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Mon 20 Sep 2010 04:00 AM

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Time to down tools?

If you haven't been paid for months, when do you know it's time to suspend or terminate a project? Often, legal advice is not sought soon enough, writes expert Drew Baiter.

Time to down tools?

In today's market, cash is a precious commodity. Many contractors and consultants in the UAE have overdue certified payment certificates and some have not been paid since last year. So what do you do when payment from the employer is well overdue?

How long must you fund a project before suspending or terminating your work? Can and should you terminate your contract? These are questions that many in the construction industry are facing today.

Understanding your contract's suspension and termination provisions and relevant UAE law is paramount to protecting yourself from exposure to liability and preserving your rights to pursue claims for the money you are due. It is always advisable to attempt to negotiate an acceptable payment plan with the employer before resorting to suspending or terminating a construction or consultancy contract. Suspensions and terminations strain relationships, create legal risks and uncertainty, and often lead to formal legal proceedings. If all else fails, however, suspension or termination may be the only remaining option. Sometimes the mere act of serving a notice of intention to suspend or terminate is enough to prompt a resolution, and it never hurts to approach your client one last time before terminating.

Risks

You should consult your legal advisors before deciding on either course of action. If you do not follow the contract procedures carefully or otherwise suspend or terminate your contract improperly, you may be held responsible for delaying the project and exposing yourself to significant damages. Read your contract in full and follow the procedures in the suspension or termination provisions exactly.

Be certain that your notices are sent to the proper representatives designated in the contract. Always keep proof of delivery of your notices. If you end up in legal proceedings, you will need evidence that you complied with the contract requirements. Also, be aware of life safety issues and the protection of the works when winding down your site operation. As you demobilise, make every effort to minimise costs to yourself and the employer, and to cause minimal disruption to the project.

Code

So what does UAE law say about suspending or terminating a consultancy or construction contract? The Civil Code does not directly address a party's right to suspend work, but it does provide that a party to a contract may refuse to perform its obligations, if the other contracting party does not perform its own obligations. The Civil Code also directly addresses the termination of a construction contract.

It states that construction contracts shall terminate upon the completion of the work agreed or upon the cancellation of the contract by consent or by order of the court. As a result, some may argue that a party to a construction contract may not unilaterally terminate the contract. Another article of the code, however, permits parties to agree to a mechanism for termination when a party is in default, whereby one party may terminate its obligations without a judicial order upon the failure of the other party to perform its obligations.

The code further provides that if one party does not do what it is obliged to do, the other party may, after giving notice to the obligor, require that the contract be cancelled.

Suspension, and especially termination, should not be taken lightly, but sometimes they are necessary when you are not receiving payment and the prospect of future payment is uncertain. If done properly, you will have ‘stopped the bleeding' and won't be incurring additional costs performing work, for which you are not being paid.  In addition, you will have preserved your claims for payment.

Drew Baiter is a senior associate for Kilpatrick Stockton.

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