FIDIC Contracts in the UAE: Legal Nature and Scope

It is common in the UAE construction sector to hear the expression "the FIDIC law". In truth FIDIC is not legislation at all; it is the International Federation of Consulting Engineers, and what is attributed to it is a suite of model contracts that acquire no binding force unless the parties expressly incorporate them, at which point they become contractual terms subject to UAE law rather than superior to it. The distinction is not a matter of wording: every FIDIC provision that conflicts with a mandatory rule is void, however clearly the parties agreed on it. The question has gained weight since the new Civil Transactions Law and since a Dubai local statute regulating contracting activities came into force with a scope covering the free zones and the Dubai International Financial Centre. What follows sets out the legal nature of these contracts, the limits of their effect, and the mandatory rules no contract may displace.

📘What FIDIC is, and why the common label is inaccurate

FIDIC is the acronym of the French name of the International Federation of Consulting Engineers, an international non-governmental professional body that issues standard contract forms for construction and infrastructure projects. These forms bind no one of themselves and form no part of the legal order of the State; they enter the contract solely by the will of its parties. Describing them as "law" therefore confuses the contractual source of obligation with the legislative one, and leads in practice to the mistaken assumption that a FIDIC clause overrides a statutory text.

📚The FIDIC suite and how each form differs

The principal FIDIC forms are known by the colour of their covers, and the difference between them turns on who carries out the design, on the allocation of risk, and on how the price is determined. Selecting the wrong form loads one party with risk it never priced.

⚖️The mandatory rules no contract may displace

Here lies the most significant practical consequence of FIDIC being a contract rather than a law, since the Civil Transactions Law contains mandatory rules on contracting that no agreement may contradict.

🔄The change in civil legislation and its effect on existing contracts

A Federal Decree-Law issuing the new Civil Transactions Law has repealed the Civil Transactions Law of 1985 and its amendments. It follows that the text governing a construction contract is tied to the date of the contract and of the disputed event, not to the date the claim is filed — a point overlooked in long-term contracts straddling the date the new law took effect.

Among the most important innovations is a provision addressing the collapse of contractual balance: where the balance between the obligations of the employer and the contractor collapses through general exceptional circumstances that could not have been foreseen at the time of contracting, and the basis on which the financial estimate rested falls away, the court may, after weighing the interests of both parties, restore the contractual balance by extending the period for performance, increasing or reducing the price, or ordering rescission. This affords the contractor a route independent of the FIDIC machinery.

⚙️FIDIC mechanisms and their statutory counterparts

Many mechanisms assumed to be peculiar to FIDIC have counterparts in UAE legislation. The law requires a contractor who has contracted on a bill of quantities on a unit basis, and who finds during the works that executing the agreed design requires exceeding the estimated quantities, to notify the employer of the increase in price he anticipates; failing which he forfeits his right to recover the excess expenditure. In substance this is a notice regime extinguishing the right, akin to the familiar FIDIC notice mechanism.

As to subcontracting, the contractor may entrust the whole or part of the works to a subcontractor where no clause prohibits it and the nature of the work does not require personal performance, and he remains answerable for the subcontractor towards the employer. The subcontractor may claim nothing from the employer out of what is due to the main contractor unless the latter assigns it to him — a rule that disposes of many direct claims.

🏗️The regulatory framework for contracting activities in Dubai

Dubai has issued a law regulating the practice of contracting activities, applying to all contractors operating in the Emirate, including special development zones and free zones, among them the Dubai International Financial Centre, while excluding contracting activities relating to airports, infrastructure and their associated facilities. The inclusion of the Dubai International Financial Centre merits attention, since prevailing practice assumes its legal autonomy.

The law prohibits any natural or legal person from practising contracting activities in the Emirate, or holding himself out as a contractor, unless he holds a commercial licence and is entered in the register. More significantly, it prohibits individuals and public and private entities from contracting with any company for such activities unless it holds the licence and is registered. The obligation therefore falls on the employer as well, which calls for verifying registration and classification before signature.

The local law also obliges the contractor to retain the originals of contracting agreements, records, documents and drawings relating to them for not less than ten years running from the date of the completion certificate or the expiry of the contract, and to produce them to the competent authority on request. This period mirrors that of decennial liability, and its evidential weight is considerable where a dispute arises years after handover.

Breach attracts financial penalties, together with further measures against the offender including suspension from practice for up to one year, downgrading of his classification, or removal from the register and referral to the licensing authority for cancellation of his commercial licence. Officers of the competent authorities are vested with judicial enforcement capacity, with power to enter the contractor's place of business and project sites and to inspect records and documents.

🏛️Government works contracts in Dubai and liability before the Municipality

FIDIC forms are not applied as they stand to contracts of Dubai government entities, whose procurement is governed by the Contracts and Warehouse Management Law, containing an integrated regime for works contracts. The government entity may amend the quantity, type or specifications of the procurement by variation orders where the variation reduces the contract value, whatever the percentage, or increases it by not more than thirty per cent of the total sum stated in the contract.

As to delay damages, a penalty is imposed for each day of delay, capped at ten per cent of the contract value, calculated on the mere occurrence of delay without notice and without proof of loss. The supplier may nonetheless apply for relief from the penalties where the delay is due to an unforeseen event, force majeure, or a cause attributable to the government entity itself, supported by evidence.

At the level of licensing and municipal supervision, the local legislation on building works makes the contractor and the engineer jointly liable for the execution of the works and their safety during and after the period of execution, and their liability extends to buildings adjoining the site and to any public utility for damage caused. The contractor answers for infringements committed on site from the moment he takes possession of it, and the engineer shares that liability if he approves them expressly or impliedly, failure to issue instructions to halt and remove the infringement being treated as implied approval.

📑The arbitration clause in FIDIC contracts and references to abolished centres

The Arbitration Law requires an arbitration agreement to be in writing, failing which it is void, and the writing requirement is satisfied where a contract evidenced in writing refers to a model contract, an international convention or any other document containing an arbitration clause, and the reference is clear in treating that clause as part of the contract. This is the basis on which incorporation of FIDIC forms carries effect as to the arbitration clause, provided the reference is clear.

A court seised of a dispute covered by an arbitration agreement must dismiss the claim as inadmissible if the defendant so pleads before making any request or plea on the merits, unless it finds the agreement void or incapable of performance. The plea must therefore be raised at the first hearing and before any defence on the substance, failing which it is lost.

As for older contracts referring to arbitration centres abolished in Dubai, the Decree establishing the Dubai International Arbitration Centre treats all agreements to arbitrate before the abolished centres as valid and effective, and substitutes the Centre for them in determining disputes arising from those agreements unless the parties agree otherwise. The arbitration clause cannot therefore be attacked merely because the centre named in the contract has been abolished.

⏳Key legal periods and deadlines

💡Practical legal guidance

📖Legal references

❓Frequently asked questions