Consecutive contracts have become increasingly prevalent in construction projects, involving three key parties:
- The business owner
- The main contractor
The business owner typically prefers to enter into a single contract with the main contractor, who assumes overall responsibility for the project. However, to ensure efficient and timely completion, the main contractor engages subcontractors to perform specific tasks within the project.
Subcontracting is generally permitted under the UAE Civil Code unless expressly prohibited in the contract between the employer and the main contractor. Consequently, the main contractor enters into separate contracts with subcontractors, specifying the work to be performed in accordance with the project’s specifications.
Although there is no direct contractual relationship between the employer and the subcontractor, the main contractor, having assumed responsibility for the project, transfers obligations and responsibilities to the subcontractors through a contractual arrangement known as a succession agreement.
It is important to note that the main contractor remains liable to the employer for the entirety of the work, even if subcontractors are involved. This liability is reinforced by Clause 4.4 of the International Federation for Intellectual Property (FIDIC) Charter Red Book of 1999, which states that “The contractor will be liable for the acts or defaults of any subcontractor, or its agents or employees…”
In accordance with Articles 872, 873, 874, 875, and 878 of the Civil Transactions Law, a consecutive contract is defined as an agreement in which one party undertakes to provide something or perform work in exchange for consideration from the other party. The contract may specify that the contractor is responsible solely for providing the work, while the employer supplies the necessary materials. Alternatively, the contractor may undertake to provide both the materials and the work simultaneously. The contract should clearly describe the location, type, quantity, method of performance, completion timeframe, and corresponding compensation.
Due to the specialization of professionals and craftsmen in various fields and the complex nature of project scopes, the need has arisen to organize the performance of these specialists and establish their rights and obligations. Consecutive contracts serve this purpose and are regulated by a dedicated chapter in the Civil Transactions Law, encompassing the various aspects and intricacies of such contracts.
The laws governing contracting contracts in the Civil Transactions Law of the United Arab Emirates are as follows:
Article No. 872:
A contracting contract is a contract where one party undertakes to provide something or perform work in exchange for consideration from the other party.
Article No. 873:
- The contracting contract may involve the contractor’s responsibility to provide the work, while the employer supplies the necessary materials.
- Alternatively, the contractor may undertake to provide both the materials and the work.
Article No. 874:
The contracting contract must include a description of its location, type, quantity, method of performance, completion period, and specify the corresponding consideration.
Contracting Effects – Contractor’s Obligations:
Article No. 875:
- If the employer requires the contractor to provide all or part of the work materials, the contractor is responsible for their quality as per the contract terms or prevailing customs.
- If the employer provides the work materials, the contractor must handle them properly, adhere to technical principles in their work, and return any remaining materials to the owner.
Article No. 876:
The contractor is responsible for providing the machinery and additional tools necessary to complete the work unless the agreement or custom states otherwise.
Article No. 877:
The contractor must complete the work according to the contract terms. If the contractor fails to meet the requirements or performs the work defectively, the employer has the right to terminate the contract immediately if repair is not possible. If repair is feasible, the employer may request the contractor to rectify the work within a reasonable timeframe. If the contractor fails to complete the correction within the specified period, the employer may request contract termination or authorize another contractor to complete the work at the expense of the initial contractor.
Article No. 878:
The contractor is liable for any damage or loss resulting from their actions or performance, regardless of whether it was due to negligence or not. The guarantee provided by the contractor is void if the damage results from an unavoidable accident.
Article No. 879:
- If the contractor’s work affects the property, they may retain it until they receive the due payment. If the property is destroyed while in the contractor’s possession before payment, they are not liable for any guarantee or wage.
- If the contractor’s work has no effect on the property, they do not have the right to withhold it to collect their wages.
Article No. 880:
- In contracting contracts involving the construction of buildings or fixed installations, the engineer designs them, and the contractor implements them under the engineer’s supervision. Both the engineer and the contractor are jointly liable to compensate the employer for any damage occurring within ten years, including total or partial demolition of the buildings or installations they have constructed, and for any defects threatening the durability and safety of the building, unless a longer period is specified in the contract. This liability applies even if the defect or destruction is due to a defect in the land itself or if the employer agreed to the construction of defective buildings or facilities.
- The ten-year period starts from the time of work delivery.
Article No. 881:
Any condition intended to exempt the contractor or engineer from the guarantee or limit it shall be null and void.
