We thought it timely to write a practical guide on the new 1999 edition FIDIC Red book given it is one of the most widely adopted contract forms used in the Middle East with an ever growing presence in the UAE market amongst both private and now public sector development. Certainly what we look to do in this two part series is firstly analyse the likely effect of a new law introduced in Abu Dhabi specifically for the use of FIDIC Contracts by government departments and secondly provide a summary of the key areas of commercial risk in the new FIDIC Red Book.Part 1 - The New law in Abu Dhabi.
A new law was introduced late last year in Abu Dhabi known as Law No. 21 of 2006 issued in November 2006 by the President and His Highness Sheik Khalifa Bin Zayed Al Nahyan.
The law that was introduced was the firstamong the Emirates to specifically mention the International Federation of National associations of Independent Consulting Engineers (FIDIC). It vests the Abu Dhabi Executive Council (ADEC) for the first time with the power and authority to adopt, issue and enter into FIDIC agreements in relation to Abu Dhabi government projects and major works.Timing of the New Law
Recent publicity out of Abu Dhabi concerning its planned developments and infrastructure works has been considerable with announcements of vast spending exceeding 500 Billion AED over the next 5 years.
The law has potential to increase private sector investment in Abu Dhabi or attract new multinational entrants into the growing Abu Dhabi contractor market. This objective is certainly critical to achieve the level of development planned over the next 5 years in the Emirate.What does this new Law mean to the Construction Industry?
The UAE has a law albeit not Federal which by its mere adoption of FIDIC effectively means the recognition and adoption of a regulatory framework for the proper administration and fulfilment of contractual rights and obligations. We essentially have a defac to law to administrate contracts between government and private sector entities instead of relying heavily on non-construction specific agreements and its interplay with the Civil Code or reliance on the intention of the parties.
How practical is the adoption of FIDIC to government contracts?
Without the benefitofanycasestudygiven the relative infancy of the law it is difficult to assess its practical impact on contractors or government, take for example the area of dispute resolution. In FIDIC contracts you have an extensive and elaborate alternative dispute resolution mechanism centred on the "Dispute Adjudication Board" which is defined by the parties but ordinarily consists of three experts, two nominated by the Parties to the contract and the third nominated by the two nominated experts. Should the FIDIC suite of Contracts be adopted without alteration we will effectively see government take part in alternative dispute resolution which highlights the overriding concept of fairness. This however may not occur if FIDIC contracts are extensively modified for Abu Dhabi use however if the principles of alternative dispute resolution contained in FIDIC contracts are adopted it will certainly help achieve rapid resolution of disputes by experts in the industry instead of leaving the parties to engage in extensive litigation.
Principles behind FIDIC and the balance of Power between the Government Employer and the Contractor
FIDIC is synonymous with balance and fairness between contracting parties. By accepting FIDIC standards in local construction contracts, the Government of Abu Dhabi can be seen to be acting fairly and in a wholly transparent way. This new law will be welcomed by the construction industry and introduces a greater balance between the contracting parties.
The fact that the Abu Dhabi government has now permitted the use of FIDIC contracts is supportive of the governments push to accept international standards in the continued growth and development of the Emirate.
The commitment by the Abu Dhabi government to international practices should see an increased level of interest by foreign contractors in Abu Dhabi. The move to accept FIDIC ensures that foreign entities are on familiar territory when entering into agreements with the government particularly with the large amounts at stake. The new law imports a set of established regulations (in the form of terms and conditions) to construction contracts which can only result in a mutual benefit to all and arguably serve as a bench mark to other Emirates and perhaps pave the way for Federal uniformity in private and public sector contracting.
Will FIDIC contracts need modificationto be used in Abu Dhabi?
FIDIC albeit offering an international standard may nevertheless require appropriate amendments to meet local conditions particularly when it comes to identifying jurisdiction or compliance with other local laws.
It has yet to be seen if Abu Dhabi will introduce a similar law to Dubai's Law No. 6 of 1997 in respect of Government: Departments in the Emirate of Dubai which codifies obligations, restrictions and procedures on contractors that enter agreements with a Dubai government department. Similar Laws may follow in Abu Dhabi to give business efficiency to FIDIC contracts and ensure that jurisdiction and dispute resolution are appropriately defined amongs to there important provisions in FIDIC agreements. There has been a recent suggestion that the use of FIDIC may present itself in a modified FIDIC contract specifically tailored for the Abu Dhabi market.
In part two of this article we will provide you with our guide to FIDIC contracts, a short summary of the most pivotal and common provisions.
By Edward Sunna, Head of Department Construction and Engineering Department
© Al Tamimi & Company 2007
