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Introduction To UAE Construction Law

You work for a government department as a senior commercial manager that advises politicians about appropriate control of the building and civil engineering sectors of your country. In the last year, a very large company that managed and acted as the main contractor on many construction projects, from both private and public funding, has collapsed because of unmanageably large debts. This has left many smaller companies with unpaid bills and has caused significant disruption to your country’s construction industry and internationally.

Several industry commentators are looking at the reason for this collapse and the associated effects on the connected supply chain. They have suggested that one reason has been the use of amended (bespoke) forms of contract; both between the clients and the main contractor as well as between the main contractor and its supply chain.

Some politicians have called for new legislation which would require that all construction contracts (including subcontracts) are agreed between the parties on standard conditions of contract with no special clauses and your department has been asked to provide a government consultation paper about the collapse.

Task
Your task is to write the consultation paper in the form of a report. Your report must include a reasoned and supported recommendation as to whether or not legislation should be enacted to restrict the freedom of parties to only use the unamended standard forms of construction contract. You may cover any aspects of contract administration in your report and you must also address the following questions that have been asked:

Indicative Word range
• Why do parties choose to amend the standard forms of contract?
• What standard forms of contract are most suitable for your country’s construction contracts? 
• Do the standard forms of contract have compatible forms of subcontract?
• Would enacting the legislation be detrimental to the construction industry? 
You are required to use case studies, case law and other suitable authority to exemplify and support your reasoning.

Sample Answer

Why Do Parties Choose To Amend The Standard Forms Of Contract?
Standard forms of contracts (SFC) in simple words can be understood as the agreements that include standardized as well as non-negotiated provisions represented in a printed form. The main aim of SFC is to reduce the time and cost over the negotiation of contracts. This is so because these SFCs have uniformity and hence, is more efficient and hence, saves a lot of time and cost for an individual (Designing Buildings, 2018). These SFCs are developed with the aim of helping both the suppliers as well as the customers. This is used to ensure that some protection is available to the consumers. Though, it is said that these SFCs offer unfair advantage to the suppliers (Upcounsel, 2018). This is so because consumers usually sign these contracts without reading and if they read; they pay attention to only price and quality factors, whereas there are many other factors mentioned in these SFCs that have an impact on the contract (Fair Contracts, 2014). It has been seen that many times, the parties try to amend the SFCs on the basis of their own choice. This is considered to be too risky as it challenges the balance of the contract and also gives rise to legal uncertainties. The amendments in SFCs have been criticized by many experts like Lloyd QC in the case of Royal Brompton Hospital National Health Trust v Hammond and Others (Desigining Building , 2016). This is so because these SFCs are developed by the representatives of respective industries who have the necessary knowledge and understanding of the common problems related to a specific project.

Developing a standard form of contract that caters and fulfils the needs and deals with every issue of the construction contract is not feasible. Therefore, it becomes necessary to make amendments in the standard form of contract in order to modify the contract according to the requirements of the client and contractor’s expectations. There are some situations when an amendment is adopted by the parties of the contract in the standard form of contract.  Like for example, it is believed that SFCs can be amended under certain circumstances like when any clause has been changed or has becomes obsolete or that specific industry has included new terms. In such situations, it is recommended that SFCs should be amended (Designing Building, 2017). It has been seen that amendments are made to the standard forms of contract by employers in order to re-allocate the risks attached with the contracts to the contractors. The general conditions of contracts are sometimes amended by the contractor in order to avoid liabilities that can arise under the present conditions. These amendments take place with the help of special conditions of the contract or with the help of correspondence that has been exchanged between both the parties at the time of the negotiation of the contract (McMullan, 2018). Parties usually adopt amendments in the standard form of contract so that they can gain certain extra benefits from the existing provisions of the contract. Such amendments offer the parties new opportunities above the benefits being enjoyed from the generally accepted standard form of contracts.

Though, it is suggested that amendments should be undertaken with extreme care and only that section should be amended where amendment is required (RICS, 2018). On the basis of the research conducted by Modupe, it has been found that the three major reasons that are behind the amendment of standard form of contracts include altering of the risk allocation; adding a new or additional obligation; and making changes in something that is no longer applicable. These three are the main driving factors for amendment. The author has mentioned that it is impossible that a specific standard form of contract can suit the needs and demands of every individual project. Hence, amendment is an integral part of standard form of contract and no standard form of contract can be considered as suitable without adopting significant amendments in it. It has also been argued that some amendments are required depending upon the nature and characteristics of the projects (Mewomo et al., 2018). Hence, it can be said that amendments are usually adopted with the aim to gain maximum benefits from a contract.