Article No. 882:
Any condition intended to exempt the contractor or engineer from the guarantee or limit it shall be null and void.
Article No. 883:
The claim for guarantee shall not be valid after three years have passed from the occurrence of the demolition or the discovery of the defect.
Obligations of the Employer:
Article No. 884:
The employer is obligated to accept the completed work when the contractor has finished it and made it available. If the employer refuses without a valid reason despite being officially warned, and the work is damaged or defective without the contractor’s fault or negligence, the contractor is not liable.
Article No. 885:
The employer is obligated to pay the consideration upon completion of the contract unless otherwise stipulated in the agreement or prevailing custom.
Article No. 886:
- If the contract is based on the unit-based measurement and it becomes apparent during the course of work that it is necessary to substantially exceed the estimated measurement in order to implement the agreed-upon design, the contractor must immediately notify the employer, specifying the expected increase in price. Failure to do so will result in the contractor forfeiting the right to recover the excess expenses in relation to the measurements.
- If the required excess for the design implementation is significant, the employer may withdraw from the contract and suspend the execution. In such cases, the contractor must pay the completed work’s value, estimated per the contract terms.
Article No. 887:
- If the contracting contract is based on an agreed-upon design with a total fee, the contractor cannot claim any additional fee for implementing that design.
- If there is a modification or addition to the design with the employer’s consent, the contractor must adhere to the current agreement regarding the modification or addition.
Article No. 888:
If the contract does not specify a wage for the work, the contractor is entitled to a reasonable wage along with the value of the materials they provided for the work.
Article No. 889:
- If the engineer who designed the building and supervised its implementation did not agree on the remuneration, they are entitled to a reasonable remuneration according to custom.
- If an event occurs that prevents the completion of the work according to the prepared design, the engineer is entitled to a remuneration similar to what they have done.
The Third Section – Second Contractor:
Article No. 890:
- The contractor may assign all or part of the work to another contractor unless the contract or the nature of the work prohibits it.
- The responsibility of the first contractor remains with the employer.
Article No. 891:
The second contractor cannot claim anything from the employer that the first contractor is entitled to unless they refer it to the employer.
Termination of the Contract:
Article No. 892:
The contracting contract expires upon the completion of the agreed-upon work or termination of the contract by mutual consent or by court order.
Article No. 893:
If an obstacle arises that prevents the execution or completion of the contract, either party may request its rescission or termination, as appropriate.
Article No. 894:
If the contractor starts the implementation but becomes unable to complete it due to reasons unrelated to them, they are entitled to the value of the completed work and the expenses incurred proportionate to the benefit gained by the employer.
Article No. 895:
The aggrieved party may seek compensation from the other party within the limits established by custom.
Article No. 896:
- The contracting contract would terminate upon the death of the contractor if it was agreed that they would personally perform the work or if their personal qualifications were considered in the contract.
- If the contract does not contain such a condition or if the contractor’s personal qualifications are not relevant, the employer may request termination of the contract if the heirs do not provide sufficient guarantees for the proper execution of the work.
- In both cases, the value of the completed work and expenses in accordance with the contract terms and prevailing customs shall be transferred to the estate.
Penalty for Delay in Contracting Contracts:
In certain cases, if the contractor violates the agreed-upon conditions in the contract, the employer has the right to request contract termination if repairs are not feasible. If repairs can be made, the employer can ask the contractor to rectify the errors within a reasonable period. If the contractor fails to complete the corrections within the specified time, the employer may request contract termination or authorize another contractor to complete the work at the expense of the initial contractor.
The law obligates the contractor to compensate for any damage or loss caused by their actions and work, except in cases of unavoidable accidents. The contractor’s guarantee remains valid for ten years from the date of work delivery, and during this period, they are jointly liable with the engineer for any defects or demolitions that threaten the durability and safety of the building. This liability applies even if the defect or demolition results from a defect in the land itself or if the employer agreed to the construction of defective buildings or facilities. Any condition in the contract that exempts the contractor or engineer from the guarantee or limits is considered null and void.
Legal Advice and Comprehensive Services for Real Estate Contracting
When entering into real estate contracting contracts, it is essential for the parties involved to seek professional legal advice to ensure their rights are protected and to understand the implications of delays and associated penalties. Additionally, the drafting of the contract itself plays a crucial role in regulating responsibilities and consequences. At FHS Law Firm in Abu Dhabi, we specialize in real estate law and are dedicated to guiding you through every step of the process.
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