Introduction

The construction sector in the United Arab Emirates stands as one of the main pillars of the nation’s economic development. Given the ambitious UAE Vision 2031 and sustained infrastructure investment led by Expo 2020’s legacy, the legal frameworks governing construction projects have evolved considerably. Recent updates to key statutory regimes—most notably the Federal Law No. 6 of 2022 on Regulation of Commercial Agencies and amendments under Federal Decree Law No. 26 of 2020 to the UAE Commercial Companies Law—have far-reaching implications for contractual relationships, including construction contracts. As project complexity increases, so does the importance of watertight drafting. Yet, many contracts, whether standard FIDIC forms or bespoke agreements, contain critical mistakes that can expose parties to costly disputes and compliance risks.

This article offers a comprehensive and consultative analysis of the ten most common drafting mistakes in UAE construction contracts, alongside expert recommendations on how legal professionals systematically address and avert such errors. Backed by citations from recent federal legislation and best practices tailored for the UAE, it is written to equip business owners, executives, project developers, and in-house legal counsel with practical knowledge rooted in real-world experience. Whether you are involved in mega-projects in Abu Dhabi or Dubai, or managing mid-size developments in Ras Al Khaimah or Sharjah, this guide distills essential compliance strategies to safeguard your interests and ensure legal certainty within the UAE’s dynamic regulatory landscape.

Table of Contents

UAE Law Update and the Construction Sector

The Statutory Framework: Key Laws Shaping Construction Contracts

Efficient contract drafting in the UAE construction sector cannot be divorced from a close understanding of the legal environment. Central instruments include:

  • UAE Civil Code (Federal Law No. 5 of 1985) —the backbone for contractual relations, setting out core rules on formation, interpretation, and effects of contracts.
  • UAE Commercial Companies Law (Federal Law No. 32 of 2021, as amended by Federal Decree Law No. 26 of 2020)—impacting parties’ legal capacity, liabilities, and more.
  • Federal Law No. 6 of 2022 on Regulation of Commercial Agencies—not directly construction-contract specific, but highly relevant for local agent/representative structures.
  • Ministerial guidelines and Cabinet resolutions, as reflected in MoJustice and MoHRE circulars affecting employment, subcontracts, and compliance (see UAE Ministry of Justice and UAE Ministry of Human Resources and Emiratisation).

The regulatory drive toward enhancing local content and risk allocation gained pace in 2022–2025, impacting clauses on variations, delays, force majeure, and dispute resolution. These changes underscore the necessity for contract terms to mirror the current legal climate—outdated templates can become a legal trap in fast-moving contexts like the UAE.

From Law to Practice: Application and Interpretation

The UAE Civil Code’s influence is filtered by local practice. For instance, Article 872 et seq. covers construction (muqawala) contracts, but judicial interpretation (such as at Dubai Courts and Abu Dhabi Judicial Department) often dictates how contractual ambiguities are resolved in the event of a dispute. The courts give precedence to the actual intention of the parties over mere semantic meaning, with significant weight accorded to oral evidence and conduct—an aspect foreign investors sometimes underestimate.

Top 10 Drafting Mistakes in UAE Construction Contracts

Based on advisory work for major UAE developers and contractors, the following top ten pitfalls are most often encountered:

  1. Ambiguous or Incomplete Scope of Works
  2. Inadequate Provisions for Time Extensions and Delay Damages
  3. Failing to Comply with Statutory Payment Regimes
  4. Poorly Drafted Variation (Change Order) Clauses
  5. Neglecting Local Law Mandatory Requirements, Especially Regarding Security and Guarantees
  6. Improper Risk Allocation for Force Majeure and Unforeseeable Circumstances
  7. Inconsistent Dispute Resolution Clauses (Including Arbitration Provisions)
  8. Overlooking Third-Party Rights and Assignment Restrictions
  9. Failure to Address Health, Safety, and Environmental (HSE) Compliance
  10. Missing Termination Provisions or Unenforceable Termination Triggers

Legal Analysis and Practical Solutions

1. Ambiguous or Incomplete Scope of Works

Legal Background: Under Article 872 and 875 of the UAE Civil Code, a contract must specify with precision the object of performance. Vague or incomplete definitions of “Works” or deliverables create scope-creep and invite litigation.