What Standard Forms Of Contract Are Most Suitable For Your Country’s Construction Contracts?
United Arab Emirates (UAE) is a civil law jurisdiction, and the corner stone of this civil jurisdiction is the UAE Civil Transactions Law No. 5 passed in the year 1985, which is also known as the Civil Code of the country. Apart from this, Civil Code other statutes that guide the standard form of contract of the country includes, the Commercial Transactions Law, the Federal Law No. 18 passed in the year 1993 while supplementing the civil code (Kanakri et al., 2017). Hence, many questions like how contract is made, what is required in offer and acceptance, different interpretations guiding the agreements, conditions that offer liberty of withdrawal, what are the capacities available to the parties involved, what should be done in cases of fraud and mistake, as well as remedies related to breach, and other such questions related to the contract are resolved using these provisions of the country like the Civil Code, Commercial law, etc. In UAE, the forms of contract developed by the FIDIC that is Federation International des Ingénieurs-Conseils are commonly used by the private construction contractors (Global Legal Group, 2016). Apart from this, the standard form of contract in UAE is also influenced by the Red and Yellow books published in the year 1999 which is widely used till date (Kerr et al., 2014). On the basis of the recent trend, it has been seen that the use of FIDIC EPC/Turnkey Silver Book is increasing in the country. This is so because this book offers favourable risk allocation features to the contractor related to design as well as delivery. The subcontract agreements are also influenced by the FIDIC forms. The structure of the standard form of construction contract is developed by keeping in mind about the parameters of the Articles 872 to 896 mentioned in the civil code. These articles deal with the basic rights and responsibilities that are related to the employers, contractors as well as the consultants that are involved in the contract. This is also referred to as muqawala that is a contract developed for the purpose of performing task.  

The public sector construction continues to use the standard form of construction contracts developed by the FIDIC. Abu Dhabi has adopted a standalone standard form of construction contract drafted by FIDIC, under the license for undertaking civil construction projects in the country (Global Legal Group, 2016). The Schedules 1 and 2 of the Abu Dhabi Executive Decision 2007 has developed its mandatory build-operate as well as design build standard forms of contract. In case of Dubai, the standard forms of contract are regulated by the Dubai Law No. 6 passed in the year 1997 (Dla Piper, 2018).

The standard form of construction contract in UAE differs from sector to sector and also depends on the contractors involved. It has been seen in UAE that smaller and personal construction contracts are usually drafted by the engineer or the consultant of the contract and not by a lawyer or any regulating agency. Whereas, in the case of medium size and large size construction projects, the standard form used is usually of FIDIC. Though, it has been seen that depending upon the nature of the project necessary amendments are adopted in the standards forms published by the FIDIC. UAE does not experience a great number of designs and build contracts. These designs and build contracts are either included in the development construction contracts or in the form of specialized construction agreements undertaken for special projects (ICLG, 2018).

Do The Standard Forms Of Contract Have Compatible Forms Of Subcontract?
The standard form of subcontract also deals with the provisions of subcontract. In the year 1994, the FIDIC published a form of subcontract, which was supposed to be used by the contractors who were using subcontracts in their project. This form of subcontract is supposed to be used along with the Red Book standard form of construction contract. The Green Book has developed standard form of contract for contracts that are short in nature. This Green Book has also focused on dealing with the subcontracts in a contract. The New Engineering Contract (NEC) has also focused on the form of subcontract since its very inception. NEC has provided a wide range of options to select the standard form of contract as well as the subcontract depending upon the nature of the project (International Bar Association, 2018).

A special emphasis to the standard form of subcontracts has been given by the Institute of Chemical Engineers (IChemE). IChemE has published many standard forms of contract in line with the FIDIC and has used different combination of colours to deal with different types of contracts. IChemE has published Brown Form of Contract in order to provide standard form of subcontracts for civil engineering works. Another standard form is IChemE Yellow Subcontracts (IChemE, 2007). Joint Contracts Tribunals (JCT) has also published standard form of subcontracts that can be used in a particular contract. SPC2000 and PPC2000 majorly focus on the involvement of subcontractors in contracts in order to work in the project design phase as well as in the risk management of the project. SPC2000 and PPC2000 emphasis on the need for collaborative work between subcontracts and the main contract at all the stages of the project process. GC form of contract has also developed standards for subcontracts that discusses about the general conditions of the subcontract, model forms of the subcontract as well as the guidance note related to subcontracts (International Bar Association, 2018).

