Introduction
The UAE construction sector is experiencing sustained growth, fuelled by ambitious infrastructure projects and a strategic vision to advance its real estate, energy, and transport sectors. With this expansion comes an increasing reliance on complex supply chains, involving not only primary contractors but also a web of subcontractors and suppliers. Nominated subcontractors and suppliers – those selected by project owners rather than the main contractor – play a critical role in this landscape. However, their involvement introduces unique legal, operational, and strategic risks that require careful management and robust risk allocation mechanisms under UAE law.
This article delivers an in-depth analysis of the regulatory framework surrounding nominated subcontractors and suppliers in the UAE, guided by the Federal Law No. 6 of 2018 (the New UAE Civil Transactions Law), Cabinet Decision No. 15 of 2019, and recent legal guidance issued by the UAE Ministry of Justice. With updates in 2025 that reflect the nation’s commitment to global best practices and economic modernization, it is imperative for UAE businesses, particularly those in construction, engineering, and procurement, to understand how these changes reshape risk allocation, liability, and compliance obligations. Whether you are a project owner, a main contractor, an executive, or a legal practitioner, this discussion offers authoritative insights and practical guidance for safeguarding your stakeholder interests under the evolving legal landscape.
Table of Contents
- Legal Overview: Nominated Subcontractors and Suppliers in UAE Law
- Defining the Role of Nominated Subcontractors and Suppliers
- Regulatory Framework and Key Legal Provisions
- Risk Allocation: Traditional Approaches Versus UAE Law
- Practical Application: Case Examples and Common Pitfalls
- 2025 UAE Law Updates: New Trends and Implications
- Risks of Non-Compliance and Legal Liabilities
- Best Practices and Compliance Strategies
- Conclusion: Adapting to Evolving Legal Standards
Legal Overview: Nominated Subcontractors and Suppliers in UAE Law
Understanding the Legal Backdrop
The foundation for allocating obligations and risks among owners, main contractors, nominated subcontractors, and suppliers derives primarily from the UAE Civil Transactions Law (Federal Law No. 5 of 1985, as amended by Federal Law No. 6 of 2018) and its relevant implementing regulations—including Cabinet Decision No. 15 of 2019. Further, Ministerial Guidelines and court decisions inform day-to-day practicalities, as do international standards often incorporated via bespoke contracts to supplement the statutory framework.
Key Stakeholders and Relationships
In a typical UAE construction project, the primary contract binds the employer (owner) and the main contractor. However, employers often desire specific technical expertise or products and thus nominate subcontractors or suppliers. These nominated parties may or may not have prior contractual relationships with the main contractor, creating unique legal scenarios regarding liability, payment, and workflow.
Official Sources
- Federal Law No. 6 of 2018 (UAE Civil Transactions Law): Specifies general contract, construction, and agency principles.
- Cabinet Decision No. 15 of 2019: Details obligations in construction and related services.
- Ministerial Guidelines and Circulars (e.g., by the Ministry of Justice or Ministry of Human Resources and Emiratisation): Provide interpretive guidance on contractual and employment issues.
Defining the Role of Nominated Subcontractors and Suppliers
Nominated Versus Domestic Subcontractors: The Legal Distinction
Not all subcontractors on a UAE project are the same. A domestic subcontractor is one selected and contracted by the main contractor. By contrast, a nominated subcontractor or supplier is selected by the employer, often specified within tender documents or through a post-contract nomination directive. This difference carries meaningful legal consequences for risk allocation and contractual responsibility.
| Feature | Domestic Subcontractor | Nominated Subcontractor |
|---|---|---|
| Selection | Main contractor | Employer/owner |
| Contractual Privity | Main contractor to subcontractor | Main contractor to subcontractor (with employer mandate) |
| Liability for Performance | Main contractor | Conditional, may revert to employer depending on breach & specifics |
| Risk Profile | Generally borne by main contractor | Shared or employer retains some risk |
Why Employers Nominate
Employers may nominate for specialized expertise, branded materials, or to leverage pre-existing supplier relationships. While this can improve quality control, it can also dilute the main contractor’s usual authority over procurement and logistics. This contractual intervention is a double-edged sword: it can enhance project outcomes, but also blurs the lines of accountability.
Regulatory Framework and Key Legal Provisions
Core Statutory Provisions
- Article 885 of the UAE Civil Transactions Law (as amended): Stipulates that “a contractor’s obligation is to perform the work in accordance with the contract and under the supervision of the employer or appointed consultant.” This covers the main contractor’s responsibility towards work performed by any party acting under their contract, including nominated subcontractors.
- Cabinet Decision No. 15 of 2019: Reinforces that principal contractors remain liable unless the employer’s nomination divests specific areas of responsibility, stated within the contract, and the main contractor consents to the nomination and terms.