Practical Consultancy Insight: Employ detailed technical annexes with cross-references to architectural drawings and performance standards. Avoid phrases like “as reasonably directed by the Employer” without quantifiable parameters.

Case Study:

A UAE-based contractor faced a claim for additional works totaling AED 15 million because the contract scope description referred simply to “completion of building as per design intent,” excluding detailed finishing specs.

Legal Solution:

  • Use clear itemization and incorporate standard definitions found in FIDIC or SCL protocols.
  • Include a scope matrix to allocate responsibilities and exclude work items expressly.

2. Inadequate Provisions for Time Extensions and Delay Damages

Legal Background: Article 246 of the Civil Code requires parties to perform their obligations in good faith. Articles 386–390 allow for quantification of damages, including delay penalties (liquidated damages).

Mistake: Contracts often fail to stipulate precise events qualifying for extension or do not specify procedures for notification and substantiation.

Practical Solution: Define an exhaustive (but not exclusive) list of delay events: authorities’ approvals, inclement weather, global supply chain disruptions (e.g., COVID-19 impact). Build in notification deadlines and documentary proof requirements.

Law Comparison Table:

Aspect Pre-2020 Practice 2021–2025 Updates
Extension Events Limited, general catch-all clauses Must specify regulated categories (per MoJustice guidance)
Notification Often open-ended Strict timeframes, e.g. within 7 days, codified for enforceability

3. Failing to Comply with Statutory Payment Regimes

Legal Background: Recent amendments mandate prompt payment to contractors and sub-contractors (see Federal Law No. 32 of 2021, and Cabinet Resolution No. 1 of 2022).

Mistake: Payment schedules that conflict with statutory timelines or fail to provide for interim valuation and certification.

Visual Suggestion:

Insert a compliance checklist for payment provisions (E.g., Are interim milestones aligned with federal requirements? Have payment certifications been linked to clear work progress criteria?)

4. Poorly Drafted Variation (Change Order) Clauses

Legal Background: Article 891–892 Civil Code grants a right to increase/decrease scope only by mutual agreement. Unilateral variation provisions are usually unenforceable.

Practical Consultancy Insight: Document approval processes, define cost/time impacts, and require written confirmation prior to works commencing. Utilize variation order forms as per industry standards.

5. Neglecting Local Law Mandatory Requirements, Especially Regarding Security and Guarantees

Legal Background: The UAE mandates specific forms of performance guarantees, advance payment bonds, and retention money, which must comply with UAE Central Bank standards.

Mistake: Use of foreign templates or wording contrary to UAE law (e.g., ‘on-demand’ bonds issued by non-licensed foreign banks).

Solution: Ensure all security instruments are issued by UAE-licensed financial institutions and drafted in accordance with Central Bank circulars. Specify format, duration, and triggers for invocation.

6. Improper Risk Allocation for Force Majeure and Unforeseeable Circumstances

Legal Background: Article 273 Civil Code allows suspension or termination upon force majeure, but the UAE judiciary construes such clauses narrowly. Recent events (pandemics, sanctions) spotlighted the need for clear drafting.

Common Error: Adopting generic “force majeure” lists that do not address regional risks, political events, or regulatory changes.

Legal Solution: Tailor force majeure language to the UAE context: include change in law, specific regulatory actions, and government moratoria. Define notification procedures and mitigation obligations following MoJustice guidance.

7. Inconsistent Dispute Resolution Clauses (Including Arbitration Provisions)

Legal Background: Federal Decree Law No. 6 of 2018 (Arbitration Law) has modernized arbitration, but ambiguous clauses are now the leading cause of unenforceability.

Mistake: Contradictory references to court and arbitration. Failing to specify seat/language/rules.

Practical Guidance:

  • Include clear references to recognized UAE arbitration centres (DIAC, ADCCAC, DIFC-LCIA).
  • Stipulate procedural rules, language, and seat of arbitration (e.g., “Any dispute shall be finally resolved by arbitration under the DIFC-LCIA Rules, seated in Dubai, in English”).

8. Overlooking Third-Party Rights and Assignment Restrictions

Legal Impact: Under Article 1106 Civil Code, assignment of rights or obligations requires the obligee’s consent unless the contract permits it. Many contracts ignore lender step-in rights or sub-contractor assignments, complicating project bankability.

