Legal Consultants Dubai

Employers in the United Arab Emirates prefer to enter into a contract with one main contractor for the whole of the works rather than to have several separate contracts for the performance of separate segments of works. However, main contractors rarely carry out the whole of the works themselves and, in general, engage one or more subcontractors to carry out portions or even the whole of the works.

Right to Subcontract

A contractor’s right to subcontract is derived from article 890(1) of the Federal Law No. 5 of 1985 issuing the Civil Transactions Law for United Arab Emirates (hereinafter “Civil Transactions Law”). In terms of hereof, a main contractor is lawfully entitled to entrust the performance of the whole or part of the work to another contractor (subcontractor) unless he is prevented from so doing by a condition of the contract or unless the nature of the work requires that he do it in person.

An excellent example of a restriction of the main contractor’s right to subcontract by a condition of contract is found in clause 4.4 of the standard FIDIC conditions of contract for construction [red book] 1999, which clause stipulates that “The Contractor shall not subcontract the whole of the Works…”. Although the aforesaid condition of contract prohibits the main contractor from subcontracting the whole of the works, the main contractor may still subcontract part of the works.

Main Contractor Remains Responsible to the Employer

In terms of article 890(2) of the Civil Transactions Law the main contractor remains responsible towards the employer for the whole of the works even though the main contractor may have entrusted the performance of the whole or part of the work to a subcontractor.

This responsibility is reinforced in clause 4.4 of the standard FIDIC conditions of contract for construction [red book] 1999, which clause stipulates that “… The Contractor shall be responsible for the acts or defaults of any Subcontractor, his agents or employees, as if they were the acts or defaults of the Contractor.”

The real effect hereof is that the main contractor retains contractual liability for any subcontractor and any act by a subcontractor that gives rise to a breach of the main contract remains, in effect, a breach committed by the main contractor.

Subcontractors’ claims against Employers and Assignment of rights

Typically, the only parties to a subcontract are the main contractor and the subcontractor and, under this arrangement, there is no privity of contract created between the employer and the subcontractor. Therefore, any claim for payment by the subcontractor for performance rendered under a subcontract lies solely against the main contractor.

For the reason that there is no privity of contract between the employer and the subcontractor, a subcontractor would have no legal basis to institute a claim against an employer for payment due from the main contractor for performance rendered under a subcontract. Furthermore, article 891 of the Civil Transactions Law prohibits a subcontractor from instituting a claim against an employer for any amounts that are claimable from the main contractor unless the main contractor has given the subcontractor an assignment of its rights against the employer.

Accordingly, a subcontractor who has performed in full without being paid in full must look to the main contractor for relief unless an assignment of rights has taken place.

In terms of article 1109(1) of the Civil Transaction Law a condition for the validity of an assignment of rights is the consent of the assignor, assignee and the party in whose favour the assignment is made.

Direct Payments by Employers to Subcontractors

Unless expressly provided for under the main contract, an employer would only be entitled to make a lawful direct payment to a subcontractor for payment due under a subcontract in the event that all three parties (employer, main contractor and subcontractor) have consented thereto. In the event that such direct payment is in any way unlawful, the employer would then nevertheless remain liable to pay the main contractor for the same work and would have to pursue the subcontractor in a separate cause of action for the recovery of the direct payment made.

To avoid such a pitfall, employers often elect to bestow upon themselves a right to pay a subcontractor directly and to deduct the sums so paid from moneys due to the main contractor by expressly providing for such a right in the contract with its main contractor. This is particularly so where the subcontractor is “nominated” by the employer, a topic for a future newsletter.

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