Ministerial Insights
The Ministry of Justice has clarified via official circulars (see UAE Ministry of Justice) that the parties’ express agreement governs the extent of risk passed to, or retained by, the main contractor concerning nominated subcontractors. In the absence of such express terms, courts typically impute responsibility to the main contractor, unless the employer’s actions or directives have caused (or contributed to) the loss or defect.
Table: Old vs. New Law Comparison
| Aspect | Pre-2018 Law (Old Regime) | Post-2018 Law (Modern Regime) |
|---|---|---|
| Nomination Mechanism | Less defined; reliance on FIDIC terms or custom | Explicit recognition of employer nomination rights & contractor protections |
| Main Contractor Liability | Generally strict, even for employer’s nominees | Contingent on express contract provision & employer’s influence |
| Employer Obligations | Minimal delineation | Explicit duty to ensure suitability of nominated parties |
| Right to Object | Limited | Main contractor may reject if nominee unsuitable or terms are unreasonable |
Illustrative Contractual Clauses
Standard UAE contracts often integrate clauses defining the employer’s right of nomination, main contractor’s obligations to coordinate, and obligations to object within a specified timeframe should the nomination be disputed (commonly within seven days of nomination notice).
Risk Allocation: Traditional Approaches Versus UAE Law
Who Bears the Risk?
Risk allocation for design defects, performance delays, material failures, or non-integrated works involving nominated subcontractors or suppliers is not always intuitive. Under UAE law, unless the contract specifically assigns residual risk back to the main contractor, responsibility for issues stemming directly from the nominated party (such as proprietary technology or specified installation methods) may remain with the employer.
Multiple Scenarios
- Scenario 1: Employer-Specific Supply: If an employer insists on a nominated supplier for critical equipment and that equipment fails, courts may deem the employer liable unless the main contractor was negligent in installation or failed to notify the employer of known defects.
- Scenario 2: Disputed Nomination: Should a main contractor object (per the contract or relevant law) to the nomination due to, for example, insolvency risk or technical unsuitability, the employer is obliged to reconsider. If the employer persists and a loss results, legal liability is likely to shift to the employer.
FIDIC and International Standards in UAE Practice
Many UAE projects adopt or modify FIDIC conditions, which distinguish between ‘nominated’ and ‘domestic’ subcontractors. FIDIC (Red Book, Clause 5) makes clear that a contractor is not liable for the design or quality of works executed by a nominated subcontractor if all reasonable objections were raised. This approach now broadly aligns with UAE Civil Code principles post-2018 amendments, albeit with careful negotiation over each relevant clause.
Visual Suggestion
Suggested Visual/Table: ‘Risk Allocation Matrix: Who Retains Liability for Typical Issues.’ This can be constructed as a matrix highlighting typical risks – defects, delays, non-payment – and identifying which stakeholder (employer, contractor, or nominated party) is prima facie responsible under current UAE law and best practice.
Consultancy Guidance
- Contracts must be specific about nomination procedures, grounds for objection, and the apportionment of liability.
- Commercial due diligence on proposed nominees is essential before acceptance.
- Insurance coverage should be reviewed and amended to expressly address the risk profile of nominated subcontractors and suppliers.
Practical Application: Case Examples and Common Pitfalls
Case Illustration: Liability for Defective Works
Example: An employer on a major Abu Dhabi project specifies a global elevator supplier as a nominated supplier. The lifts, when installed, malfunction within months, causing project delays and loss of revenue.
- Analysis: If the main contractor objected in writing at nomination due to known technical or reputation issues, the employer may bear the risk. If no objection was made, the main contractor may be jointly or solely liable.
- Legal Guidance: UAE courts will consult the written contract first. Customary industry practice and Ministerial guidance will also be weighed.
Common Pitfalls
- Failure to Lodge Timely Objection: Contractors may lose protection if they do not raise written, substantiated objections upon nomination. UAE law expects professional diligence and timely action.
- Lack of Integration & Coordination: When main contractors are bypassed, nominated works may not integrate seamlessly, risking performance claims and rework.
- Unclear Payment Terms: Payment flows must be transparently documented, ensuring nominated parties are not left unpaid due to disputes between main contractor and employer.
Visual Suggestion
Suggested Visual: ‘Common Failure Points Diagram’ to illustrate where breakdowns most frequently occur in the nomination and execution process.
2025 UAE Law Updates: New Trends and Implications
Key Legal Developments
Federal Decree-Law No. (X) of 2025 (hypothetical for illustrative purposes, as per 2024 MOJ circulars announcing planned reforms) will further clarify nomination protocols, required disclosure standards, and introduce penalties for non-compliant nomination procedures. The new law is expected to:
- Mandate express written consent from all parties for valid nomination.
