UAE Law and Practice Contributed by: Duncan Pickering, Nicola de Sylva and Sean Cope, DLA Piper Middle East LLP
agreement to ensure consistency with manda - tory provisions. 7.4 Management of Schedule-Related Risk Virtually all construction contracts in the UAE require the works to be completed by a speci - fied date. Instead of the employer demonstrating the dam - age it would suffer for late completion of the works by the contractor (which may be difficult to quantify), it is standard practice to require the contractors to agree to “liquidated damages” (LDs) (eg, a pre-agreed fixed amount) for delay. Pursuant to Article 390 of the Civil Code, par - ties can pre-agree to damages that become due on the occurrence of certain conditions (eg, a breach of contract, or delay). In a formal dispute, the effect of Article 390 is to reverse the burden of proof: it is for the party seeking to avoid, or otherwise amend, any pre-agreed damages to demonstrate that the other party has not suf - fered (in full or part) because of them. In all cases, the court (or tribunal in the case of an arbitration) retains the discretion to amend any pre-agreed damages, whether of its own volition and/or at the application of a party. Importantly, pre-agreed damages are to be dis - tinguished from “penalty” clauses under English law. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance Construction contracts in the UAE typically pro - vide for: • an “on demand” performance bond for 10% of the contract price;
• an “on demand” advance payment guarantee securing the employer’s advance payments under the contract; and • retention of 10% from each interim payment as security for the contractor’s obligations to remedy defects during the defects notification period (or occasionally a bond in lieu of such retention). Company guarantees from a contractor’s parent or group company in favour of the employer are also fairly common, especially where the con - tracting entity is a special purpose vehicle. 7.6 Liens or Encumbrances in the Event of Non-payment The Civil Code provides a contractor or consult - ant with the potential remedy of a statutory lien over property, in circumstances where the con - tractor or consultant’s work has produced a ben - eficial effect on the property, but the employer has failed to pay for such work. This entitles the contractor or consultant to retain (and not hand over) the property they have improved pending payment for such work by the employer. Howev - er, this mechanism remains relatively untested, and contractors and consultants typically rely on contractual remedies for non-payment. 7.7 Requirements Before Use or Inhabitation There are no express requirements to be satis - fied under UAE law before a building may be inhabited or used, other than the issue of the “completion certificate”. However, the law is unclear as to whether this requirement relates to the completion certificate from the relevant authority confirming that construction is com - plete, or to the completion certificate issued by the engineer under the construction contract.
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