Trick of the tram

Two cities building tramways have had differing tales to tell

Cheryl Cairns is a partner at Trowers & Hamlins LLP
Cheryl Cairns is a partner at Trowers & Hamlins LLP

This year will see the construction of the tramways in both Dubai and Edinburgh complete. Edinburgh’s tram network is set to finally become operational at the end of May, with Dubai scheduled to go live in November.

Parallels between the two tramlines can be drawn. Both were constructed by a consortium of contractors. Both are of similar length, and both have tramway infrastructure now completed with testing having commenced. However, in relation to progress of the construction works this is where the similarities end.

Attendees at Construction Week’s UAE Infrastructure Summit 2014 in March heard from Abdullah Yousef Al Ali (CEO Rail Agency, Dubai RTA) that good progress has been made on the construction of Dubai’s tramway and the project is expected to be delivered on time by the end of this year.

Contrast this with the situation in Edinburgh, which has been marred by highly publicised delays and disputes. Significantly, while those disputes were being resolved the works were suspended pending the outcome, adding further delay to already late works.

The suspension of works pending the resolution of a dispute between the parties whilst the construction works are in progress raises interesting issues.

Ordinarily, parties to a construction contract (subject always to the governing law) are not entitled to suspend progress of the works unless there is an express power to do so. The ability to suspend the works pending the outcome of a dispute, which in arbitration can often take some 12 to 18 months to resolve, can be a powerful remedy, particularly if any period of suspension is disregarded when calculating the time for completion of the works for the purposes of calculating delay damages.

In the UAE, the majority of construction contracts are based upon FIDIC forms. The ability of the contractor to suspend works is constrained by reference to specific circumstances. There is no stated right to suspend progress of works if there is a dispute between the parties.

Rather, within the FIDIC forms it is expressly provided that the parties’ obligations shall not be altered because of any arbitration being conducted during the progress of the works.

This means that during the progress of works both parties are obliged to continue to comply with their respective obligations under the construction contract while the dispute is being resolved, in particular for the contractor to progress works with due expedition and without delay.

The reciprocity of obligations in the FIDIC forms is complemented by the UAE Civil Code, which states that if one party to a contract does not do what it is obliged to do under the contract, the other party may, after giving notice, require the contract to be performed (specific performance) or cancelled. A contractor or employer who suspends performance in the face of a dispute without a basis to do so therefore risks potential claims for breach of contract and associated loss.

This raises an important issue for both employers and contractors to consider when drafting their construction contract at the outset.

Employers may naturally wish to retain (and even expand) the FIDIC wording obliging contractors to continue with their obligations to complete the works notwithstanding any dispute between the parties, to minimise further delay and disruption to the original programme and to ensure that costs do not escalate.

From the contractor’s perspective, an express ability to suspend the works either generally or on the occurrence of specific dispute circumstances may be a potentially powerful tool from both a negotiating position and to ease the pressure on its own cashflow.

Meanwhile, as the construction of the tramways move towards completion and operation in both Dubai and Edinburgh, progress could perhaps be described respectively as, “It was the best of times, it was the worst of times”.

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