Construction contracts in the UAE
Does your contract make the time of the essence to complete your work?
Expo 2020’s opening date of 1 October 2021 is nearly upon us. As the start of the international event approaches, all those involved in the event’s supply chain will be under enormous pressure to ensure that their deliverables are provided and/or completed on time, but does this cast in stone start date mean that ‘time is of the essence’ to the completion of your works?
Whilst the term ‘time is of the essence’ may appear self-explanatory to some, along with terms such as ‘extension of time’, ‘time at large’, ‘prevention principle’, ‘concurrent delay’, ‘completion’, ‘delay damages’ and ‘time bar’, the term has a distinct meaning within the context of a construction contract and it is within this context we set out below some of the issues the term may give rise to.
UAE Civil Code provisions
Consistent with Article 874 of the UAE Civil Code, one expects that any construction contract used in the UAE will provide for a completion date. If no completion date has been stated in a contract, or if there is no mechanism for calculating one, then the governing law of a contract may provide that a contractor’s works are to be completed within a reasonable period of time; what is a reasonable period of time will depend on the facts of a particular case, though a failure to stipulate (or be able to calculate) a completion date could have more serious consequences if the governing law of the contract is UAE law.
What makes a time is of the essence condition so important in a construction context is that a failure to complete by the stipulated date may give the innocent party the right to terminate a contract. It is worth noting what constitutes completion often gives rise to a dispute in its own right. Also, if a contract requires a lump-sum payment for the completion of the entire performance, a failure to complete the works by the completion date may give rise to an argument that the contractor is not entitled to any payment at all. Faced with such an argument the contractor will likely rely upon provisions of the UAE Civil Code in its attempts to obtain payment for the works it has carried out on behalf of its employer.
Because the majority of construction contracts used in the UAE include provisions that allow for an extension of time and the deduction of delay damages, it can be difficult to argue that a construction contract is one where time is of the essence; indeed, it is generally accepted that without express wording in a contract which makes clear that time is of the essence it is often difficult to argue that such a condition applies.
Contracts stating “time is of the essence”
Even if a contract includes a condition that states that time is of the essence there are provisions within the UAE Civil Code that a contractor may rely on to challenge the legality of any consequential termination. In addition, an employer’s failure to exercise a right to terminate in a prudent manner after the completion date has passed may give rise to an argument that the time is of the essence condition has been waived. Similarly, the issuance of variations after the completion date has passed may also constitute a waiver of the condition.
The above being said, where a contract includes a condition which states that time is of the essence and an employer does not terminate in a prudent manner after the completion date has passed, or even if a contract does not include a condition whereby time is of the essence, it is possible for an employer to fix a new date for completion whereby the new date becomes ‘of the essence’, but whether a right to terminate exists if this new date is not met will require careful consideration of any pre-existing contractual grounds to terminate.
In light of the foregoing, it is crucial that all those involved in providing deliverables for Expo 2020 are aware of their rights and obligations in terms of the time for completion stated within their contracts.
This article is intended to provide only a general overview of the topic. It is not intended to be comprehensive or exhaustive of the issues and laws relating to the subject matter.
Should you have any issues surrounding your construction contracts, or disputes arising therefrom (including any of the terms referred to above), then do not hesitate to contact me:
Partner & Head of Construction
+971 55 118 1600