COMMON CONTRACTUAL ISSUES FACED BY MALAYSIAN

CONTRACTORS OPERATING IN MIDDLE EAST USING FIDIC FORM OF

CONTRACTS

AHMED ABUBAKER A. SALEH

UNIVERSITY TECHNOLOGY MALAYSIA

 “I hereby declare that I have read this thesis and in my
opinion this thesis is sufficient in terms of scope and
quality for the award of the degree of Master of Science
(Construction Contract Management)”

Signature : ............................................

Name of Supervisor: Assoc. Prof. Sr. Dr. Rosli

Abdul Rashid
Date : June 2014
 COMMON CONTRACTUAL ISSUES FACED BY MALAYSIAN
CONTRACTORS OPERATING IN MIDDLE EAST USING FIDIC FORM OF
CONTRACTS

AHMED ABUBAKER A. SALEH

A project report submitted in partial fulfilment of

the requirements for the award of the
degree of Master of Science (Construction Contract
Management)

FACULTY OF BUILT ENVIRONMENT

UNIVERSITY TECHNOLOGY MALAYSIA

June 2014
 DECLARATION

I declare that this thesis entitled “common contractual issues faced by Malaysian
contractors operating in Middle East using fidic form of contracts” is the result of
my own research except as cited in the references. The thesis has not been accepted
for any degree and is not concurrently submitted in candidature of any other degree.

Signature : ............................................

Name of Supervisor: Ahmed Abubaker A. Saleh

Date : June 2014

ii
 DEDICATIO N

To Fatima my mother, Shadiya my aunt, Merima my wife, Amani my sister, Sumaya

my aunt, and my little sisters Marwa and Isra.
Thank you, ladies for the help, support, guidance, patience and good deeds.

To Abubaker my late father, Anas, Osama, Hussam, Jihad, Majed, Abadi, Khalid my
brothers.
Thank you, Gentlemen for the inspirations and moral support

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 ACK NOWLEDG EMENT

First of all, I would like to express my deepest gratitude to Almighty God,

Alhamdulillah, for granting me with extreme patience, tolerance and intellectual
capacity throughout my life and this study. Thank God for everything.

Then comes, my family including my parents, wife, who taught me a new meaning
of sharing and unconditional love, my aunts, brothers and sisters, for the support and
encouragements.

Not forgetting, my Supervisor Assoc. Prof. Dr. Rosli AbdulRashid for his timeless
effort, understanding, knowledge, mentoring, guidance, inspirations, and never
ending friendship. Much respect and deep appreciation to him and to Dr. Shadiya
Mohammed S. Baqutayan who guided me on the use of SPSS and statistical analysis
methods appropriate for my study.

I would also like to thank my lecturers, Dr. Maizon and Mr. Jamal, for the great
knowledge I acquired from them as well as other lecturers and staff of the honorable
University Technology Malaysia who made my study pleasant and beneficial.

Lastly, I wish to thank and acknowledge those who have given me a helping hand
and provide assistance throughout the project, especially to those correspondents of
this research.

iv
 ABSTRACT

Construction projects are called international when parties from different

countries enter into an agreement to carry out the work. Usually, parties use FIDIC
standard forms of contracts, as they are widely used globally for complex
international projects. During construction, generally, issues occur between parties of
the contract when a party contends that, although, the words of the contract, taken
literally, seems to apply to the events or the circumstances encountered but within
the contemplation of the other party, these events and circumstances seems to be
applied differently according to the wording of the same contract and/or the
provisions of the governing law of the contract. That would misdirect the parties as
to what should happen, who should do what, and often who should bear the cost.
Therefore, this study has been taken to identify and categorize the issues of the
international construction contract i.e. FIDIC, and, also, to determine the effect of the
factors (legal system, language, and application of FIDIC) that are causing the issues,
from the experience and the point of view of the Malaysian contractors who worked
in the Middle East, specifically, Saudi Arabia and United Arab Emirates. and point
out the key issues for the unwary to consider. The methodology of the study includes
extensive research and a survey, designed accordingly, with participation of
Malaysian professionals who have a vast knowledge and direct involvement in
construction project in UAE and Saudi Arabia. The result of this study identified and
categorized the issues; focused on key issues; and determined the effects of the
factors (the legal system/governing law, language, and application of FIDIC) and
how influential each factor is on those issues.

v
 ABSTRAK

Projek pembinaan dipanggil antarabangsa apabila pihak-pihak dari pelbagai

negara membuat suatu perjanjian untuk menjalankan kerja. Biasanya, pihak
perjanjian menggunakan FIDIC sebagai borang kontrak, kerana ia digunakan secara
meluas di peringkat global bagi projek-projek antarabangsa yang kompleks. Semasa
pembinaan, secara amnya, masalah berbangkit di antara pihak-pihak kontrak apabila
salah satu daripada pihak kontrak berpendapat bahawa walaupun kebiasaannya
bahasa kontrak ditafsir secara harfiah, dan digunakan di dalam keadaan seperti yang
tertera didalam kontrak, ada juga kes-kes dan keadaan dimana bahasa kontrak ini
ditafsir secara berbeza oleh pihak kontrak yang lain. Berikutan demikian, keadaan ini
akan mengelirukan pihak-pihak kontrak berkenaan apa yang sepatutnya berlaku,
seperti kekeliruan tugas dan kekeliruan yang paling kerap berlaku adalah kekeliruan
berkaitan kos. Oleh itu, kajian ini telah diambil untuk mengkaji semula isu-isu
kontrak pembinaan antarabangsa seperti FIDIC, dari pengalaman dan sudut
pandangan kontraktor Malaysia yang bekerja di Timur Tengah, khususnya, Arab
Saudi dan Emiriah Arab Bersatu. Metodologi kajian termasuk penyelidikan meluas
dan kajian, yang direka dengan sewajarnya, termasuk dengan penyertaan ahli
profesional Malaysia yang mempunyai pengetahuan yang luas dan terlibat secara
langsung dalam projek pembinaan di UAE dan Arab Saudi. Hasil kajian ini dikenal
pasti dan dikategorikan kepada isu, memberi tumpuan kepada isu-isu utama; dan
menentukan bahawa sistem undang-undang/undang-undang yang mengawal, bahasa,
dan aplikasi FIDIC.

