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Practical tips for drafting termination clauses in UAE construction contracts

25 April 2019
Most termination clauses in UAE construction contracts expressly state any pre-conditions to termination, the grounds for termination, which party must issue the notice of termination, any required form of wording and any particular form of service. However, there are other practical issues arising on termination which parties should consider covering under their termination provisions. 

In the event of termination, it is unlikely that the parties will be in the right frame of mind to cordially agree efficient and practical procedures to deal with the effects of termination, so the time to deal with the management of such matters is at contract negotiation stage.

Whilst some of the points below are covered under the termination provisions of standard FIDIC forms, from my experience of construction contracts in UAE, termination clauses have often been substantially amended leading to the loss of the following important practical considerations:

1. Agreement of mutual consent to terminate

Unless all of the scope of works under the contract has been completed or the parties can demonstrate mutual consent to terminate the contract, then Article 892 of the UAE Civil Code states that the contract must be terminated by court order.

There is a view from some commentators that the mere incorporation within the contract of termination provisions satisfies the reference to ‘mutual consent’ in Article 892 of the Civil Code, meaning that no court order is required for termination.

However, for the avoidance of doubt, in order to rely on contractual terms as evidencing a mutual consent to terminate, parties would be advised to expressly state within the termination provisions that termination under the contract is deemed exercised within the meaning of mutual consent, as contemplated by Article 892, and that there will be no need for a court order or any further notice.

2. Arrange a survey to measure the works

Immediately upon termination the parties should arrange for a survey, attended by both parties, to measure the works to be carried out, for the purposes of valuing the works upto the date of termination.

This is required for valuation purposes where the contractor is entitled to payment of the costs of works done up to termination.

Also, it provides a baseline for establishing the outstanding scope of works to be undertaken by any new contractor.

The survey needs to be done as soon as possible after termination to get an accurate picture of works completed and materials, equipment and plant on site.

Therefore, if it is agreed in advance under the terms of the contract, who will carry out such a survey in the event of termination, this will save the time of the parties trying to agree this post-termination, when there is likely to be more intransigence on both sides.

3. Agree the demobilisation procedure

The employer is likely to require prompt demobilisation to allow a new contractor to enter site to carry on and complete the project.

It is helpful if a fixed demobilisation period and procedure has already been agreed under the termination provisions of the contract, with a qualification that site safety measures and equipment will be kept and maintained on site by the contractor until the end of the demobilisation period.

It also provides further certainty to state in the termination provisions that, at the end of such demobilisation period, the contractor's licence to enter site will end and any of the contractor's equipment remaining on site will be left in a designated place off-site for collection by the contractor, at the contractor's risk.

4. Step-in to subcontracts

It will assist an employer if the main contract obliges the contractor to ensure that subcontracts permit the employer to step into them, or to nominate a new contractor to step into them, in place of the contractor, on termination of the main contract, so that the existing subcontractors and their agreed commercial terms may be maintained.

5. Delivery of goods, materials and documents

Termination provisions should also cater for the delivery of any goods or materials paid for by the employer, as well as any documents, design or O&M Manuals for which the employer has paid.


Further Reading