Suspension of works

Filed in Contract Administration on Mar.18, 2009

by Dennis Brand
Until late last year I was frequently asked by those visiting the UAE and seeing the amount
of construction being undertaken, when I thought the construction bubble in the UAE would
burst.
My often repeated answer was that I did not think the bubble would burst as such, but would
over time slowly deflate; how wrong I was. What we have seen over recent months as a
result of what the experts tell us is result of the world wide economic downturn has resulted
in an unprecedented number of projects and therefore contracts being suspended.
Whether those projects were being constructed or still in the planning stage, those who had
signed contracts for design, engineering or construction or any sub-contractor or supplier
providing services, will have reached for their respective contracts and agreements to
remind themselves, some perhaps for the first time (!), as to their rights should the client or
employer suspend performance of the services.
Based on FIDIC
Many of the contracts used in the construction and engineering industries in the UAE are
based on FIDIC. If those contracts are based on the FIDIC Fourth Edition for works of civil
construction, first published in 1978, which is still in use today, or the 1999 edition, one will
find in the published or unmodified versions provisions which allow for the engineer to
suspend part or all of the works, namely the employers right to suspend the works (Clause
40.1 Fourth Edition or Clause 8.8 (FIDIC 1999).
I use the term unmodified because it is not at all unusual to see a contract which is based
on the original FIDIC text, but where the client or employer has modified the provisions
because of the perception that the original provisions favour the contractor unnecessarily,
and the client or employer thereupon tries to redress the balance.
Such modifications will often take the form of limiting the contractors right to receive
compensation for an extension of time as a result of a change made by the client or
employer, or allowing the client or employer more time for prolonged suspension, thus
delaying the contractors right to suspend the works, which otherwise would exist at an
earlier time.
Contractors side
From the contractors side, however, there is often a very limited right to suspend, and
sometimes none at all. Where the contractor has a limited right to suspend, it is usually for
non-payment certified by the engineer as being due.
The Fourth Edition of FIDIC (Clause 69.4) allows the contractor to suspend if the employer
has failed to pay within 28 days an amount certified by the engineer. If the contractor
suspends his work under this provision, then he will be entitled to both an extension of time
and any likely resulting cost.

However, where a contract is entered into that is subject to UAE law, the UAE Civil Code
gives some limited comfort to the contractor. First of all, I should make it clear that, under the
UAE Civil Code, there is no express right for one party to suspend its obligation(s) towards
the other. However, having said that, Article 247 provides: In contracts binding upon both
parties, if the mutual obligations are due for performance each of the parties may refuse to
perform his obligation if the other contracting party does not perform that which he is obliged
to do.
Article 247
Put simply, where the employer has an obligation to pay the contractor - for example, in the
case where the engineer has certified a payment and the employer fails to make that
payment - then, subject to the provisions of the contract, or if there is no such provision in
the contract relating for suspension for non-payment, then the contractor has the right to
suspend his services.
Note, however, that Article 247 gives the contractor the right to refuse to perform his
obligation(s); it does not go further and allow the contractor to terminate the contract.
Termination under the UAE Civil Code is dealt with by Article 892: A contract for Muqawala
shall terminate upon the completion of the work agreed or upon the cancellation of the
contract by consent or by order of the court.
UAE Law
In a contract governed by UAE Law, if there is no provision that allows a contractor the right
to suspend for non-payment of services, suspending such services on the basis of the
provision of Article 247 will not necessarily prevent an employer from taking the view that the
contractor, by not performing his obligations - that is, by suspending his services - has
breached the terms of the contract, and therefore will allow the client or employer to seek to
terminate the contract for the contractors breach.
However, having said that, a court or arbitrator, in dealing with a contract subject to UAE law,
must take account of the provisions of Article 247 of the Civil Code, particularly if the contract
does not provide for suspension for non-payment or at all.
Where suspension is being considered in respect of a contract in circumstances where there
is an absence of a suspension provision, I would not recommend that the contractor simply
rely on Article 247, but seeks legal advice.
Construction week