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 TABLE O F CONTEN TS

DECLARATION ii
DEDICATION iii
ACKNOWLEDGEMENT iv
ABSTRACT v
ABSTRAK vi
Table of Contents vii
LIST OF TABLES x
LIST OF FIGURES xi

1 INTRODUCTION 1
1.1 Background 1
1.2 Problem Statement 4
1.3 Aim 5
1.4 Objectives 6
1.5 Scope 6
1.6 Research methodology 7
1.6.1 Literature review 7
1.6.2 Data collection 7
1.6.3 Data analysis 8
1.6.4 conclusion and recommendations 8

2 LITERATURE REVIEW 10
2.1 Introduction 10
2.2 Fédération Internationale des Ingénieurs-Conseils (FIDIC) 11
2.2.1 The Red Book: 12
2.2.2 The Yellow Book: 12
2.2.3 The Silver Book: 13
2.2.4 The Green Book: 14
2.3 Issues 15
2.3.1 Interpretation, ambiguity and Language related Issues 15
2.3.2 Choice of Law related Issues 18

vii
 2.3.2.1 Common law 21
2.3.2.2 Civil law 23
2.3.2.3 Differences between common law and civil law 24
2.3.2.4 Shariah law 27
2.3.3 Contractual Claims and Disputes 30
2.3.4 Variation 36
2.3.5 Delayed Payment 38
2.3.6 Risk Allocation and liabilities 39
2.3.7 Delay Damages (Liquidated Damages v. Penalty) 44
2.4 Construction Industries of Saudi Arabia and United Arab Emirates 46
2.4.1 Saudi Arabia 47
2.4.1.1 Introduction 47
2.4.1.2 Contracts, Procurement and Finance 48
2.4.1.3 Restrictions on International Contractors and Labors 49
2.4.2 United Arab Emirates 50
2.4.2.1 Introduction 50
2.4.2.2 Procurement 51

3 DATA COLLECTION 53
3.1 Introduction 53
3.2 Questionnaire survey 54
3.3 Respondents 55

4 DATA ANALYSIS 56
4.1 Introduction 56
4.2 Overall results of questionnaire distribution 57
4.2.1 Part 1: Background of the project: 57
4.2.2 Part 2: Issues and causing factors 60
4.2.3 Part 3: Extras (optional) 63
4.3 Causes of issues 67
4.3.1 FIDIC 67
4.3.2 Language 68
4.3.3 Governing law / legal system 69
4.4 Level of Significance 70
4.4.1 High significance issues 70
4.4.2 Medium significance issues 70
4.4.3 Low significance issues 71
4.5 Important key issues to the unwary 72
4.5.1 Amendment of FIDIC clauses 72
4.5.2 Disputes resolution 73

viii
 4.5.3 Delayed payment 73
4.5.4 Risk and liability 74
4.5.5 Delay damages 75

5 CONCLUSION AND RECOMMENDATION 76

5.1 Introduction 76
5.2 Conclusion 77
5.3 Recommendations 79
REFERENCES 81
APPENDIX 84

ix
 LIS T OF TABLES

Table 2. 1: Some of the terminologies' differences between common law and civil
law ..........................................................................................................................25
Table 2. 2: Contractors claims. ................................................................................32
Table 2. 3: Employers Claims .................................................................................33
Table 4. 4: Result of part 2 of the questionnaire describing the relationship between
issues and causing factor .........................................................................................62
Table 4. 5: Causes of Issues ...................................................................................67
Table 4. 6: High significance issues ........................................................................70
Table 4. 7: Medium significance issues ...................................................................71
Table 4. 8: Low significance issues .........................................................................71

x
 LIS T OF FIGURES

Figure 1: Research Methodology.............................................................................. 9

Figure 2: Location of projects .................................................................................58
Figure 3: The governing law of the contract ............................................................58
Figure 4: Procedural law .........................................................................................58
Figure 5: Language of the contract ..........................................................................59
Figure 6: procurement (FIDIC book).......................................................................59
Figure 7: Amendment of FIDIC provisions .............................................................63
Figure 8: Disputes avoidance ..................................................................................64
Figure 9: Notice of claim in UAE............................................................................64
Figure 10: Disputes resolution in KSA ....................................................................64
Figure 11: Interest entitlement.................................................................................65
Figure 12: Additional Risk ......................................................................................65
Figure 13: liability for death and \ or injury of construction worker(s) .....................65
Figure 14: Decennial liability ..................................................................................66
Figure 15: Delay Damages ......................................................................................66

xi
 CHAPTER 1

1 INTRODUCTION

1.1 Background

The trend of internationalization of construction companies has been rising

throughout the world. Going international has accelerated the flow of information
and resource allocation, bringing people, organizations and countries closer 1.

However, in international construction business, it is essential for

construction companies to know when to enter a newly opened country market.
Entering a foreign market is a critical strategic decision that requires, extensive
environmental scanning to determine how well the company can succeed in the
international market; and appropriate matching of the strengths of the company with
the international market opportunities. 2

1
Wong, P. (2007), Winds Of Change: Ensuring Malaysian Builders Win In The Global Race, Master
Builder Association, Malaysia.
2
Dikmen, I. and Birgonul M. T. (2004), Neural Network Model to Support International Market Entry
Decisions, Journal of Construction Engineering and Management, Vol. 130 (1), 59-66.

