Legal Insights on Construction Contract Risk Management in the UAE

Introduction

The UAE has been recognised time and again for its unparalleled infrastructure, iconic buildings and landmarks. From Burj Khalifa and Dubai Mall, to Jumeirah Burj Al Arab and Marina 101, the UAE has it all. 

But these high-stakes, mega-construction projects often carry a wide range of risks as well. Unless these risks are managed, any of the following can quickly escalate into prolonged legal issues: 

• Payment Delays 
• Cost Overruns 
• Project Scope Variation 
• Force Majeure 
• Termination and Contract Disputes

Due to this, construction contract risk management in the UAE becomes essential not only to reduce legal and final risk exposure, but also to allocate it accordingly.

What is the Legal Framework Governing Construction Contracts in the UAE?

The legal framework for construction contracts in the UAE includes:

• Federal Laws and Decrees: This includes legislation of the UAE government, such as the UAE Federal Decree Law No. (5) of 1985 Concerning the Issuance of the Civil Transactions Law of the United Arab Emirates (“Civil Transactions Code”)
• Emirati Laws: There are specific laws related to contractors and construction contracts in most Emirates, which either apply to the mainland, free zones, or both, such as Dubai Law No. 7 of 2025, or Dubai International Financial Centre(DIFC) and Abu Dhabi Global Market (ADGM) laws.
• FIDIC Standards: Construction contracts in the UAE may also be regulated by the International Federation of Consulting Engineers (FIDIC) standards, which include specified conditions for contracts (based on scope, employer involvement, and project value) in the Red, Green, Yellow, and Silver books. 

Note: UAE courts may repudiate or decline to enforce construction contracts that violate any Federal or Emirati Law. 

Get Legal Help: Kayrouz & Associates’ Construction Law team assists and advises in ensuring compliance with the applicable laws, and helps manage construction contracts in the UAE effectively and efficiently. 

What are the Most Common Risks in Construction Contracts in the UAE? 

Depending on the value and scope of the contract, the following are the most common risks in construction contracts in the UAE:

• Payment Delays:  Any delay in the payment or in certifying the payment application can affect liquidity and create cash-flow problems. Using clear milestones for disbursing payments is often used to mitigate this issue, and it’s better than relying on ambiguous custom and practice-based payment terms. 
• Changes in Contract and Construction Scope: Construction projects seldom have a fixed scope. Any change in the scope can lead to cost escalation and impact the entire deliverable timeline of a construction project in the UAE.  
• Force Majeure: The best example of an unforeseen event impacting construction projects is the COVID-19 pandemic. Although most contracts contain force majeure clauses, the risk of increased operating costs, delays to existing projects, and an internal check on the slowdown of new contracts and projects is not dealt with in the clause. 
• Unforeseen Site Conditions: Site lockdowns, inherent site risks, and contractors’ health and safety obligations on the worksite can impact the project and delay construction activities. 
• Regulatory and Compliance Risks: Compliance with all applicable laws is a crucial component of managing risks in construction contracts in the UAE, and it also forms a significant risk. As the construction laws develop in the UAE, so must the contracts. 

Note: Unilateral clauses granting one party exclusive control over the dispute resolution forum have been held as unenforceable in Dubai and the UAE. 

What are the Best Practices to Manage Risks in Construction Contracts in the UAE?

Risk allocation in construction contracts should be a top priority for contractors, construction companies, and even employers. Here are some of the best drafting practices for construction contract risk management in the UAE.

Accurate and Clear Drafting 

While it may come across as a generalised drafting tip, accuracy and language proficiency remain the most essential construction contract risk management tools in the UAE. The language of the provisions must be clear, capable of being understood by a layman, and remain consistent throughout the contract. 

Letter of Intent

With the letter of intent, typically forming the document that contains the primary terms of the construction contract, getting adequate legal representation at this stage, after the tender is awarded, is a great option to avoid potential disputes or onerous terms. 

Insurance and Performance Bonds

Most construction contract disputes either circle around escalation of work, scope creep, or delay/deficiency of service. Adequate provisions for insurance policies and performance guarantees can make the transaction secure and provide unencumbered assets for recovery. 

Compliance Checks

Construction contract risk management also requires adherence to the UAE construction contract laws to avoid unnecessary penalties and project delays/shutdowns. 

In the construction contract, it’s advised to add provisions related to the allocation of duties, THE level of supervision of each party, and indemnity.

Get Compliance Assistance: Kayrouz & Associates’ top-rated UAE attorneys in the Corporate & Commercial Law team assist in negotiating and drafting construction contracts, ensuring both compliance and management of potential legal risks. Book a free consultation to know more. 

What are the 5 Best Clauses to Manage Risks in Construction Contracts in the UAE?

Before finalising construction contracts in the UAE, you should include the following clauses:

1. Construction Support and Oversight: Coordinate site visits, audits, and warranty and indemnity provisions. This will resolve the issues in the initial stage, in consultation with the employer, and also provide a direct option for the contractor to finalise the contract. 
2. Dispute Resolution Clauses: Tiered-dispute resolution clauses are considered the preferred mode of resolution for any construction contract, and negotiation, mediation, and arbitration may be explored. If all goes well, the dispute resolution clause would not be enforced; however, preparing for the eventuality of a dispute is a must. 

Critical Note: The jurisdiction must be carefully chosen, and in cases of arbitration, the power to appoint arbitrators must not be unilateral. 

3. Defect Liability Period: Having a defect liability period, after the completion of work, is crucial for employers to manage their financial risks. Even contractors may benefit, as their liability is substantially reduced after this period ends. 
4. Back-to-Back Payment: Pay-if-paid, or back-to-back payment provisions, are preferred in construction contracts engaging subcontractors to complete a portion of the work. This avoids the contractor being saddled with a payment obligation when the employer has failed to pay. 
5. Document Management: Employers must push for document management clauses (preferably in electronic format) in construction contracts. This helps maintain proper records for construction activities, ensuring they remain part of the process and have evidence in case of any regulatory issues in the UAE. 

How Can Kayrouz & Associates Assist in Construction Contract Risk Management in the UAE?

At Kayrouz & Associates, we assist employers, contractors, and even subcontractors in every stage of the construction project. 

Whether the project has been initiated or is nearing completion, having an experienced UAE attorney can streamline and ensure compliance throughout the entire process, thereby avoiding risks, delays, fines, penalties, and disputes.  

Here’s how Kayrouz & Associates’ Construction Law can help with that:

• Managing Construction Contracts
• Representing in Construction Disputes and Claims
• Advising in Construction Insurance and Liability
• Drafting as per the FIDIC standards and other Standard Form Contracts
• Setting up Framework and Mechanism for Project Structuring and Risk Allocation
• Securing Regulatory Compliance and Approvals

With over 570 resolved cases, while maintaining a 96% client satisfaction rate, Kayrouz & Associates is the perfect legal partner for foreign and national individuals and companies looking for legal assistance in any construction project. 

Visit our office in Dubai, Abu Dhabi, or Beirut, or book a consultation to discuss your case further.

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