The UAE builds at a scale few markets can match, and with that scale comes legal risk. Delays, unpaid invoices, disputed variations and defect claims are where most construction disputes begin, and many of them trace back to the contract rather than the site.
This guide explains the main legal risks developers, contractors and subcontractors face on UAE projects, what changed when the new Civil Transactions Law came into force in June 2026, and how to manage each risk. It is general information, not legal advice on a specific project.
The Legal Framework Behind UAE Construction Contracts
Construction law in the UAE is not found in a single statute. The risks on a project are shaped by several layers that apply together:
- The Civil Transactions Law, the UAE’s federal civil code, which sets the default rules for contracting (muqawala) agreements.
- Emirate-level building regulations, which set permit requirements and technical, safety and sustainability standards.
- Free zone rules, where a project sits in a free zone with its own approval process.
- The contract itself, which in most cases decides how risk is allocated between the parties.
The muqawala contract under the Civil Transactions Law
Under UAE law, a construction contract is a type of muqawala (contracting) contract: one party undertakes to build something or carry out work in return for a price the other party agrees to pay. The Civil Transactions Law sets out rules for these contracts covering the contractor’s obligations, payment, liability for defects and how the contract can end.
The written agreement usually determines how the parties share risk because many of these rules apply only when the contract does not address the issue. However, some rules do not allow contractual exclusions, and decennial liability for structural defects is the best-known example.
Emirate building rules and permits
Each emirate sets its own requirements for permits, building codes and green building standards, so Dubai, Abu Dhabi and the other emirates apply different rules. For Dubai’s rules, including the Dubai Building Code, contractor registration and the Al Sa’fat green building system, see our guide to Dubai construction law.
Standard-form contracts and bespoke amendments
Many UAE projects use FIDIC contracts in the UAE, usually with amendments that move risk between employer and contractor. Changes to the payment, time, variation and termination clauses can shift the balance of a standard form significantly, so they deserve as much attention as the price.
A standard form also has to work alongside UAE law. The Civil Transactions Law also protects certain provisions, including decennial liability and the rules on exceptional events (hardship), from contractual exclusion. Therefore, parties should check any proposed amendments against these provisions.
What changed when the new Civil Transactions Law took effect in June 2026
Federal Decree-Law No. 25 of 2025, the new Civil Transactions Law, came into force on 1 June 2026 and replaced the civil code that had applied since 1985 (Federal Law No. 5 of 1985). Legal commentary on the new law highlights several changes that matter for construction projects:
- Contractor notice duties. The contractor must promptly notify the employer of defects in materials the employer supplies and of other factors that hinder the works, or bear the consequences.
- Defective work. After notice and a period to remedy, the employer can in some cases rescind or have the work completed by another contractor without first going to court.
- Termination for convenience. The employer now has a statutory right to end the contract before completion, subject to compensating the contractor.
- Decennial liability. Contractors and engineers remain liable for ten years, but the law excludes subcontractors from this liability.
- Agreed damages and hardship. Courts can reduce agreed damages in certain cases, and parties cannot exclude the hardship rule for exceptional events through a contract.
If you have live projects or contracts under negotiation, it is worth checking how these changes affect them.
Key Legal Risks and How to Manage Them
Most construction disputes in the UAE come from a small number of risk areas. Each can be reduced at the contract stage, when the parties still have room to negotiate.
Scope and contract risk
Unclear scope is behind many later claims. Drawings, specifications and the bill of quantities often conflict, and the party that carries design responsibility is not always obvious. A clear scope, a defined order of precedence between contract documents, and an express statement of who is responsible for design reduce these arguments before they start.
Payment and cash-flow risk
Late or disputed payment is one of the most common sources of construction disputes. Payment terms usually determine where the risk lies: how the parties calculate interim valuations, who certifies them, how long the employer has to pay, and what happens when someone delays or reduces a certificate.
Contractors should check retention terms, advance payment and performance guarantees, and any set-off rights. Employers should make sure payment is linked to clear, verifiable progress.
Delay and extensions of time
Delay is often the most expensive risk on a project. Most contracts provide for liquidated (agreed) damages for late completion and a procedure for extensions of time. Under the new Civil Transactions Law, a court can reduce agreed damages if they are shown to be exaggerated or if the obligation was partly performed. That does not replace a well-drafted clause: the extension-of-time procedure, notice periods and record-keeping requirements still decide most delay disputes.
Variations and claims
Variations change the scope, cost or timing of the works. Disputes usually arise when the contractor fails to follow the correct variation procedure, the parties disagree on its value, or the contractor misses the notice deadline. Contracts should clearly state who can instruct variations, how they must issue instructions, and how the parties should price them.
For lump-sum contracts, the Civil Transactions Law allows a court to adjust the price, extend time or end the contract where unforeseeable events destroy the financial basis of the agreement, although the parties can agree otherwise.