1
 Construction projects became more complex and multi-dimensional,
demanding more disciplines and skills. Therefore, construction projects, nowadays,
in developing countries are often carried out in joint ventures with construction
companies from developed countries. International collaboration can be of particular
benefit to all parties of projects. Trans-global economic developments offer an
opportunity to develop products using the most up-to-date expertise and knowledge
in a cost-effective manner.3

FIDIC Fédération Internationale Des Ingénieurs – Conseils (from French, the

International Federation of Consulting Engineers) was initiated in 1913 as a global
representative for the consulting engineering industry, to ensure successful
international collaboration. Thus, FIDIC, today, is well known for the standard form
Conditions of Contract for the worldwide construction industry, particularly in the
context of higher value international construction projects, and is endorsed by many
multilateral development banks (“MDBs”).

Malaysian construction contractors have been progressively involved and

continuously encouraged to undertake construction projects along side with
multinational participants from diverse political, legal, economic, and cultural
backgrounds. To search new geographical presence; To seize the opportunities
brought by the global economy’s needs for higher standard of efficiency and quality;
To increase global Market Share; To gain political power.

Excellent performance of Malaysian contractors in the construction of many

mega projects within the local industry has nurtured the competencies and
capabilities of their expertise. However, the very competitive and saturated of local
market has driven many Malaysian contractors to make significant appearance in the
global market as a mean to effectively capitalize on special expertise.

Malaysian construction companies has reported successful completion of

international projects to Construction Industry Development Board’s CIDB

3
Clark, H., and Ip, A. (1999). ‘‘The Peifan-Lucky Star—A car for China.’’ Design Manage. J., Fall, 21–28.

2
(Malaysian government agency under the Ministry of Works which appointed as a
professional body to promote, stimulate and assist the development of Malaysian
construction industry). And that was comprehensively published in CIDB’s
newsletter, issue 02 December 2012, as the latest update on international
construction ventures.

From 1987 to 31 Dec 2012, 115 Malaysian contractors have participated in a

total of 691 construction projects worth about US$30 billion (RM102.2 billion) in 50
countries abroad. Out of these projects have completed 617 projects worth USD 19
billion (RM65.5 billion) worldwide, while another 74 projects worth USD 10.8
billion (RM36.7 billion) are still ongoing. The most number of international
construction projects have been secured in the Middle East – 41 %, followed by
South Asia at 21 %, ASEAN 14%, Africa 12% and other regions 21 %. There are
115 Malaysian contractors currently doing construction work in 50 countries around
the globe.

Recently, Middle East has proven to be one of the most attractive

construction markets in the world as it continues to present significant opportunities
for international contractors including Malaysian ones. 4 According to CIDB
newsletter, issued 01 & 02 June 2013. The biggest projects received by Malaysian
contractors in terms of value are from the Middle East. Malaysian contractors’
contribution is obvious in countries such as the UAE, Saudi Arabia, and other Middle
Eastern countries where Malaysian companies participated in iconic construction
projects such as the Burj Khalifa in Dubai and Capital Gate in Abu Dhabi.
Construction groups like Muhibbah Engineering, Setia Group, Gamuda Bhd, Road
Builder Holdings (M) Bhd, UEM Construction Sdn Bhd, IJM Corporation and Bina
Puri Holdings Bhd had exported their expertise to the Middle East.

However, in today’s complex world of construction, it is almost impossible to

complete a project without issues arising during the process. In order to understand
how and why these issues arise, they must be placed into proper perspective.

4
Raymont, M. (2010, March). THE EMERGENCE OF ASIAN CONSTRUCTION CONTRACTORS IN
THE MIDDLE EAST. www.cmguide.org. Retrieved December 27, 2013, from
http://www.cmguide.org/archives/2151.

3
 What is the scenario of international construction process? What are the
issues arising from working in different country? Under different legal system than
the one practiced in home country, Malaysia? How did they (Malaysian contractors)
overcome the language differences? How to implement FIDIC? Are the terms and
conditions of FIDIC compatible with the legal system of that country? How was
FIDIC interpreted by the parties of different backgrounds? How well is the FIDIC
contract amended and drafted using words (apart from the drawings) to express in the
light of events and circumstances in prospects? In general, what are the issues faced
by other contractors working in the same host country? In case of disputes, how were
they avoided/resolved? And many other questions triggered this research.

1.2 Problem Statement

According to the CIDB Malaysian Construction Industry Master Plan, 2007,

it is stated that some of the main challenges and difficulties facing Malaysian
contractor in international project ventures are as follows:
 Opportunities – availability of projects.
 Chances of securing projects.
 Business environment–Legal system, language and others.
 Funding – whether the projects are government funded,
multilateral agency funded or privately funded.
 Level of risk ranging from security risk to infrastructure risk.
 Ease of entry/exit – existence of trade and non-trade barriers
and ease of repatriating profits.

This research tends to focus on the third point of the list above and study in
depth the common contractual issues that are creating obstacles for the Malaysian
contractors performing in the Middle Eastern countries, Specifically, Saudi Arabia
and United Arab Emirates (UAE), which occurs while using FIDIC forms of
contract. Being located in Malaysia would make it a proper and beneficial site for my

4
study to analyze different legal system’s (Common Law in Malaysia, Civil law in
UAE and Shari’ah Law in Saudi) interpretations, and examine the effect of different
languages used for communication, in relation with the issues arising from the
application of international construction contract (FIDIC).

1.3 Aim

As the major issues affecting the management of international construction

projects, legal contractual issues deserve wide research because it controls the
financial and technical aspects of the construction project. This Master Project Thesis
is not complete coverage of building contract (FIDIC) problems. The author’s
consciousness of the gaps in the selected issues is based on the previous authors and
practitioners emphasis on them. This study aims to identify and address the main
contractual issues of different countries where Malaysian contractors undertaking
projects. In order to, establish the guidelines to enhance more contract management
efficiency of the FIDIC’s Conditions of Contract; to determine and mitigate the
conflict causation by implementing an appropriate dispute avoidance mechanisms for
international construction projects, especially for those carried out in the Middle
East.

