is binding. In fact, they make that exercise more important. The label “memorandum of understanding”, “heads of terms” or “letter of intent” is not conclusive. The real question is whether the parties have agreed the essential elements and any other conditions that they regard as essential, and whether their conduct supports the conclusion that they intended to be bound.

“Subject to contract” remains useful evidence of non-binding intent. It should be used consistently in correspondence where the parties do not intend a main contract to arise. It is not, however, a complete risk strategy. A contract may still be formed where agreement on the essential elements and the parties’ conduct establish consensus, including conduct that leaves no doubt as to consent.

The risk is most acute where the parties start work while a main contract is being marked up. A letter that instructs piling or enabling works, defines scope, establishes a payment mechanism and fixes a liability cap may be a binding interim contract, not merely an expression of intent. It should be drafted accordingly, covering scope, price or valuation method, programme, payment, insurance, ownership of deliverables, health and safety, termination, dispute resolution and the treatment of work if the main contract is not concluded.

Parties can create “binding islands” in an otherwise non-binding document. Exclusivity, confidentiality, cost allocation, governing law and dispute resolution may be binding, while the balance remains subject to contract. The drafting should identify those provisions precisely.

A practical pre-contract checklist

A practical pre-contract protocol can reduce both legal and commercial risk. Before issuing or accepting an LOI, MoU, tender clarification or early works instruction, project teams should address the following points.

• Authority. Identify who may negotiate, issue instructions and approve expenditure. A project manager’s operational enthusiasm should not be mistaken for corporate approval.
• Status. State whether the document is binding, non-binding or partly binding. List the binding provisions. Use “subject to contract” consistently where it reflects the intended position.
• Scope and cost. Specify pre-signature work that is authorised, how it will be valued and paid, the expenditure cap, and what happens if the main contract does not proceed. Avoid ambiguous phrases such as “commence at risk”.
• Disclosure. Maintain a disclosure schedule and document the release of critical reports, approvals, site information, tender changes and material assumptions. Do not seek to contract out of Article 122.
• Confidentiality and intellectual property. Identify confidential information, permitted recipients and purposes, and what happens to documents, design proposals and models after negotiations end.
• Exclusivity and parallel negotiations. Be honest about whether parallel discussions are permitted. If exclusivity is agreed, specify its duration, scope and termination mechanism.
• Exit. Preserve the right not to enter the main contract, but create an orderly exit process. Address notice, return of materials, final payment for authorised work, suspension, demobilisation and handover.
• Dispute resolution. Ensure that the governing law, forum, language and arbitration provisions, if any, also cover disputes arising from negotiations and interim arrangements. Do not assume that a clause drafted solely for a future main contract will automatically resolve a pre-contract dispute.

The takeaway for Dubai project teams

The new Civil Transactions Law makes pre-contract conduct a board-level and project-level risk issue. It does not force parties to sign construction contracts they do not want. It does require them to negotiate in good faith, disclose essential and decisive information, and respect confidential material received during the process.

For Dubai construction projects, the safest approach is not to avoid early works or commercial engagement. It is to document them properly. Mobilise only against clear authority. Separate the main contract from any binding interim work. Keep an evidence trail. Treat disclosure and confidential information as live legal issues, not boilerplate. In a market that moves quickly, disciplined pre-contract documentation is part of project delivery, not simply a lawyer’s finishing exercise.

Note: This article is a general discussion of UAE federal law as applicable to onshore Dubai arrangements. It reflects Federal Decree by Law No. 25 of 2025 Promulgating the Civil Transactions Law, which entered into force on 1 June 2026. It is not legal advice and should not be relied upon for a specific project or dispute.

About the author

Shoeb Saher is a UAE-based legal counsel, an Advocate in India and a Solicitor of England and Wales. He holds an LL.M. from the University of Birmingham Dubai and has practised in the UAE since 2008. He is the founder of Economic Law Partners and previously spent approximately seven years with Baker McKenzie Habib Al Mulla.

Shoeb advises founders, family businesses, developers, contractors and international companies on corporate and commercial matters, M&A, shareholder arrangements, construction and development contracts, financing structures, disputes and cross-border transactions. He has advised on transactions with an aggregate value exceeding AED 5 billion and regularly writes on practical UAE legal issues affecting businesses, investors and project participants.

Shoeb can be contacted at [email protected] 

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