Notice requirements
Many claims fail on notice rather than merit. Construction contracts commonly set strict notice periods for delay, variation and payment claims, and the new law adds a duty on contractors to notify employers promptly of problems with employer-supplied materials and other obstacles to the works. A project-level notice process, with clear responsibility and templates, protects both sides.
Defects and decennial liability
Decennial liability is one of the most important features of construction law in the UAE. The main contractor and the engineer are jointly liable to the employer for ten years for the total or partial collapse of a building or fixed structure, and for defects that threaten its stability or safety. The liability is strict, so the employer does not have to prove fault. The 10-year period starts from delivery. The law voids any agreement that excludes or limits this liability, and claimants must bring a claim within three years of the collapse or discovery of the defect.
Decennial liability sits alongside the contractual defects liability period, which covers ordinary defects for the period the contract sets.
Subcontractor and supply-chain risk
The decennial liability regime does not apply between a main contractor and its subcontractors. If a subcontractor breaches the subcontract and causes a loss, the main contractor must prove the breach and resulting loss to recover its costs. However, the subcontract’s terms govern recovery, and the limitation period may expire before the employer brings its claim. Main contractors should make sure subcontracts are back-to-back with the main contract and include adequate warranties, indemnities and insurance.
Termination, including termination for convenience
Contracts can end for default or, under the new Civil Transactions Law, at the employer’s convenience. When the employer terminates the contract for convenience, the contractor can claim compensation for expenses, completed work and lost profit. However, the court may reduce the compensation in certain circumstances. Parties who do not want this right to apply, or want to set the compensation differently, should say so expressly in the contract.
Termination clauses should also deal with performance bonds, guarantees, retention and handover of the site, as the statutory provisions do not cover them in detail.
Permits and regulatory compliance
Work carried out without the right approvals can lead to stop orders, penalties and delay. Because requirements differ by emirate, free zone and project type, the contract should allocate responsibility for permits, health and safety compliance and sustainability requirements, and the project team should confirm approvals with the relevant authority before each stage begins.
How Construction Disputes Are Resolved in the UAE
Most construction contracts set out a staged process, starting with negotiation and, where the contract provides for it, a decision by the engineer or a dispute board. If that fails, disputes go to arbitration or the courts, depending on what the contract says.
Arbitration is common on larger projects. Federal Law No. 6 of 2018 governs arbitration in the UAE. The main arbitration centres include the Dubai International Arbitration Centre (DIAC) and arbitrateAD in Abu Dhabi, which replaced the Abu Dhabi Commercial Conciliation and Arbitration Centre in February 2024. The UAE is a party to the New York Convention, which supports enforcement of arbitration awards abroad. Read more on how construction disputes are settled in Dubai, or speak to our arbitration lawyers.
Construction Contract Risk Checklist for Developers and Contractors
Before signing a UAE construction contract, check that it:
- Defines the scope and sets an order of precedence between contract documents
- States who is responsible for design
- Sets clear payment, certification and retention terms
- Includes a workable extension-of-time procedure and realistic notice periods
- Explains how variations are instructed and valued
- Deals with termination for convenience, or expressly excludes it
- Reflects decennial liability and sets a defects liability period
- Passes risk down to subcontractors on back-to-back terms
- Allocates responsibility for permits and regulatory approvals
- Chooses a dispute resolution route and, if arbitration, the seat and rules
For contract drafting and review, get advice before the contract is signed, when changes are easiest to make.
Frequently Asked Questions
What law governs construction contracts in the UAE?
Construction contracts are governed mainly by the contracting (muqawala) provisions of the Civil Transactions Law, now Federal Decree-Law No. 25 of 2025, together with emirate-level building regulations and the terms of the contract.
What is decennial liability in the UAE?
It is a strict ten-year liability of the main contractor and the engineer for the collapse of a building or structure, or defects that threaten its stability or safety. It runs from delivery and cannot be excluded by contract.
Can an employer end a construction contract early in the UAE?
Yes. The new Civil Transactions Law gives the employer a right to terminate before completion, subject to compensating the contractor, unless the contract provides otherwise. Contracts can also be ended for serious default.
Did the new Civil Transactions Law change UAE construction contracts?
Yes. From 1 June 2026 it introduced changes on contractor notice duties, remedies for defective work, termination for convenience and subcontractors’ exposure to decennial liability.
How are construction disputes usually resolved in the UAE?
Through negotiation and the contract’s own procedure first, then arbitration or the courts, depending on the dispute resolution clause.
Speak to Klay Legal’s Construction Law Team
Klay Legal Consultants advises contractors, subcontractors, developers and project owners on construction matters in Dubai and across the UAE, from FIDIC, EPC and MEP contracts to tenders and disputes. Our construction lawyers in Dubai can review your contract before you sign, assess a claim, or explain your options when a dispute arises. Where court proceedings are required, we coordinate representation through our litigation partner.