5
1.4 Objectives

1) To identify and categorise the issues arising from the use of FIDIC in the
Middle East.
2) To determine the effect of the factors (legal systems, language and
application of FIDIC) on the issues.
3) To determine the key issues arising from working in UAE and Saudi
Arabia.

1.5 Scope

This study focuses on the responses and data’s obtained from the Malaysian
contractors performed construction projects in the Middle East using FIDIC
conditions of the contract. There are many bespoke or standard forms of contracts in
use internationally and it is not the purpose of this research to refer to them but rather
use FIDIC as it is the most commonly used, therefore, avoid confusions that the
reader may get by making quotations and illustrations from various forms of
contracts. As discussed earlier, the main countries in the Middle East with numerous
development projects are Saudi Arabia and United Arab Emirates. Therefore,
limiting the study to these two countries is the scope of my research.

6
1.6 Research methodology

The methodology adopted in this research is sub divided into several stages,
viz.; identifying the research issues, literature review, data collection, data analysis,
conclusion and recommendation. Refer to Error! Reference source not found. below.

1.6.1 Literature review

Extensive literature review is carried out, using books, articles web sites and
e-journals to produce and evaluate models.

1.6.2 Data collection

Questionnaires sent to Malaysian contractor companies and personnels.

Names and addresses of these companies are extracted from the Construction
Industry Development Board (CIDB) web-based database list of contractors’
companies to enquire about their opinions, issues they overcame and strategies they
followed to ensure success of their projects in the Middle Eastern countries by
responding to the questionnaire.

Face-to-face discussions about the issues mentioned in the questionnaire took

place to determine other issues that are not mentioned in the questionnaire which
would enhance the quality of the data and the research overall.

7
1.6.3 Data analysis

The collected data will be studied, and analyzed using SPSS based on the
issues. Data will be analyze and performed in tables and graphs for easy reference.

1.6.4 conclusion and recommendations

Shows the findings and conclusion for this study. Recommendations are, also,
suggested for contractors working or willing to work in Saudi Arabia or United Arab
Emirates, to enhance the level of understanding of the construction/contractual issues
faced by Malaysian contractor using FIDIC in the Middle East generally and Saudi
Arabia or United Arab Emirates specifically.

8
 Development of research proposal

Common Contractual Issues faced by Malaysian

contractors operating in Middle East using FIDIC form
of contracts

Literature Review

Extensive literature review is

carried out, using books, articles
web sites and e-journals to:
1) Identify the problem
2) determine aims and objectives

Objectives

1) To identify and categorise the 3) To determine key legal issues

2) To analyze the causes of issues in
issues arising from the use of FIDIC arising from working in UAE and
relation to legal systems, language
according to the frequency of
and application of FIDIC. Saudi Arabia.
occurrence.

Data Collection

Collection of data Research Design

Data Analysis

The collected data will be

studied, and analysed using SPSS
based on the issues. Data will be
analyse and performed in tables
and graphs for easy reference.

Conclusion and
Recommendations

 Achieve the objectives

 Limitations
 Recommendations

FIGURE 1: RESEARCH METHODOLOGY

9
 CHAPTER 2

2 LITERATURE REVIEW

2.1 Introduction

This chapter represents the literature review done for this study. It is divided into five
section. First section, reviews the background of FIDIC and its different books
covering only four of them i.e. red, yellow, silver and green. Seconnd section,
reviews language and the issues related to it. 3rd section, represent the overview of
the governing law related issues with brief explanation about different legal systems
(including comparison between them) and how engineers, contractors and lawyers
from civil and/or Shariah law background perceive FIDIC Standard forms. The
forms are not only written in formal legal English, they are also obviously drafted
with a common law background in mind which will typically affect the interpretation
of the conditions. 4th Section, Discusses some issues of which it is practiced
differently in KSA and UAE according to those countries procurement act and other
government legislations when the countries' law is the chosen law to govern the
contract. 5th Section, encompasses the construction industry in the Middle East with
Saudi Arabia and UAE in focus.

10
2.2 Fédération Internationale des Ingénieurs-Conseils (FIDIC)

Also referred to as the International Federation of Consulting Engineers, It

was formed in 1913, with the objective of promoting the interests of consulting
engineering firms globally. It is best known for its range of standard conditions of
contract for the construction, plant and design industries. The FIDIC forms are the
most widely used forms of contract internationally, including by the World Bank for
its projects.

FIDIC contract, as well as any other contract is a legally binding agreement

between parties, generally, the Employer and the Contractor. It controls the
relationship of both parties and includes a bundle of documents. The contract
documents, basically, include details of construction works offered by the contractor,
and the payment to be made by the employer to the contractor. The contract, also
include conditions which lay down (in details) the responsibilities and obligations of
both parties. In case of unexpected dispute or conflict arises, which often results in
delays and additional costs, the conditions of the contract determine which of the
parties must bear the consequences.

General and Particular condition

The FIDIC general conditions, containing 20 clauses and 160 sub-clauses, are
the standard document which must be included, unchanged, in every contract. Any
changes or additional obligation required by the employer can be included in the
particular conditions. Any changes must be kept a minimum, must not disturb the
balance between the employer and the contractor and must be carefully checked to
ensure that there is no conflict with any other clause. The guidance (prepared and
provided by FIDIC and is attached to all forms) is very important, extremely
valuable and it should be studied carefully because it suggests the wordings for
clauses to be included in the particular conditions, in order to avoid conflicts between
clauses in the general and particular conditions.

