UAE energy EPC contracts: Dispute risks, claims and arbitration

What risks does the contractor actually carry in a UAE energy EPC contract?

• Under a standard FIDIC Silver Book (EPC/Turnkey) contract, the contractor carries almost all project risk: design, procurement, construction, commissioning, performance, and fitness for purpose. The employer sets the output requirements; the contractor determines how to deliver them.
• The contractor assumes responsibility for unforeseen site conditions, errors in the Employer's Requirements, and most circumstances that would entitle a contractor to additional time or cost under the Red or Yellow Books.
• The employer's exposure is limited to a narrow set of events: employer-caused delays, failure to provide site access, change in law (in some formulations), force majeure, and suspension for the employer's convenience.
• In practice, UAE energy EPC contracts rarely use the Silver Book without amendment. Particular Conditions routinely reallocate risk, cap liability, modify notice requirements, and replace FIDIC's dispute resolution provisions with bespoke arbitration clauses.
• The claims that generate the most significant disputes are performance shortfall liquidated damages, delay liquidated damages, variation valuation, change in law, and force majeure.

Who this applies to

This article is for developers, project companies, EPC contractors, technology suppliers, subcontractors, and lenders involved in oil and gas, power generation, solar, desalination, and hydrogen projects in the UAE.

It is less relevant to general building construction disputes, which typically arise under the FIDIC Red Book (construction) or Yellow Book (design-and-build). For those, see our guide on how FIDIC claims work in the UAE.

Why EPC contracts dominate UAE energy projects

Energy projects in the UAE follow a consistent commercial structure. A government entity (EWEC in Abu Dhabi, DEWA in Dubai) procures electricity generation capacity through competitive tender. The winning bidder forms a project company (SPV), which enters into a long-term power purchase agreement (PPA) with the offtaker and an EPC contract with the contractor who will design, build, and commission the plant.

The EPC contract is the instrument through which the project company transfers construction and performance risk to the contractor. This is not optional. Lenders require a bankable EPC contract with fixed price, fixed schedule, and performance guarantees before they will fund the project. Without single-point responsibility on the contractor, the project does not reach financial close.

The FIDIC Silver Book is the standard starting point because it was designed for exactly this purpose. Unlike the Red Book (where the employer designs and the engineer administers) or the Yellow Book (where the contractor designs but shares some risk with the employer), the Silver Book places the contractor in near-total control of the works and makes the contractor responsible for nearly everything that can go wrong during delivery.

For energy lawyers in the UAE, the practical challenge is that the Silver Book's risk allocation is often pushed further in the Particular Conditions, creating contracts where the contractor's exposure exceeds what was priced in the tender. That gap between assumed risk and actual risk is where most disputes originate.

Risk allocation under the FIDIC Silver Book

The Silver Book's defining characteristic is the scope of risk transferred to the contractor. Understanding where the lines are drawn, and where Particular Conditions typically move them, is essential for both pursuing and defending claims.

Design risk. The contractor is responsible for the design of the works and for the accuracy of the Employer's Requirements, including any design criteria and calculations. Under Sub-Clause 5.1 of the Silver Book, the employer is not responsible for errors in its own requirements. This is a fundamental departure from the Red and Yellow Books, where the employer warrants the accuracy of its design information. In energy projects, this means the contractor carries the risk that site data, meteorological records, or technical specifications provided by the employer contain errors, unless the Particular Conditions expressly carve out specific items of employer-supplied data.

Fitness for purpose. The contractor must deliver works that are fit for the purposes defined in the contract. This obligation goes beyond the standard duty of care applied in many common law jurisdictions. Under UAE law, the contractor is liable for defects discovered within the ten-year decennial liability period under Article 880 of the Civil Code (Federal Law No. 5 of 1985), which applies to structural defects and defects threatening stability. For energy plants, the interaction between the contractual fitness-for-purpose obligation and the statutory decennial liability creates a dual exposure that contractors must price and manage.

Unforeseen conditions. Under the Silver Book, the contractor bears the risk of physical conditions at the site, including sub-surface conditions, hydrological conditions, and climatic conditions. There is no equivalent of the Red Book's Sub-Clause 4.12, which allows the contractor to claim for unforeseeable physical conditions. In UAE energy projects, this matters particularly for solar farm foundations, coastal desalination plants, and hydrogen facility sites where ground conditions can differ significantly from borehole data.

