For better or worse?

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Contractors working on public sector infrastructure projects in Abu Dhabi will be bound by the new forms, which are thought to be an improvement over existing contracts. (Getty Images)

The new contract forms recently issued by the Abu Dhabi government have largely been welcomed by contractors looking for greater transparency in their deals.

The new contracts, which are 80% based on provisions stipulated by the International Federation of Consulting Engineers (FIDIC), are seen as a huge step forward from the previous terms and conditions that governed the emirate's civil construction projects, which were described by one contractor as being "extremely bad".

The fact that the contract is largely made up of well-reputed FIDIC rules has reassured contractors - at least now they will know exactly what they're getting into and will be able to make evaluations and assess risks accordingly.

"The Abu Dhabi government's motivation was to attract international players into the market with the capability and experience to complete the projects it has planned for the next 20 years," said Edward Sunna, head of the construction and engineering department at law firm, Al Tamimi & Company.

But while the contract offers greater transparency for those bidding for large infrastructure projects, such as power and desalination plants and sewerage works, the new rules will impose harsher obligations on contractors and are seemingly more balanced towards the client.

"The old contracts left a lot to be desired but what you don't want is for contractors to think: ‘fantastic, it's a FIDIC 1999 contract'," said Michelle Nelson, partner, Masons Galadari. "It's a fair contract because, on the face of it, it looks the same; it has the same clause numberings and format and you could be led to believe that it is that - but it's only when you look at it in more detail that you see there are subtle changes by the addition of extra little paragraphs and sentences - but that's the thing that bites contractors, because those changes have been deliberately done in a way to protect the employer."

The Abu Dhabi Law No. 1 is made up of two forms of contract: Build Only and Design and Build. One of the most significant changes is in the Design and Build contract, which is based on the FIDIC Yellow Book. The new contract gives the employer greater control over drawings and information provided by the contractor.

"There are greater obligations on the contractor in relation to design obligations, which go beyond what is in the standards of FIDIC," added Nelson.

"The copyright is a change in itself - it now goes to the employer under the contract, so they have the right over the contractor's documents that have been given to them, which could cause problems."

Another major change is the cap on liquidated damages for delay, which has increased from 10 to 20% of the contract sum.

"This could clearly be extremely substantial in many contracts worth significant sums of money," said Nelson.

There is also a greater obligation on the contractor to ensure the compliance of materials and that construction is done correctly.

"Whereas previously there were grounds for a variation or an extension of time claim, now the onus is on the contractor to not only get the construction right but to make sure that what they've designed is tailored to the employer's requirements," said Sunna.

"If they don't satisfy that threshold, then it comes back to them in terms of losses and incurring additional costs and delays."

Contractors will also face penalties for using hazardous or substandard products, or being aware of their use by subcontractors.

"This now imposes strict liability on the contractor and clamps down on potential misconduct. The contractor is ultimately responsible for the materials used in construction and any damage caused by them," said Sunna.

One change that does fall more in favour of the contractor is the introduction of a price escalation clause.

"The good news, in one sense, is that there is the optional clause for price escalation, which is beneficial if it's used," said Nelson. "But the difficulty is understanding how that would operate in practice because you're relying upon there being indices and information available in order to make that assessment."

Another step forward is the lessening of the extensive power of the engineer. Under the new terms, an engineer can be replaced in 18 days, whereas previously it was 42.

Although FIDIC forms of contract have been used in the Middle East since the 1970s, changes are only now being made to suit government projects. And although the Abu Dhabi government has officially adopted the FIDIC form, the government of Dubai is yet to follow suit.

"Although FIDIC is in use in the Middle East, there have been substantial modifications of many of the provisions to suit government purposes," said Sunna.

"Now it includes a lot of provisions that a government wouldn't ordinarily be privy to, for example, under ordinary FIDIC provisions, if a contractor was concerned regarding its payment, it had the right to make inquiries into the employer's financial status.

"But you don't see this under these provisions - because obviously a government isn't going to allow a private contractor to delve into its financial affairs," he added.

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