11
 In 1999, FIDIC has published its latest edition of conditions of contract in
new style and layout to suite the diversity of different legal systems, procurement
system, and construction works procedures due to the size and complexity of the
project. The totally new set of standard forms of contract comprises the following
four contract forms:

2.2.1 The Red Book:

Construction Contract (Conditions of Contract for Building and Engineering

Works, Designed by the Employer) – General Conditions, Guidance for the
Preparation of the Particular Conditions, Forms of Tender, Contract Agreement, and
Dispute Adjudication Agreement.

Recommended for building or engineering works designed by the Employer

or by his representative, the Engineer. Under the usual arrangements for this type of
contract, the Contractor constructs the works in accordance with a design provided
by the Employer through the Engineer appointed by him. However, the works may
include some elements of Contractor designed civil, mechanical, electrical and/or
construction works.

2.2.2 The Yellow Book:

Design and Build Contract (Conditions of Contract for Electrical and

Mechanical Plant, and for Building and Engineering Works, Designed by the
Contractor) – General Conditions, Guidance for the Preparation of the Particular

12
Conditions, Forms of Tender, Contract Agreement and Dispute Adjudication
Agreement.

Recommended for the provision of electrical and / or mechanical plant, and

for the design and execution of building or engineering works. Under the usual
arrangements for this type of contract, the Contractor designs and provides, in
accordance with the Employer’s requirements, plant and / or other works; which may
include any combination of civil, mechanical, electrical and/or construction works.
The engineer is involved to perform traditional administration and certifying roles as
in the red book.

2.2.3 The Silver Book:

The EPC and Turnkey Contract (Conditions of Contract for EPC Turnkey Projects) –
General Conditions, Guidance for the Preparation of the Particular Conditions,
Forms of Tender, Contract Agreement and Dispute Adjudication Agreement.

Suitable for the provision on a turnkey basis of a process or power plant, of a factory
or similar facility, or of an infrastructure project or other type of development, where
(i) a higher degree of certainty of final price and time is required, and (ii) the
Contractor takes total responsibility for the design and execution of the project, with
little involvement of the Employer. Under the usual arrangements for turnkey
projects, the Contractor carries out all the engineering, procurement and construction
(EPC): providing a fully equipped facility, ready for operation at the “turn of the
key”. There is no engineer in the Silver Book, although the employer can (and often
does) appoint a representative in order to advise him on claims; and to facilitate
communications with the contractor.

13
2.2.4 The Green Book:

The Short Form of Contract – Agreement, General Conditions, Rules for

Adjudication and Notes for Guidance.

Recommended for building or engineering works of relatively small capital

value. Depending on the type of work and the circumstances, this form may also be
suitable for contracts of greater value, particularly for a relatively simple or repetitive
work or work of short duration. Under the usual arrangements for this type of
contract, the Contractor constructs the works in accordance with a design provided
by the Employer or by his representative, but this form may also be suitable for a
contract which includes, or wholly compromises, contractor designed, civil,
mechanical, electrical and / or construction works.

The old set is divided into the ‘Red’ and ‘Yellow’ forms on the basis of the type of
the project to be constructed. The new forms are divided on the basis of who designs
the project. Whilst the 1999 Red, Yellow and Silver books are similar in many areas,
they are in fact three separate and distinct forms of contract, which my study will
focus on them variably.

14
2.3 Issues

Parties to international projects are also concerned with the clarity of local
laws and the interpretation of the contracts in the same jurisdiction.

2.3.1 Interpretation, ambiguity and Language related Issues

Frequently disputes in the construction industry are generated as results from

disagreement or a differing opinion of the parties as to the correct interpretation of a
particular contract term or clause and its subsequent context in respect of the overall
contract, especially between parties coming from different jurisdictions speaking
different languages.5

The fact that the contract language will solely govern the parties will make it
more convenient to be interpreted differently by different people looking at the same
contract because we all look at the world through our specific culture and historic
perspective. Thus, FIDIC 1999 suite introduces a uniformed “international language”
to be greeted favourably.

However, there are still linguistic issues which can confidently be predicted
to cause problem to many contracts, whichever version of the suite to be used. For
example, “Act of prevention” might mean to some people, the act which has or can
prevent (something), but under the English law it has a specific meaning, “equating
to an act or omission, or series of acts or omissions by the employer or attributable
to him, which have the effect of preventing the contractor from completing the
project within the contractually specified time for completion”. 6 For that reason, the
FIDIC contract can be subjected to any law yet the English law has to be examined

5
Powel-Smith, V. (1989). Some Building Contract Problems, BSP professional books, London.
6
Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1971) 69 L.G.R 1 (English C.A)

15
properly to construe the phrases in the contract by deriving their legal definition from
the English law.7

Until now FIDIC forms of contract have been almost exclusively discussed
in the English language. The main and most important source for commentaries on
FIDIC Conditions is still The International Construction Law Review. English
speaking authors, e.g. engineers and lawyers, still have the greatest authority on the
construction of FIDIC Conditions based on English law. On the other hand, there is
an increasing need for translations of the FIDIC Conditions. The reasons are that
state authorities and courts often refuse to use a foreign language contract (for
example Arabic in Saudi Arabia) and that sometimes English is either simply not
welcome or not even spoken.

FIDIC Conditions will soon be translated in other languages, for parties to a

contract come from countries where a language other than the English language is
used, or when the English language is not appropriate because the applicable law of
the contract is not from a common law jurisdiction. Unfortunately we know that
different language versions of one legal text can lead to different interpretations.

Even though, the ruling language of the contract is defined in the appendix
to tender or not, ambiguity in the FIDIC contract’s particular and special conditions
as well as the contract documents will occur in the consideration of untranslated
documentation where common language translations are not provided.

