In May, I covered some introductory points in the new UAE Civil Transactions Law (civil code) which came into effect on June 1, 2026 and applies to contracts entered into after that date. Let’s now revisit the new law, to examine some parts of it that particularly impact our industry.

The laws specific to construction are helpfully grouped together in Articles 812-839. These are muqawala: contracts for work and services, although, of course, the wider contract laws also apply to construction contracts. For instance, Article 138 expressly recognises framework agreements and provides that framework conditions will apply by reference to contracts subsequently concluded between the parties.

The muqawala laws are generally taken as being not mandatory, that is, these laws apply only subject to whatever the parties have expressly agreed. Given that construction contracts tend to be densely drafted, to cover a lot of situations, it may appear that many of the new muqawala laws will have little or no impact, but that isn’t always the case. Parties need to know which laws are mandatory. 

A good example is Article 829 which covers price adjustment. Article 829(1) and (2) recognise lump sum agreements and disallow additional payment entitlement simply because of input costs (labour, materials) increase but they do allow for a price adjustment either:

1. By agreement between the parties on a scope change; or

2. Where a “delay or change” in scope is due to employer breach.    

That sits across two things that are provided for in commercial construction contracts:  scope variations and price adjustment claims, for employer breach and acts of prevention or for specified external events.

Article 829(3) goes further, providing for a potential entitlement to adjustment in price, also a time extension and potentially rescission of a contract if exceptional post-contract events and circumstances occur. The circumstances need to be unforeseen, exceptional and general in nature, with consequences serious enough to undermine the original commercial bargain. In this situation a court or tribunal may intervene to restore the commercial equilibrium. 

This provision is new: there was no direct equivalent in the muqawala section of the old civil code. It is helpful, as it provides expressly for an increase in price and extension of time in these exceptional circumstances. It is not subject to contrary agreement in contract, but neither does it state that contrary agreement is void. The consensus is that it is non-mandatory but we should note that another part of the civil code might operate to substantially the same effect. This is Article 224 which states:

“If exceptional, general circumstances arise that could not have been foreseen at the time of contracting, and as a result of their occurrence, the performance of the contractual obligation becomes onerous for the debtor, such that it  threatens them with serious loss, the court may – depending on the circumstances and after balancing the interests of the parties – reduce the onerous obligation to a reasonable limit or order the rescission of the contract.  Any agreement to the contrary shall be void.”

As we can see, Article 224 is mandatory. It isn’t set out in the terminology of time extension or price adjustment but any court decision to “reduce the onerous obligation to a reasonable limit” might bring the same practical result as we have in Article 829(3).

Importantly, we should not mistake these articles as a codified version of EPC time and cost claims. Both articles expressly seek balance between the parties’ respective interests, which means sharing of the downside from exceptional events rather than the EPC approach of allocating risks entirely to one party or the other.          

The above is also a reminder that a situation might be addressed by more than one part of the civil code and we need to understand all of it.

We can’t conclude this overview without addressing termination for convenience and liquidated damages adjustments.

The old civil code had not permitted termination for convenience. New Article 836 allows it at any time before completion, provided that the employer compensates the contractor for the works done, for all expenses and sums the contractor could have earned had the works been completed. However, this award might be reduced by money saved by the contractor due to the termination, as well as money earned, having been freed up to take other work. 

Although the base compensation refers to money the contractor could have earned from completing the works, the expenses in earning it are also taken into account, so it seems that the aim is to compensate for loss of profit, as well as accounting for profit from other work taken on.

Finally, the new Article 340 clarifies the circumstances in which liquidated damages may be reduced where:

• The assessment is exaggerated;

• The obligation has been partially performed; or

• The employer aggravated or contributed to the harm.

And the court may refuse any liquidated damages where the employer’s fault was greater than that of the contractor.

Conversely, the employer might seek damages in excess of liquidated damages where the contractor committed fraud or “gross fault”.  This is a mandatory provision which provides a fundamentally different approach to the usual provisions in construction contracts: in particular, where damages don’t match actual loss, the treatment of plant underperformance above minimum guaranteed levels, and employer breach and prevention. 

* Dubai-based Stuart Jordan is the Global Head of Construction for Baker Botts, a leading international law firm.