The construction industry in the UAE is one of the most dynamic and rapidly evolving sectors, driven by large-scale infrastructure projects and real estate developments. However, with significant financial investments at stake, construction contracts must be carefully structured to protect the interests of all parties involved. Whether you are a contractor, developer, or subcontractor, understanding the key clauses in construction contracts is essential to mitigating risks, ensuring compliance, and avoiding costly disputes.
Today, we will highlight the most critical clauses in construction contracts and how they can safeguard your interests within the UAE’s construction law framework.
Scope of Work Clause
One of the most fundamental aspects of a construction contract is the Scope of Work (SoW) clause. This section defines each party’s specific duties and responsibilities, including timelines, materials, quality standards, and project milestones.
- A well-drafted SoW clause prevents misunderstandings and scope creep (unauthorised expansion of work).
- It should include a detailed description of the deliverables, including specifications and technical drawings.
- Clearly defining the SoW can help reduce disputes regarding extra work claims and prevent unnecessary delays.
How It Protects You
Having a detailed SoW ensures that contractors are not burdened with additional work beyond the agreed terms unless explicitly approved through formal variations.
Payment Terms and Milestones
In the UAE, delayed payments are a common cause of disputes in construction projects. A payment clause ensures that all parties are clear on the financial aspects of the contract.
- Payments are typically structured in instalments, linked to project milestones.
- The contract should specify the due dates for payments, penalties for late payments, and acceptable methods of payment.
- Retention clauses should also be carefully reviewed—these refer to the percentage of payment withheld until project completion.
How It Protects You
Clearly defined payment terms ensure that contractors receive payments promptly, reducing the risk of cash flow issues. Developers benefit by ensuring work is completed before full payments are made.
Delay and Liquidated Damages Clause
Construction projects in the UAE are often subject to tight deadlines, and any delay can have significant financial consequences.
- A delay clause sets out the consequences if the contractor fails to complete the work on time.
- Liquidated damages (LDs) are pre-agreed penalties imposed for delays. These penalties are calculated per day or week beyond the agreed completion date.
- Contractors should ensure that the LD clause is reasonable and not excessively punitive, as UAE courts may consider extreme LDs as unfair.
How It Protects You
This clause ensures that project owners have financial compensation if the project is delayed. At the same time, contractors can negotiate force majeure provisions to avoid penalties for unforeseen circumstances like extreme weather or government-imposed restrictions.
Variation and Change Order Clause
Changes in project scope are common in construction. The variation clause ensures that any amendments to the contract are formalised and documented.
- It should specify how changes are approved, who has the authority to request them, and how they will impact costs and timelines.
- A well-drafted change order clause prevents disputes over additional costs or work extensions.
How It Protects You
Contractors and developers both benefit from having a structured approval process for changes, reducing the risk of confusion and disagreements over additional work.
Termination Clause
A termination clause outlines the conditions under which either party can end the contract.
- It should distinguish between termination for convenience (without cause) and termination for default (due to a breach of contract).
- The clause should detail notice periods, financial settlements upon termination, and liability for any incomplete work.
- Contractors should ensure that termination terms do not allow developers to exit contracts without fair compensation.
How It Protects You
A termination clause provides a clear framework for exiting a project legally, reducing the likelihood of wrongful termination claims and ensuring compensation for work completed.
Dispute Resolution Clause
Disputes are inevitable in construction projects, and how they are resolved can significantly impact costs and timelines.
- In the UAE, construction disputes are often resolved through arbitration, as court litigation can be time-consuming.
- Many contracts include a tiered dispute resolution mechanism, starting with negotiation, followed by mediation, and finally arbitration or litigation.
- It should specify the governing law (typically UAE law) and the arbitration institution (e.g., the Dubai International Arbitration Centre – DIAC).
How It Protects You
A robust dispute resolution clause helps parties resolve conflicts efficiently, reducing legal expenses and avoiding lengthy court proceedings.
Indemnity and Liability Clause
The indemnity clause determines how risks and liabilities are allocated between parties.
- Contractors often provide indemnities against defective work, third-party claims, or safety violations.
- The contract should clarify liability caps, ensuring that contractors are not held responsible for losses beyond their reasonable control.
- Insurance requirements (such as contractors’ all-risk insurance) should also be clearly outlined.
How It Protects You
Proper indemnity clauses limit financial exposure, ensuring that neither party is unfairly burdened with excessive risk.
Force Majeure Clause
A force majeure clause provides protection against unforeseeable events that prevent contract fulfilment, such as natural disasters, political unrest, or pandemics.
- The clause should specify the types of events covered and the process for notifying the other party.
- It should also outline the implications of force majeure, such as extensions of time or contract suspension.
How It Protects You
By including force majeure provisions, contractors can avoid liability for delays caused by factors beyond their control.
Compliance with UAE Laws and Regulations
All construction contracts in the UAE must comply with construction law and relevant regulations, including:
- Dubai Building Code
- Federal Law No. 6 of 2018 on Arbitration
- UAE Civil Transactions Law
- Local municipality approvals
Contracts should include a compliance clause, ensuring that all parties adhere to UAE laws and obtain the necessary permits.
How It Protects You
Ensuring compliance with construction law avoids legal penalties and project shutdowns due to regulatory violations.
Maximise Legal Protection with Davidson & Co.
Managing construction contracts effectively requires a proactive approach to structuring agreements. By ensuring that key clauses—such as the scope of work, payment terms, dispute resolution, and force majeure—are well-defined, stakeholders can protect their interests and minimise risks.
For expert guidance on drafting and reviewing construction contracts, Dubai lawyers at Davidson & Co. offer specialised legal support to help you navigate the complexities of construction law. Whether you need assistance with contract negotiations, dispute resolution, or regulatory compliance, their team can ensure your contracts are robust and enforceable.
For professional legal advice tailored to the UAE market, contact Davidson & Co. today.
