Construction Contracts in the UAE: FIDIC, the New Civil Code and Key Risks

A construction contract UAE employers and contractors sign onshore is governed by the federal Civil Transactions Law, which treats it as a contract of muqawala and imposes rules the parties cannot contract out of, most notably decennial liability for structural defects. Most major projects use FIDIC forms, but they are heavily amended, and since 1 June 2026 a new Civil Transactions Law has changed the default rules on liquidated damages, hardship, termination and defects for contracts signed from that date.

This guide explains how construction contracts work in the UAE, how to choose a procurement route, the FIDIC amendments that shift the most risk, and the drafting points that the new code makes urgent. It reflects the position as of October 2026.

The short answer: what governs a construction contract UAE parties sign

Every construction contract UAE parties enter into onshore sits inside three layers:

• Mandatory law. The Civil Transactions Law regulates contracting (muqawala) and engineering services. Some of its rules, such as strict decennial liability of contractors and architects for collapse and structural defects, apply whatever the contract says.
• Default law. Where the contract is silent, the code supplies rules on variations, price, defects, termination and compensation. The new code, in force since 1 June 2026, changed several of these defaults.
• The contract. Standard forms, usually FIDIC-based, allocate design, time, price and risk. UAE courts and tribunals generally give effect to them, but read them through civil-law principles of good faith and judicial control of compensation.

Projects in the DIFC or ADGM, or contracts governed by DIFC or ADGM law, sit in a common-law environment instead. Licensing, permits and building regulation remain emirate matters handled by bodies such as Dubai Municipality and the relevant master developer.

The legal framework after 1 June 2026

The Civil Transactions Law issued by Federal Decree-Law No. 25 of 2025 replaced the 1985 code from 1 June 2026. Most of its changes apply only to contracts entered into from that date, so projects signed earlier continue under the old code for most purposes. Transitional rules apply to limitation periods that were still running on 1 June 2026, which makes claims diaries on legacy projects worth reviewing now. Our note on the new UAE Civil Transactions Law covers the general changes.

For construction, commentators have highlighted these shifts:

• Liquidated damages. The court's broad power to adjust agreed damages to actual loss has been replaced by specific grounds: reduction where the sum is exaggerated, where the obligation was partly performed, or where the employer's fault contributed; and increase where the contractor acted fraudulently or with gross fault.
• Hardship and lump sums. A lump sum still does not rise just because materials or labour cost more, but hardship relief now expressly reaches lump-sum contracts where exceptional, unforeseeable general circumstances upset the contract's balance. The court can extend time, adjust the price or rescind, and parties cannot contract out of that power.
• Termination for convenience. Where the contract is silent, an employer that ends the work early must pay for work done and expenses and also what the contractor could have earned, subject to deductions.
• Defective work. An employer can, in defined situations, rescind or hand the work to another contractor at the original contractor's cost without first applying to court.
• Notice of problems. A contractor must promptly notify the employer of defects in employer-supplied materials or other conditions impeding performance, or bear the consequences.
• Decennial liability. The regime is substantively retained, with clarification that the contractor's strict liability does not carry over automatically into its claims against subcontractors.

Disputes are usually resolved by arbitration under the Federal Law on Arbitration or in the onshore courts, which rely heavily on court-appointed engineering experts. Our pages on decennial liability in the UAE and force majeure and hardship go deeper on those regimes.

Choosing a procurement route and standard form

The first commercial decision is who designs. That choice drives the form, the price mechanism and where defects risk sits.

Whichever route is chosen, the construction contract UAE parties sign should match the project's financing and insurance. FIDIC forms are familiar to international contractors and lenders, which is why they dominate. In the UAE, however, the earlier editions remain common alongside the current suite, and employers' particular conditions often run to many pages. The real contract is the amendments, not the published form.

Design responsibility and the designer's liability

Under UAE law, the designer and the contractor can be jointly liable for structural defects, and a supervising engineer may share liability for defects arising under its supervision. In design-and-build contracts, a fitness-for-purpose obligation can expose a contractor to liability beyond what its design consultant's professional indemnity insurance covers. Contractors should align their design subcontracts and insurance with the obligations they accept upstream.

FIDIC amendments that shift the most risk

Employers' amendments tend to follow familiar patterns. Each changes the risk allocation that FIDIC intended, and each now needs re-reading in light of the new code.

• Ground conditions. Transferring unforeseeable physical conditions to the contractor, sometimes with limited site investigation data.
• Time bars and notices. Tightening contractual notice periods and adding further conditions to claims. UAE tribunals have not always applied time bars strictly, and the new code's emphasis on good faith may encourage arguments against harsh enforcement.
• Liquidated damages. Higher rates and caps, or uncapped delay damages. Under the new code a contractor may argue for reduction on the specified grounds, while an employer may claim more on proof of fraud or gross fault.
• Price adjustment. Deleting escalation clauses. Contractors should note that hardship relief now applies to lump sums only in exceptional general circumstances, not market movements on one project.
• Liability caps and exclusions. Caps on liability are common, but the new code's prohibition on clauses that exempt or limit liability for harmful acts has raised a question about caps on tort-based claims.
• Payment and set-off. Extended payment periods, back-to-back payment terms in subcontracts and wide employer set-off rights.

