UAE laws do not favour contractor

In light of the current economic downturn, contractors will have little legal recourse if payments for on-going projects get delayed, legal experts say.

The recent cancellation of the US $1.25 billion contract between Dubai-based Meydan and the Arabtec-WCT JV has led to concerns in the market over similar situations arising in the future and the legal recourse available to contractors.

Talking to Construction Week during a roundtable discussion held at the firm’s Dubai offices, Mark Blanksby, partner, construction and engineering, Clyde & Co, said: “Payments getting delayed will be a common feature in the market over the next six months. If the money isn’t there, there is very little a contractor can do about it.

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It is a risk they have taken. It is possible that certain contractors have taken payment security in the form of bonds or letters of credit, but that is extremely rare.”

As contractors cannot attach the money in escrow accounts, the only option they have is to chase payments.

“Under UAE law a contractor can claim property against his unpaid dues. But, it extremely difficult to get to that position as it requires a court order. The bottom line is that a contractor is left to chase the assets of the owner,” said Michael Grose, partner, construction and projects, Clyde & Co.

“Unfortunately, we will soon find out that insolvency laws are under-developed in the UAE. There is a huge inequality between a contractor and developer – if a contractor defaults, the employer has the ability to get the money from the bondsmen or the bank, conversely if the employer has to pay, there is no similar mechanism for the contractor.”