Consultancy Tip: Draft express provisions for assignment/novations and obtain written consents in advance. This increases financing options and legal certainty.

9. Failure to Address Health, Safety, and Environmental (HSE) Compliance

Legal Background: Ministerial Resolution No. (44) of 2022 and Federal Law No. 24 of 1999 (Environment Protection) demand explicit HSE measures in contracts.

Error: Vague HSE undertakings or lack of integration with site operations.

Solution: Reference relevant regulations, require compliance evidence, and allocate HSE oversight to dedicated officers. Many disputes arise from unclear allocation of HSE liability in multi-contractor projects.

10. Missing Termination Provisions or Unenforceable Termination Triggers

Legal Background: Articles 267–271 of the Civil Code govern dissolution for breach. However, courts require ‘material breach’ to be clearly defined; blanket termination rights may be struck down as unconscionable.

Practical Fix: List grounds for termination (insolvency, prolonged suspension, non-payment) in detail, specify notice periods, and clarify post-termination obligations like demobilization and handover.

Table: Penalty Comparison for Non-Compliance Under UAE Law

Mistake Prevailing Law & Guidance Potential Penalties
Late Payment Federal Law No. 32 of 2021; Cabinet Resolution No. 1/2022 Compensatory damages, blacklisting on federal registers
Improper Security Instruments Central Bank circulars, Civil Code Art. 1066 Invalidation of guarantees, delays in project finance
Non-Compliance with HSE Ministerial Resolution No. (44) of 2022 Project shutdown, administrative fines up to AED 500,000
Invalid Termination Civil Code Art. 271 Court refusal to recognize termination, liability for damages

Suggested Visual: Compliance Workflow Diagram

A step-by-step process flow can help illustrate contract drafting and review, from initial drafting, legal/technical review, risk assessment, compliance cross-check through to execution and post-signature monitoring. (Consider embedding such a diagram for client presentations.)

Compliance Risks and Strategic Recommendations

Risks of Non-Compliance

  • Dispute Exposure: Poorly drafted provisions may be interpreted against the drafter, resulting in adverse court or arbitral awards.
  • Financial Loss: Invalid guarantees, delayed payments, penalty awards, and loss of rights to claim extensions or variations.
  • Regulatory Sanctions: Non-compliance with employment or HSE requirements may result in project suspensions, blacklisting, or criminal liability for executives.

Best Practice Recommendations for 2025 and Beyond

  • Systematic Legal Review: Subject every contract—whether tailored or standardized—to a multi-layer legal review, including external counsel input for high-value or complex projects.
  • Legal Compliance Checklists: Maintain updated checklists indicating alignment of contract terms with federal legislation and local practice, updated quarterly to reflect new decrees or resolutions.
  • Ongoing Training: Provide periodic training for contracts managers, engineers, and project managers on legislative updates—critical in the current era of frequent regulatory amendments.
  • Digital Contract Management: Utilize document automation and contract lifecycle management tools to flag omissions, ambiguous terms, or lapses in statutory references.
  • Stakeholder Engagement: Consult with local authorities (municipalities, MOHRE, Central Bank) at the pre-drafting stage for complex or high-risk projects.

Key Takeaways and Future Outlook

The UAE’s construction boom, while presenting exceptional opportunities, is matched by equally complex legal challenges. Drafting mistakes—often seen as minor technicalities—can snowball into high-stakes disputes, lost project revenues, and regulatory interventions. Key legislative updates post-2020 have reset best practices, imposing a premium on clear, compliant, and contextualized contract drafting.

To succeed in 2025 and beyond, companies must prioritize robust internal controls, seek expert legal review for every project, and proactively adapt to statutory changes. The next wave of regulatory innovation is likely to further emphasize ESG, digital compliance, and risk allocation in contracts. By embracing an anticipatory and diligent approach, project stakeholders can not only avoid legal pitfalls but also position themselves as leaders in the UAE’s ever-evolving construction industry.

Summary Compliance Checklist

  • Does the contract align with updated UAE Civil Code provisions?
  • Have scope, variation, and time provisions been made explicit?
  • Are security instruments compliant with Central Bank guidelines?
  • Are HSE and payment terms in line with Ministerial resolutions?
  • Has a dispute resolution clause been tailored for the UAE context?

Further Reading and Resources