Often in international construction projects, some of the documents

produced during the running of a project are in a different language to the language
of the contract; and that many of the employees involved in the project may
communicate in a language other than the official language of the contract. It is of
some benefit to the parties if the member is sufficiently fluent in the languages
involved in the project in order that he may remain fully conversant with all the

7
Knutson, R. (2005). FIDIC: An Analysis Of International Construction Contracts, Kluwer Law, Netherland.

16
activities of the works;8 or obtains expert local law advice prior to entering into
contracts in the Middle East

According to FIDIC news letter on March 2013, Arabic Translation of FIDIC

task group has finalised the update of the Short Form of FIDIC Contract 1999 (the
Green Book) and the Client/Consultant Model Services Agreement 2006 (the White
book). Special care has been applied to ensure it is compatible for international use.
9

Thus the federartion has not yet published its own translations of the FIDIC
Red and Yellow and silver Books in Arabic. For FIDIC especially the availability of
Arabic and other languages translations of the 1999 FIDIC works contracts is a key
issue. In order to avoid misunderstandings arising from translations it might therefore
be interesting to disclose some of the problems of a translator of FIDIC Conditions.

The official translation of FIDIC to Arabic will resolve issues addressed to

translation. i.e. In many Middle Eastern countries, the distinction between liquidated
damages and penalties is a matter of translation (there is no Arabic word for
'liquidated damages') and 'penalties' are construed as if they were liquidated
10
damages; and ease the operation of sufficient contract management in countries
like Saudi Arabia where the Arabic translation is the governing document, even if the
parties write their contracts in any language they choose, if a dispute arises, the
Arabic translation of the document will be the only version that will be considered by
a Saudi Arabian court. 11

8
Owen, G. (2003, June). THE WORKING OF THE DISPUTEADJUDICATION BOARD (DAB) UNDER
NEW FIDIC 1999 (NEW RED BOOK). www.gwynowen.com. Retrieved Febrauary 11, 2014, from
http://www.gwynowen.com/DAB.pdf.
9
Arabic Translation of FIDIC Contracts Available. (2014). Retrieved February 6, 2014, from
http://fidic.org/node/1716#activities3
10
Thomas, R. (2001). Construction Contract Claims 2nd edition, Palgrave, New York.
11
Husein, Amgad T. (2013, July). Construction and projects in Saudi Arabia:
overview. Retrieved January 11, 2014, from http://uk.practicallaw.com/resource/2-534-0319

17
2.3.2 Choice of Law related Issues

The FIDIC suite of contracts, as is well known, was originally derived from
the English ICE fourth edition of engineering contract, which was conceived and
developed for many years in the English common law context of the early 20 th
century

The question which would naturally arises – what happen when FIDIC is
taken out of the English context and subjected to different national law?

As aforementioned, Common law is the basis of FIDIC, often favourable

and chosen law for FIDIC forms. However, some other law(s) may be chosen, The
law which governs a contract between certain parties and by which questions as to
the validity, application and interpretation of its terms are addressed, is referred to as
the ‘applicable law of the contract’. In some jurisdictions, the terms ‘proper law of
the contract’ or ‘governing law of the contract’ are used instead.

Therefore, the FIDIC suite 1999 requires the parties to state the governing
law in the appendix. Which could be the law under which the parties’ rights and
obligations are determined may be one of many. It could be the law of the country
where the contract is made or where the project is constructed; the law of the
domicile of one of the parties to the contract; the law of the state where a significant
part of the contract works are manufactured; the law of the country where the
contract is financed or simply the law which the parties regard as well-suited to
govern the particular contractual relationship.

Conflicts and arguments always arise between parties to the contract either
the governing law is stated in the contract or not. When not stated or there is no
certainty the argument will be about the law which is applicable. In that case, it
would have to be selected in accordance with the principles of law known as ‘private
international law’ or ‘the conflict of laws’. This is a body of principles which

18
attempts to provide answers as to which law is the most suitable to implement and
which forum is right dispute resolution with an international aspect.12 and when
stated the clarity of the chosen law will be questioned. A whole host of complex
issues could arise especially, when the governing law of the contract is different from
the procedural law.13

The law of the contract

This is the law which governs the interpretation and construction of the
contractual provisions and how they are to be applied. It is important to establish any
hindrance to foreign laws which cannot be enforced in the county in which the
contract is made.

The procedural law

This is a law which governs the litigation, arbitration or dispute adjudication

board (DAB) and is normally the law of the county in which the proceedings will
take place. It is not necessarily the same as the law of the contract.

14
In general, the choice of law specified in the contract will be upheld unless:

 it is contrary to public policy of the place where the proceedings are

held;
 the choice is not exercised for legal reasons;
 when the case of Bouissevan v. Weil (1948) 1KB 482 applies, where
Lord Denning LG held:
' I do not believe the parties are free to stipulate by what Law the
validity of their contract is to be determined. Their intention is only
one of the factors to be taken into account.'

12
Bunni, Nael G.(2005). The FIDIC forms of contract, 3rd edition, Blackwell, UK.
13
Knutson, R. (2005). FIDIC: An Analysis Of International Construction Contracts, Kluwer Law, Netherland.
14
Thomas, R. (2001). Construction Contract Claims 2nd edition, Palgrave, New York.

19
 The need to co-ordinate the contract with the applicable law is particularly
important in the Middle Eastern countries, especially United Arab Emirates (Civil
law) and Saudi Arabia (Shariah law) which are making extensive use of the FIDIC
contracts, generally have detailed laws that govern all the construction in that
country, the full list of requirements varies from one country to another, but some
typical examples are:
 the need for the design to be approved before construction can start
on site, which causes additional problems with the use of design and
build contracts;
 the power to give the contractor possession of the site may lie with
the authority rather than the employer;
 the need for the contractor to keep a ‘site diary’ – this is a legal
document in which any authorized person or authority can make an
entry;
 certain authorities may have the power to issue instruction to the
contractor, and that causes conflict with the FIDIC procedure under
which only the Engineer can issue instruction to the contractor;
 legal restrictions on the power of any non-government employee to
authorize instructions and payment to the contractor for a
government-financed contract, which may also affect the variations
and the measurement of quantities.