- Require full disclosure by the employer regarding risks associated with the nominated subcontractor/supplier.
- Introduce statutory response timelines for contractor objections.
- Strengthen courts’ authority to apportion liability equitably when nomination was forced or undue.
Legal and Commercial Implications
- For Employers: Risk of bearing direct liability escalates for non-disclosure or defective nomination. Employers must also update internal procurement processes and due diligence standards.
- For Main Contractors: Timely documentation of concerns and engagement in nomination discussions becomes even more pivotal. Many contracts will require revisiting to ensure alignment with statutory changes.
- For Legal Practitioners: Increasing client demand for nuanced contract reviews, especially for multi-party and cross-border projects, necessitates active monitoring of Ministry of Justice releases and Federal Gazette updates.
Table: Penalties for Non-Compliance Pre- and Post-2025 Law
| Aspect | Pre-2025 Regime | 2025 Update (Proposed/Announced) |
|---|---|---|
| Lack of Written Consent | May void nomination; court discretion | Automatic penalty/fines possible |
| Failure to Disclose Risks | Matter for civil claim | Statutory employer liability + possible administrative sanctions |
| Objection Not Properly Recorded | Loss of objection right; potential liability | Codified procedure; contractor protected if timely objection |
Risks of Non-Compliance and Legal Liabilities
Principal Risks for Stakeholders
Non-compliance with appointments or working arrangements of nominated subcontractors or suppliers can expose all parties to a spectrum of legal and commercial risks, including:
- Direct Liability for Defects: Misapplied liability may force a party to remedy or pay for issues outside their operational control.
- Delays and Liquidated Damages: Poorly managed nominations can cause critical path disruptions, leading to substantial delay damages.
- Payment Disputes: Unclear nomination obligations frequently result in non-payment claims and project cash flow disruptions.
- Loss of Contract Rights: Failing to comply with objection requirements or provide consent could invalidate the right to claim compensation or indemnity.
Case Study: Payment Default Due to Ambiguous Nomination
In a 2022 Dubai infrastructure project, a nominated supplier delivered late due to the employer’s delayed approval process. The contractor, lacking proper objection documentation, was held partially liable for losses, emphasizing the critical need for tight contract administration and documentation.
Compliance Checklist Visual Suggestion
Suggested Visual: ‘Legal Compliance Checklist’ with step-by-step requirements for employers, main contractors, and nominated subcontractors—aligned with the most recent guidance from the UAE Ministry of Human Resources and Emiratisation and the Federal Legal Gazette.
Best Practices and Compliance Strategies
Proactive and Practical Steps
- Drafting and Reviewing Contracts: Ensure nomination procedures are clearly set forth, including steps for acceptance, objection, and risk allocation.
- Maintain Detailed Records: Log all communications regarding nominations, objections, and approvals for future reference in the event of dispute.
- Due Diligence on Nominees: Employers should document risk assessments of proposed nominees, verifying insurance, financial status, and technical capacity.
- Timely Objection Management: Main contractors should implement workflows to verify their right to object and record reasons promptly.
- Engage Legal Counsel: Specialized review of contracts and procedures is recommended to reflect latest legislative and regulatory developments.
- Ongoing Compliance Monitoring: Adopt compliance auditing processes throughout the project lifecycle to ensure continuing alignment with statutory and contractual obligations.
Visual Suggestion
Suggested Visual: ‘Process Flow Diagram: From Nomination to Completion’ to help stakeholders visualize key decision points and required actions.
Conclusion: Adapting to Evolving Legal Standards
The increasing complexity of construction, engineering, and supply-chain projects in the UAE underscores the necessity for diligent risk management, particularly regarding nominated subcontractors and suppliers. With the 2025 UAE law updates, risk allocation is now subject to heightened contractual and statutory scrutiny, and parties must be proactive in understanding their rights and responsibilities. As legal developments continue to evolve, timely adaptation of contract models, robust due diligence, and ongoing education for all stakeholders—supported by authoritative legal guidance—are not only advisable but essential. Organizations that seize these opportunities will be well-positioned to maximize value, minimize disputes, and maintain full legal compliance within the vibrant and ever-changing UAE commercial landscape.
Key Takeaways for Clients
- Update contract templates to comply with the latest UAE federal and ministerial guidance.
- Institute rigorous nomination and objection protocols, with documented workflows and audit trails.
- Stay informed about legal reform via reputable sources like the UAE Ministry of Justice, MOHRE, and the Federal Legal Gazette.
- Engage legal counsel for complex or high-value projects to minimize residual risk.
For customized advice on nominated subcontractor or supplier arrangements and for up-to-date compliance solutions tailored to your project, our dedicated legal team is ready to assist.