Would Enacting The Legislation Be Detrimental To The Construction Industry?
Construction industry is an important part of the economy and it also has a significant impact on the environment. Construction industry is one of the largest users of factors like water, energy, land use, and other resources. Construction industry highly adds to environmental pollution whether its air, water or noise pollution. Hence, in order to make the construction activities more sustainable and to keep a check on these activities, the enactment of legislation has become one of the major tasks. The legislation will act as a guide and as a regulator to the construction industries. It will regulate the use of equipment, use of water as well as energy being used by the construction industry.

This step will help to achieve sustainability in a strategic manner (Akadiri et al., 2012). Construction law is a very common term that is commonly used. This reflects that there is some legislation that guides the working of construction activities.  In the construction industry, the legislation is usually related to health and safety measures, equipment being used in the construction industry, the handling manual used by the contractors, workplace safety, etc. These are the main areas that play an important part in the construction industry and hence, any legislation related to this will have a direct impact on the working of the construction industry and its activities (Corner-i, 2018). The legislation is usually implemented in order to make the construction industry more sustainable. It acts as a guide and regulating body to the construction industry and helps to give a shape to construction activities that are in favour of sustainability. Sustainability needs to be achieved within three dimensions that are social, economic as well as environmental. Hence, the legislation will help the constructors to achieve this three dimensional sustainability. Legislation will help the contractors to take wise decisions as well as to know the tools to assess their sustainability performance (Poveda & RyanYoung, 2015).

Legislation will help to link the national as well as local plans and policies with the construction activity that will help to achieve economic goals of the construction industry. This will increase the viability of the construction industry, as it is going to be in alignment with the economic strategies of the country. The main benefit of aligning with the economic strategies is that it will improve the quality of the projects as well as will facilitate community development. This will help in achieving the social goals of the contractor. The legislation can help the construction industry by providing with planning policies that are meant to be meeting the social arena requirements. This way the contractor will be able to sustainable community developments. The health and safety guidelines that are adopted because of the enactment of legislation help to prove the contractors or construction organizations commitment towards their work force.

This also facilitates effective communication between the construction industry and the general public (Constructing Excellence, 2015). The legislation related to environment helps the construction companies to plan in a manner that will protect the environment. Different assessment criteria released by the government helps the companies to assess their activities at a very early stage so that the negative harm that can be caused to the environment can be prevented.  The environmental legislation helps to manage the construction waste in an efficient manner. It will help in reducing air as well as noise pollution. The environmental legislation gives a detail description to the construction industry through which they can become more energy efficient as well as can save a lot of water used at the construction sites. Adoption of all these legislations will add value to the construction activities (Netregs, 2018). Construction companies thriving for economic sustainability are able to maximise their performance. This is so because they are able to offer maximum customer satisfaction as well as provide job satisfaction to its employees which directly impact the productivity of the company. Adoption of legislation also helps to minimize the construction defects, and also facilitates the completion of projects within shorter time.  Also, lower cost projects are facilitated because of the increased cost predictability with the help of construction legislation. Some of the main themes that are targeted with the legislation enactment include marinating the economic growth level, increasing the profitability, avoiding pollution, protecting biodiversity, increasing energy efficiency, working in close collaboration with the local communities as well as respecting staff (Akadiri et al., 2012). Focusing on all these factors will automatically improve the construction industry and hence, it can be said that the enactment of legislation will not be detrimental to construction industry.

In the case of UAE, many laws are adopted that regulate the construction activities and aims to improve the construction industry. As mentioned above the Civil Code as well as Federal Laws and other administrative resolutions govern the activities of construction industry in the country. The country has also given special emphasis to health and safety norms by keeping in consideration the labour of the construction industry. Apart from this, technical guidelines are also provided in the country that can be used by the construction industry (DLA PIPER, 2018). Apart from common laws, the individual emirates have their own legislations in order to regulate the construction activities.

Like for example, Abu Dhabi has developed specific law in order to regulate building and construction activities known as the Building Law passed in the year 1983 (Dla Piper, 2018). UAE is currently aiming to reduce its carbon footprints and hence, is aiming to increase the use of renewable energy resources within the country and is ensuring that every single industry works in line with the goals and targets of the country. Hence, in case of construction industry, it can be said that this legislation will help to boost the energy efficiency of the country (Afridi & Angell, 2012). Though, it is believed that the enactment of these legislations may impose pressure on construction industry to adopt an innovative approach to deal with these legislations. This may raise the need for technological advancement and enhancement of construction equipment increasing the investment of the contractor. Though, these factors are not enough to stop the enactment of legislation. This is so because the long- term benefits of this legislation are far more than these trivial issues that are of short- term nature. If these legislations are not present and if not imposed strictly, then there are chances that construction industries would continue doing what they feel better and what is cost effective for them and will not consider about the wellbeing  of the environment and society (Martin, 2018).

References:
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