Therefore, these sort of details must be thought of during the preparation of

the FIDIC particular conditions and included using the guidance prepared by FIDIC.

The following in this research, tends to create awareness about the significant
differences in law in various parts of the world. There are three main categories of
law:

20
2.3.2.1 Common law

The common law system was originated in England, mainly characterized by

15
the decisions developed by judges through courts and similar tribunals. The judges
appointed by the Crown. It is therefore judge-made law, sometimes referred to as
case law.

In Mason v. United States, 136 U.S. 581 (1890), Chief Justice Hannah of the
Supreme Court of Arkansas wrote:
"The common law is judicially created law that is developed on a case by
case basis,"

Common law is a future binding decisions. For instance, when the parties
encounter conflicts on what the law is, a common law court refers to previous case
law decisions of relevant courts. If a similar case has been resolved in the past, the
court is usually bound to justifiably follow the reasoning used in the prior case. If,
however, the court finds that the current dispute is fundamentally distinct from all
previous cases, judges have the authority and duty to make law by creating
precedent. Thereafter, the new decision becomes precedent, and will bind future
courts.

This type of legal system is found generally in English-speaking countries or

Commonwealth countries. In other words, majority of the countries that has been
colonised by Great Britain for sometimes use common law, Such as Malaysia, U.S.A
states (except Louisiana), Canada (except Quebec), Australia, Kenya, New Zealand,
South Africa, India, Myanmar, Bangladesh, Brunei, Pakistan, Singapore, and Hong
Kong.

15
Common law. (2014). Retrieved February 26, 2014, from
http://en.wikipedia.org/wiki/Common_law#cite_note-1

21
 Sources of common law:

a) judicial decisions,

As explained earlier they are recognised as precedents in the common law;

b) equity,

Equity is the set of legal principles that supplement strict rules of law where
their application would operate harshly. it mitigate the rigid of common law by
allowing courts to use their discretion and apply justice in accordance with natural
law fairness. common law regards penalties as inequitable, it will not therefore be
bound by a description, such as ‘liquidated damages’, if in truth the sum specified is
a penalty. Although equitable remedies are discretionary and are viewed as an
expression of fairness, the rule of precedent does apply nowadays to matters of
equity. ;

c) legislation or statute law,

The third most important source of law is legislation. Besides developing the
law in a certain area, legislation has an important role in altering an existing
inconsistent legal rule or restating a legal principle which had been developed
through precedent in the courts. In doing so, legislation can overrule common law.
Legislation is divided into two forms: primary and subordinate. Primary legislation
are those Acts issued by Parliament, sometimes called a statutes. Subordinate
legislation refers to rules, regulations or bylaws and are matters of detail relevant to a
parent Act.

22
2.3.2.2 Civil law

The civil law was established with reference to a community of culture and
endeavour by various universities. This work was led by the Universities in Europe
such as Montpellier and Toulouse in France where law was considered as a means
for bringing about social organisation and justice. A number of law books were
written at that time by famous authors. The legal writing and work done by the
universities gave way to enacted law and thus a change evolved from compilation of
the law to its codification, fusing the theoretical and practical aspects of the law of
the time.

Codification became a success in France after the release of The French Code
of 1804 which established the newly adopted ideas of justice, freedom and dignity of
the individual. The codification is the most prevalent feature, core principles in the
law system and serves as the primary source of law. It was adopted later by the
French former colonies. Several countries have developed their own Civil Codes
using the French Civil Codes as a model.

In the Middle East, Egypt was the first country to accept a codified legal
system based on the French Codes. Although, many parts of the Egyptian Civil Code
are similar to the French Civil Code, the Egyptian Civil Code, expressly recognised
Shari’a as a source of law (Article 1(2)). The influence of Shari’a distinguishes the
Arab civil codes from other civil codes in the West. The Egyptian draftsman of the
Codes also drafted the Kuwait Civil Codes and, whilst there have been changes from
the original French versions in both adaptations, in many respects Egyptian and
Kuwaiti law follows French law. United Arab Emirates and Qatar joined the trend
afterwards.16

16
Thomas, R. (2001). Construction Contract Claims 2nd edition, Palgrave, New York.

23
 Sources of civil law:

a) Legislation

Nearly all the countries within the civil law group have written constitutions
alongside their codes. The written constitution is held at the highest point of
authority. All legislation is subordinate to the constitution, where it exists.
A statute, on the one hand, is intended to be an expression of the intention of the
legislature; and to be a guide in determining what the law is within its field.

b) Creative role of judge

The judge has the widest power of logical interpretation of the codified law.
Thus, written reasons must be included in the judgments. Two styles of formulating
the decision exist in the civil law countries: the first is the French style which is very
concise and formulated on the basis of a series of conclusions, one following the
other. The second style is practised in other countries and is based on a dissertation
which sometimes includes references to previous decisions and legal doctrine.

2.3.2.3 Differences between common law and civil law

The codes, in the civil law, does not attempt to provide rules that are
immediately applicable to every conceivable concrete case, but rather an organised
system of general rules from which a solution for any given problem may be easily
deduced by as simple a process as possible. Unlike the common law, the rule must be
general enough to cover a series of cases rather than merely apply to some particular
situation as does a judicial decision. Judicial decision is not used as a precedent for
another in civil law jurisdictions. In fact, most codes prohibit judges from laying
down general and regulatory rules, as provided, for example, in Article 5 of the
French Code Civil. Therefore, there are fewer actual rules of law the civil law than in
the common law.

24
 Accordingly, where construction contracts are concerned, it is generally
surprising to a practitioner from the civil law group of countries to find that general
conditions of contract, like those in the Fourth Edition of the Red Book, are in such
detail. For example, he would be surprised to find that, despite the fact that clause 5
does specify the applicable law of the contract, the conditions continue to specify the
rights and obligations of the parties, which is in effect a repetition of the provisions
of the specified law.

