It is usual for construction and infrastructure projects in the UAE to be procured under FIDIC-based construction contracts, with varying degrees of amendment. Although FIDIC- Fédération Internationale Des Ingénieurs-Conseils (International Federation of Consulting Engineers) contracts are generic and internationally recognized standard form construction contracts, they require amendment for use in the UAE market. In the below article, our Litigator, Mahmoud Ahmed talks about few terms & conditions of this most popular and widely used FIDIC contract.

Muqawala contract or construction

contract is in its general nature, governed by the general liability

rules stipulated in the Federal Civil Transactions Law No. (5) of 1985

as amended by the law No. (1) of 1987. In particular, the specific

articles regulating the relationship between the employer, the main

contractor and subcontractors are mentioned in articles (873) to (896)

of the same law.

This series will address one of the most popular and most widely used

construction contract types in the world: the FIDIC contract. FIDIC

stands for Fédération Internationale Des Ingénieurs-Conseils. The three

main parties to the FIDIC construction contract are: the owner, the

contractor and consultant appointed by the owner to oversee the

construction project implementation. Another party which may be added to

the FIDIC contract is the Nominated Sub-Contractor, in case the parties

nominate him in advance.

It is not uncommon for construction projects to have some form of

dispute, whether it is over materials, site conditions, progress, or

even the construction process itself. This article will focus on the

Dispute Adjudication Board clause. The Dispute Adjudication Board (also

referred to as the Dispute Review Board) is an independent and impartial

panel of Adjudictors that is empowered  to deliver binding

recommendations on the contracting parties in construction dispute situations.

The DAB clause is an extremely important clause, since it provides for

the dispute process.  In particular, the main binding procedure and

pre-requisite conditions which the parties to the contract are required

to follow in order to reach an amicable settlement.

There are many court or arbitral proceedings regarding construction

disputes, which have been dismissed on the grounds that they have been

prematurely filed, and therefore failed to comply with the pre-requisite

conditions of the DAB clause. Poor phrasing and/or specifics of these

requirements, especially with regard to the appointments of the

Adjudicators, can cause unnecessary complication when disputes arise,

and may even be impossible to fulfil in practice. As such, the creditor –

interested in forming the DAB – will find himself in a vicious circle,

in a situation where the debtor refuses to take action as to the forming

of the Board. Furthermore, the creditor party cannot resort to the

court or arbitration prior to the setup of the DAB, and therefore is

completely denied the consideration of the Courts or Arbitration.

Having reviewed various clauses in FIDIC construction contracts in

relation to the construction disputes and the formation of DAB, we found

that many clauses provide for relatively complicated procedures that

the parties will find difficult to implement in practice. In particular,

these procedures will require the creditor to put in a great deal of

time and effort. By way of example, one contract provides for:

“The DAB shall comprise three Persons. Each Party shall nominate one

Member for approval by the other Party. The Parties shall also consult

those two members and agree to appoint a third member who shall act as

chairperson. In case the panel fails to agree on a third member, the

person designated by Dubai Courts shall be the last member.“

It would be impossible to carry out the procedures mentioned in the

above clause in case one party (the debtor) refuses to nominate his

member, or in case the debtor does not agree on the member nominated by

the creditor party. This goes against the requirements of logic and

justice since it is in the interest of the debtor that DAB is not to be

established, because the DAB may confirm that the debt in dispute is due

and payable by the debtor to the creditor. As this would enable the

creditor to resort to the court or arbitration.

Noteworthy, the jurisdiction of the Dubai Courts,

though provided for in the above-mentioned clause,  cannot be exercised

to establish the entire DAB. Rather, the jurisdiction is vested on the

Dubai Courts only in one case when the parties disagree on the

appointment of the third member after each party has appointed his own

member and the other party agreed on that member. At this case only, the

Dubai Court shall be competent only to designate the third member, the

chairperson of the DAB.

Our solution is to ensure that the DAB clause, or a

separate clause, shall expressly state that each party shall appoints

his member of the DAB and notify the other party of this appointment,

and to grant the other party  a time limit to appoint his own member. In

case of the other parties failure to do so, our party shall, upon the

expiry of the specified time limit, be deemed to have waived off this

procedure. Then, our party shall have the right to resort to court or

arbitration as agreed in the contract.

In summary, it is necessary to emphasize the need of carefully

reading and phrasing the DAB clause in a practical and logical manner to

clarify the procedures of setting up the DAB, as well as the

consequences resulting from the failure by one party to form the DAB.

Fichte & Co can assist with reviewing your FIDIC construction

contracts, and specifically the DAB clause, to ensure that it will

withstand close scrutiny  and wider construction disputes situations,

and therefore is an effective contract.

In subsequent articles, we will discuss further terms and conditions

of the FIDIC construction contract including; Retention, Variation,

Prolongation, etc., Such clauses include Termination, Applicable Law,

Dispute Adjudication Board (“DAB”) and Jurisdiction and/or Arbitration.

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For

further assistance with your construction dispute or review of your

construction contracts, please do not  hesitate to reach us at [email protected] or call +971 4 435 7577