Employer's limited risk. The employer retains responsibility for a narrow set of circumstances. These typically include employer-caused delay (late provision of land, failure to obtain necessary permits that are the employer's responsibility), change in the applicable law after the base date, force majeure events (now "Exceptional Events" under the 2017 Silver Book), and the employer's right to order variations. Each of these is a potential source of contractor claims, and each is routinely modified in the Particular Conditions.

Performance guarantee disputes

Performance guarantees are the highest-value dispute category in UAE energy EPC contracts. The employer pays a fixed price for a plant that is guaranteed to produce a specific output (megawatts, cubic metres, barrel equivalents) at a specified efficiency or performance ratio. If the plant fails to meet these benchmarks at the performance tests, the contractor faces liquidated damages.

How performance LDs work. The EPC contract defines a series of tests on completion. If the plant achieves the guaranteed performance levels, the contractor is entitled to a taking-over certificate. If the plant falls short, the contractor either remedies the deficiency and re-tests, or pays liquidated damages calculated by reference to the shortfall. For solar projects, the key metric is the performance ratio; for gas-fired plants, it is heat rate and output capacity; for desalination, it is production capacity and product water quality.

Where disputes arise. Performance guarantee disputes in UAE energy projects typically involve disagreements over testing methodology (whether the test was conducted under the conditions specified in the contract), the accuracy of measurement equipment and data, whether the shortfall is caused by the contractor's design or by conditions outside the contractor's control (grid curtailment, fuel quality, weather anomalies), and the correct calculation of liquidated damages where partial performance is achieved.

For a detailed treatment of how UAE courts and tribunals assess liquidated damages, including the power of the court to reduce LDs under Article 390 of the Civil Code, see our guide on enforcing and defending liquidated damages in the UAE.

The Article 390 risk. UAE Civil Code Article 390 allows a court or tribunal to reduce liquidated damages if the employer has suffered no loss, or if the LDs are disproportionate to the actual damage. This is a mandatory rule of UAE law that applies regardless of what the contract says. In energy EPC contracts, this creates a practical tension: the employer needs certainty of remedy (which is the point of LDs), but the contractor can argue that the LDs overcompensate because the plant still generates revenue even at reduced performance. Tribunals in UAE-seated arbitrations have reduced performance LDs where the employer could not demonstrate actual loss corresponding to the contractual formula.

Delay and extension of time claims

Delay claims in energy EPC contracts follow the same fundamental structure as other construction disputes, but with features specific to the sector.

The contractor's narrow entitlement. Under the Silver Book, the contractor's right to an extension of time is limited to employer-caused delays, change in law, and Exceptional Events (force majeure). Delays caused by subcontractor default, procurement failures, design coordination issues, or resource shortages are the contractor's risk. This is a significantly narrower entitlement than under the Red or Yellow Book, where the list of qualifying events is longer and includes items like unforeseeable physical conditions.

Notice requirements. The 2017 Silver Book (and many bespoke UAE energy EPC contracts) requires the contractor to give notice of a claim within 28 days of becoming aware of the event giving rise to the claim. Failure to comply with the notice period can result in a complete time bar. UAE arbitral tribunals have enforced FIDIC time bars, though the position is not uniform and depends on whether the time bar clause is treated as a procedural condition or a substantive limitation. For the current state of play on FIDIC time bars in the UAE, see our article on FIDIC claims and what happens when you miss a deadline.

Concurrent delay. Where employer-caused delay and contractor-caused delay affect the same critical path activity during the same period, the question of entitlement becomes complex. The UAE has no statutory rule on concurrent delay. The Society of Construction Law Delay and Disruption Protocol (2nd edition) is increasingly referenced in UAE arbitrations as a guide. In energy projects, concurrent delay is common because multiple workstreams (civil works, mechanical installation, electrical commissioning, grid connection) run in parallel and interact.

Delay LDs. Delay liquidated damages in UAE energy EPC contracts can be substantial, often structured as a daily rate (a percentage of the contract price per day of delay) up to a cap (typically 10% to 20% of the contract price). The same Article 390 reduction risk applies as for performance LDs. The contractor's exposure is compounded where delay LDs and performance LDs are both claimed, and the contract does not include a combined cap.

