This article, about the use of FIDIC Contracts in the Middle East, was prepared by Ahmad Shahrour for AfiTaC’s blog.
FIDIC Contracts have been considered in the Middle East region since the 1970’s. They are widely used in the business market and have become a standard the majority of projects rely on.
Legal systems in most Arabian Middle Eastern countries are a mixture of both Civil and Sharia law. In spite of the fact that it is mainly based on the English common law, FIDIC is widely used.
Historically, both the public and private sectors in the Gulf countries have implemented FIDIC contracts as their accepted standard contract. For example, Abu Dhabi in the United Arab Emirates has officially accepted FIDIC as their standard contract for governmental contracts, while Dubai is expected to do the same.
Current Construction Boom
UAE and Qatar have been witnessing a construction boom over the past 2 decades. New construction planning visions, Dubai EXPO 2020, World Cup 2022 in Qatar and many other events have been planned. FIDIC contracts are used in most of these projects. Changes and deviations to the standard contracts have been implemented for several reasons that will be discussed later in this blog post.
The mix of cultures in most Gulf countries has created some difficulties in the construction industry. Many factors – such as language barriers, quality preferences and safety issues – are adding some risks on construction projects. This creates the need for a well-organized and properly drafted form of contract, being essential for the works. As a result, many disputes and conflicts can be avoided. This is especially the case when Contractors are accepting the contract terms while having very limited knowledge about the local law of the project country.
It is important to mention that most countries in the Middle East do not have a specific body of laws for construction and engineering projects. Also, uncertainty found in the civil codes may sometimes lead to particular problems. On top of that, difficulties of interpretation exist for some critical situations. The issues vary from one country to another according to the local governing law. Hence, many legal issues should be taken into consideration while negotiation a FIDIC Contract.
The presence of mega construction projects in the Gulf region – including large roads, infrastructure, bridges, buildings and international stadiums – brought the need, for most Gulf countries, to hire international Contractors and Consulting Engineers. The justification to use FIDIC Contracts as a standard for the majority of such projects is simply because international firms are familiar with them.
At the same time, the combination of Civil and Sharia laws in the Gulf region will require the implementation of some changes to the FIDIC Contracts. This has widely been observed in the construction market and among practitioners. Contractors nowadays – especially those having previous experience in the Gulf – are well aware of the need to change some FIDIC clauses. They can identify what clauses work, and what don’t, taking into consideration client’s preferences and applicable local laws. FIDIC Contract practitioners in the Gulf region are always adapting and changing some clauses to increase their client’s comfort.
This process may be difficult, depending on the type of project. Still – most of the time – negotiating and changing some FIDIC clauses is not a big deal if Contractors, Clients/Employers and any third parties are familiar with FIDIC contracts. In addition to that, experienced consultancy firms are nowadays widely available in the Gulf region. These provide different legal services: from implementing changes to FIDIC clauses when setting-up contracts to the resolution of disputes between the parties.
FIDIC Contracts reflect the principle of fairness in the allocation of risks and liabilities. However, Employers in the Gulf region often wish to alter clauses. These amendments vary from minor modifications to considerable redrafting. The structure of FIDIC contracts was thoroughly prepared by professionals and experts. Hence, amendments to FIDIC contracts should also be done with great care by specialized experts. This, not to compromise the well-organized structure of FIDIC contracts and its application.
Two main amendments frequently seen in the Middle East construction industry are:
- Transferring risks and liabilities from Employer to Contractor.
- Increasing Employer’s control over the contract.
FIDIC Contracts state Contractor’s obligations in terms of providing the works in accordance with the contract. The obligations are mainly based on the English common law. For example, for the Turnkey projects, Contractors are obliged to provide works “fit for purpose”.
The warranty (defects liability) requirements for the works provided by the Contractor should sometimes be amended. For example, Civil Codes may impose 10 years’ liability for structural defects in the works.
Why NEC is not used more frequently in the Middle East?
It is clear that the modifications to FIDIC Contracts are done by Employers in the Middle East in their own favor. These may create an unbalanced allocation of risks and liabilities between Employer and Contractor. In fact, certain modifications redraft the FIDIC Contracts in such a way as to no longer have a collaborative approach between the parties. This process could explain why FIDIC Contracts are so widespread in the Middle East construction industry rather than NEC Contracts. The latter are inherently and unavoidably based on a collaborative approach between the different parties.
An initiative for avoiding amendments and modifications to FIDIC Contracts in the Middle East could be by creating a new standard form of “FIDIC Middle East Contract“. The new form of FIDIC Contracts should take into consideration civil and local laws of the Middle Eastern countries. Fortunately, these have great similarity. The new form should also reflect risk-sharing between the Employer and Contractor.
Finally, a change in the attitude of the Employers towards Contractors would definitely improve collaboration and trust. The result will be better outcomes in terms of project’s time, quality, and budget.
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