Bonds, retention and insurance in a construction contract UAE projects use

Security packages are a frequent source of friction. A typical construction contract UAE employers issue asks for an advance payment guarantee, a performance bond and retention deducted from interim payments, with the bonds usually issued by UAE banks on demand terms. Contractors should negotiate the bond amounts, reductions as the advance is repaid, expiry dates tied to taking-over or the defects period, and an obligation on the employer to return them on time.

Insurance needs equal care. Contractors' all-risks cover, third-party liability and professional indemnity for design should match the obligations accepted in the contract, and decennial liability insurance is increasingly discussed for larger buildings. A gap between the risk accepted in the construction contract UAE parties sign and the cover actually bought is one of the most expensive mistakes on a project, because it only becomes visible after a loss.

From tender to final account: the process

1. Define the procurement strategy. Decide who designs, the price mechanism and the form, taking account of lender, insurer and authority requirements.
2. Prepare and review the tender documents. Particular conditions, employer's requirements, specifications and bonds. Contractors should mark up the risk items rather than price them silently.
3. Check licensing and authority. Confirm that the contractor and consultants hold the right licences and classifications, and that signatories have authority, including specific authority to agree to arbitration.
4. Negotiate and sign. Agree bonds, insurances, liquidated damages and caps, and the dispute resolution clause, and make sure Arabic and English versions are consistent.
5. Administer the contract. Issue notices on time, keep contemporaneous records, and treat variations and extension of time claims as they arise rather than at the end.
6. Complete and hand over. Manage taking-over, defects notification periods and the release of retention and bonds.
7. Close the final account. Settle the account and claims, and record any reservations before the relevant time limits expire.

Contractors new to the market should also check their own licensing; see our guide to licensing a contracting or engineering company in Dubai.

Illustrative scenario: a lump-sum contractor hit by a price spike

This scenario is illustrative only; the parties are generic.

A contractor signs an amended FIDIC Yellow Book lump-sum contract for a mixed-use building in July 2026. The employer has deleted the escalation clause. Six months later, regional disruption causes a sharp rise in the price of steel and other materials across the market.

Because the contract was signed after 1 June 2026, the new code applies. The contractor cannot claim more simply because costs rose. But if it can show the disruption was exceptional, general rather than project-specific, unforeseeable at signing, and so severe that it upsets the contract's financial basis, it may ask a court or tribunal to adjust the price or extend time, and the employer cannot rely on a clause excluding that power.

The contractor's position is much stronger because it notified the employer promptly, kept market price evidence and continued performing. The employer, for its part, uses the dispute to negotiate a shared-risk adjustment rather than litigate an uncertain hardship claim. The lesson for any construction contract UAE parties sign today is that price risk should be allocated expressly, because the statutory fallback is unpredictable.

Risks and common mistakes

Disputes and the cross-border angle

Most significant construction disputes in the UAE are arbitrated. In Dubai, the Dubai International Arbitration Centre is the main onshore institution, while Abu Dhabi has its own centre, and parties can seat arbitrations in the DIFC or ADGM. Onshore courts remain relevant for urgent relief and enforcement, and the DIFC Courts hear disputes where the contract or project falls within their jurisdiction. Our pages on construction disputes in the UAE and construction arbitration in the UAE compare the forums.

International contractors and consultants from the UK, China, India, Singapore and elsewhere often carry home-country standard terms and insurance assumptions. Those should be checked against UAE mandatory law: a cap or exclusion that works under English law may not survive decennial liability or the new code's limits. Bonds issued by foreign banks, parent guarantees and enforcement against assets abroad all need early planning.

What to do next

• Identify which of your live projects are under the old and new code.
• Review limitation periods on legacy claims in light of the transitional rules.
• Update FIDIC particular conditions, subcontracts and guarantee templates.
• Allocate price risk expressly in lump-sum contracts.
• Check signatory authority, especially for arbitration clauses.
• Strengthen notice and record-keeping procedures on site.

TRW & Co advises employers, contractors and consultants on construction contracts in the UAE, from procurement strategy and FIDIC amendments to claims and disputes. Where representation before the UAE courts is required, we work alongside locally licensed advocates. To review a contract or claim, contact our Dubai team.

Frequently asked questions

Sources and official materials

1. Federal Decree-Law No. 25 of 2025 Promulgating the Civil Transactions Law — New civil code in force from 1 June 2026, including contracting rules
2. Federal Law No. 6 of 2018 on Arbitration — Framework for arbitrating construction disputes onshore
3. Dubai International Arbitration Centre — Main Dubai institution for construction arbitration
4. FIDIC — Publisher of the Red, Yellow and Silver Book standard forms
5. Dubai Municipality — Building permits and construction regulation in Dubai
6. DIFC Courts — Common-law courts for DIFC-related disputes

General information only, current as at 27 October 2026. It is not legal advice and does not create a lawyer–client relationship. UAE law differs between the onshore jurisdiction, the DIFC, ADGM and the free zones, and changes frequently; check current official sources and take advice on the facts of your matter.