Change in law claims

Change in law is one of the few events under a Silver Book EPC contract that entitles the contractor to additional time and cost. In UAE energy projects, which often run for three to five years from notice to proceed to commercial operation, the probability of legislative change during the construction period is meaningful.

What qualifies. Under Sub-Clause 13.6 of the Silver Book (as typically amended for UAE projects), the contractor is entitled to claim if a change in the laws of the country (defined as the UAE) occurs after the base date and causes the contractor to incur additional cost or suffer delay. "Laws" includes statutes, regulations, decrees, and binding requirements of regulatory authorities.

Recent examples in the UAE. Several legislative changes in the past two years have generated or are likely to generate change-in-law claims on active energy projects. The introduction of UAE corporate tax (Federal Decree-Law No. 47 of 2022, effective June 2023) imposed a 9% tax on business profits exceeding AED 375,000, a cost that was not contemplated in EPC prices bid before the tax was announced. The Climate Change Law (Federal Decree-Law No. 11 of 2024), effective May 2025, introduces emissions measurement, reporting, and verification obligations that may increase project costs. Dubai Law No. 7 of 2025 imposes new contractor registration, classification, and subcontracting approval requirements for all construction activity in Dubai, including energy projects in free zones. Each of these creates a potential basis for a change-in-law claim, depending on the drafting of the relevant clause and the base date.

Proving the claim. The practical difficulty with change-in-law claims is quantification. The contractor must demonstrate a causal link between the legislative change and the additional cost or delay, and must prove that the cost was not already accounted for in the contract price. Employers typically resist these claims on the basis that the change was foreseeable, that the contractor's pricing should have anticipated regulatory evolution, or that the actual financial impact is less than claimed.

Force majeure and exceptional events

The 2017 Silver Book uses the term "Exceptional Events" rather than force majeure, though many UAE energy EPC contracts retain bespoke force majeure clauses. The practical effect is similar: if an event occurs that is beyond the contractor's reasonable control, could not have been foreseen, and prevents or substantially impedes performance, the contractor may be entitled to an extension of time and, in some formulations, relief from liquidated damages.

Energy-specific events. Force majeure claims on UAE energy projects have arisen from sanctions affecting equipment supply chains, extreme weather events (the 2024 UAE floods caused widespread project disruption), pandemic-related supply chain delays (the tail end of COVID-19 effects on procurement lead times), and geopolitical events affecting shipping routes and materials pricing. Whether these events qualify depends on the specific drafting of the force majeure clause, the foreseeability analysis, and whether the contractor took reasonable steps to mitigate.

The UAE Civil Code position. Article 273 of the UAE Civil Code provides that a contract is dissolved automatically if performance becomes impossible due to a cause beyond the debtor's control. Article 249 allows the court to reduce an obligation to a reasonable level if exceptional and unforeseeable circumstances make performance excessively onerous. These provisions operate alongside the contractual force majeure clause and may provide additional relief where the contractual definition is narrow.

Variation and scope change disputes

Variations in energy EPC contracts are a common source of claims, particularly where the employer's requirements change during execution (a revised grid connection specification, additional emissions controls, modified fuel handling requirements) or where the contractor encounters conditions that it argues constitute a constructive variation.

The employer's right to vary. Under the Silver Book, the employer can instruct variations through the employer's representative. The contractor is entitled to additional payment and, where applicable, an extension of time for variations that increase the scope of work or alter the design.

Constructive variations. A more contentious category is the constructive variation, where the contractor argues that an instruction, approval, or interpretation by the employer effectively changed the scope of work without a formal variation order. In energy projects, this often arises around interpretation of the Employer's Requirements: if the employer's specification is ambiguous and the contractor's interpretation is commercially reasonable, but the employer later insists on a more onerous reading, the contractor may argue that the difference constitutes a variation.

Valuation. Variation valuation disputes turn on whether the rates and prices in the contract apply to the varied work, or whether new rates must be derived. Under the Silver Book, the employer's representative (where one is appointed) or the employer determines the value of variations, subject to the contractor's right to dispute the determination. In practice, quantum experts are engaged to value variations, and the final determination is often made by the arbitral tribunal.

Dispute resolution in UAE energy EPC contracts

Energy EPC contracts in the UAE almost universally provide for arbitration as the final dispute resolution mechanism. The confidentiality, enforceability, and technical expertise advantages of arbitration are particularly valued in a sector where disputes involve complex engineering evidence, commercially sensitive project economics, and parties from multiple jurisdictions.

ICC is the most common institution for international energy EPC contracts, particularly where the developer or contractor is a foreign entity or where the project is financed by international lenders. FIDIC's standard dispute resolution clause provides for ICC arbitration. For a comparison of ICC and DIAC arbitration in the UAE context, see our article on construction arbitration in Dubai.

DIAC is increasingly used for domestic energy EPC disputes, particularly where the contract is between UAE entities. DIAC registered 355 cases in 2023, with construction and real estate disputes (which include energy projects) accounting for approximately 59% of the caseload.

Multi-party and multi-contract issues. Energy projects involve layered contractual relationships: the PPA between the project company and the offtaker, the EPC contract between the project company and the contractor, subcontracts between the contractor and its subcontractors, and the financing agreements between the project company and its lenders. Disputes often arise simultaneously across these layers. The Abu Dhabi Court of Cassation ruled in October 2025 (Appeal No. 980 of 2025) that an arbitration agreement in a main contract can extend to parties to related contracts, even without express incorporation. This has practical implications for energy projects where subcontractors or consortium partners may be drawn into the main EPC arbitration.

Lender involvement. Direct agreements between the lender and the EPC contractor give the lender step-in rights if the developer defaults. In a dispute scenario, the lender's interests shape the strategy: lenders typically want the project completed, not the contract terminated. This can constrain the employer's tactical options and influence settlement dynamics.

Practical comparison of risk allocation

What energy project participants should do now

Review risk allocation before signing. The time to negotiate risk allocation is before the contract is executed, not during a dispute. Contractors should assess whether the contract price reflects the risks assumed, particularly around unforeseen conditions, change in law, and performance guarantees. Employers should ensure that LD formulas, caps, and cure mechanisms are calibrated to actual project economics.

Maintain contemporaneous records. Energy EPC disputes are won or lost on documentation. Delay analysis, variation records, test data, daily logs, correspondence, and meeting minutes must be maintained throughout the project. Dubai Law No. 7 of 2025 now requires all project documents to be retained for ten years after completion.

Comply with notice requirements. The 28-day notice period under FIDIC (and shorter periods under some bespoke contracts) is enforced in UAE arbitrations. A valid claim can be lost entirely if the notice is late. Project teams should implement a claims management protocol that identifies notifiable events in real time.

Engage experts early. Performance guarantee disputes require independent testing verification and expert analysis. Delay claims require forensic scheduling. Variation claims require quantum experts. In each case, early engagement produces better evidence and stronger claims. For guidance on bank guarantee calls that often accompany EPC disputes, see our separate guide.

Understand the arbitration clause. Check whether the contract references an active institution (not the defunct DIFC-LCIA), whether the seat is precisely specified, and whether the dispute resolution clause includes pre-arbitration steps (negotiation, expert determination) that must be exhausted before arbitration can commence. For a detailed treatment, see our guide on choosing the right UAE arbitration clause in 2026.

Legal advice may be required to assess the strength of your position, comply with contractual notice obligations, and prepare claims or defences that withstand scrutiny in arbitration.

Update note: This article reflects the position as of March 2026. The UAE Climate Change Law (Federal Decree-Law No. 11 of 2024) requires full compliance by May 2026 and may generate change-in-law claims on active energy EPC contracts. Dubai Law No. 7 of 2025 applies from January 2026 and affects contractor registration and subcontracting on all Dubai energy projects. Legislative developments in both areas should be monitored.

External sources referenced

• FIDIC Silver Book (EPC/Turnkey Contract, 2nd Edition 2017) (FIDIC official)
• UAE Federal Law No. 5 of 1985 (Civil Code) (UAE Ministry of Justice)
• UAE Federal Law No. 6 of 2018 (Arbitration Law) (UAE Ministry of Justice)
• DIAC Arbitration Rules 2022 (DIAC official)

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