Examples of significant differences between some of the Civil laws and

common law are:

TABLE 2. 1: SOME OF THE TERMINOLOGIES' DIFFERENCES BETWEEN COMMON LAW

AND CIVIL LAW
Terms Common Law
Termination
Quantum Meruit An equivalent remedy to
damages in tort for
economic loss is generally
available. Serious
complications can arise if
a contract is terminated
other than by mutual
consent, by court order or
at law.
Civil Law
regardless of the
contractual
provisions, it is not
possible to terminate a
contract without obtaining
an Order from the courts.
Is NOT recognised. The
contract price must be
agreed or determined by
an agreed method. In
contrast, the Kuwaiti
Commercial and Civil
Code contains the
following provisions: 'If
no consideration is
mentioned in the contract,
the Contractor shall be
entitled to be paid at the
prevailing rate for similar

25
Terms Common Law
Consideration Is an essential element of a Does not require
contract (with certain
exceptions).
Time for acceptance of an offer can be withdrawn
offers at any time before
acceptance
Letters of intent Is a statement to the effect
that the employer intended
to enter into a contract at
some later stage and the
letter imposed no
obligations on the
Construction Contract
Claims
Liquidated damages and A penalty clause cannot be Recognises penalty
penalties enforced. parties are free
to commercially agree
rates of liquidated
damages and the courts
will enforce whatever is
agreed provided that it is
loosely a genuine pre-
estimate of the loss
Civil Law
work at the date of
conclusion of the contract'
consideration as an
essential element of a
contract. A contract can be
made without any
consideration.
Offers are kept open for a
specified period and
cannot be withdrawn
before the period has
expired. Obligations of
honesty and good faith are
recognised
Is an 'Agreement in
Principle'. All of the terms
may not have been agreed
but the principle of an
agreement has. The parties
are required to negotiate in
good faith and conclude a
contract in due course.
clauses
and they can be enforced.
Sometimes the law
includes the powers given
to the Court to modify a
penalty if the amount shall
be considered
Excessive or derisory, so
26
Terms Common Law Civil Law
suffered. as to accurately reflect the
true extent of any loss or
harm suffered.
Good Faith doubtful legal meaning it is an important codified
principle in Middle
Eastern civil codes and
courts have the power
(which they frequently
use) to prohibit conduct
they consider falls short of
the standards imposed by
this far-reaching principle
of law.

2.3.2.4 Shariah law

Sharia law or Islamic law. drawn from the Holy Qur'an (the divine revelation
to the Prophet Mohammed) and the Sunnah (a record of the sayings and actions of
the Prophet Mohammed), laying down both secular and religious aspects for all
Muslims to abide. The term Sharia means "the way" or " the path"; it is the religion
that governs the way of life - including specific details such as private and public
hygiene-; that regulated ethics the legal framework within which the public and some
private aspects of life are regulated for those living in a legal system based on Islam.

Unlike the civil and common laws which are always evolving through
legislation and case law respectively, There is no a strictly codified uniform set of
laws that can be called Sharia. neither there is Shariah case law reports as precedents.
Hence, the processes for reaching a judgment in any specific matter are driven by
methodologies distinct from those understood in civil code jurisdictions.

27
 In regards to construction contracts under the shari’a law principles, it is very
important to understand two very complex and related equitable doctrines at the very
heart of Islamic law, Riba and Gharar.17

Riba (unjust enrichment)

Riba means interest, usury, illicit gain or unjustified profit and enrichment.
The Shari’ah allows for transactions where both counter-values are transacted at the
time of the dealing or one counter-value now and one in the future, however, not
both counter-values in the future as this creates gharar (uncertainty) about the
fulfillment of the contract. However, this is allowed where the benefit outweighs the
harm. Since in interest financing, one counter-value is certain, the interest on the
loan, and one counter-value is uncertain, the yield from investing the loan by the
creditor, interest-finance is in fact an extreme case of gharar (uncertainty) and is
prohibited under the Shari’ah as the harm outweighs the benefit. There is also a
warning in the Qur’an in the following terms:

"O you who have believed, fear Allah and give up what remains [due to you] of
interest, if you should be believers.2.278 And if you do not, then be informed of a war
[against you] from Allah and His Messenger. But if you repent, you may have your
principal - [thus] you do no wrong, nor are you wronged.2.279 And if someone is in
hardship, then [let there be] postponement until [a time of] ease. But if you give
[from your right as] charity, then it is better for you, if you only knew.2.280"

Gharar (uncertainty, risk, speculation)

Derived from the Arabic verb of gharra, which means to deceive. The basic
fundamental of gharar (uncertainty) is pure speculation where the outcome depends
on chance or gambling, uncertain outcome where the counter-value is uncertain or

17
Paldi, C. (2013, June). Understanding Riba (Interest) and Gharar (Uncertainty) in Islamic Finance.
http://www.academia.edu. Retrieved on March 06, 2014, from
http://www.academia.edu/2468903/Understanding_Riba_Interest_and_Gharar_Uncertainty_in_Islami
c_Finance_Presented_at_the_2013_International_Symposium_for_Business_and_Management_in_Ki
takyushu_Japan_

28
not realized, inexactitude of object, and unknown future of object. Therefore, all
transactions be devoid of Gharar. Gharar can be related to risks arising from lack of
knowledge about the contract (object, price, time of delivery), uncertainty about the
existence and delivery of the object, and /or uncertainty of the outcome. Commercial
insurance is given as an example of this, since either the insured pays a premium and
receives no counter-value, or the insurer pays out much more on a claim than was
received by way of premium. as apparent in many verses of the Qur’an, some of
which were interpreted to imply gharar. One of the verses is quoted as follows:

“O you who have believed, do not consume one another's wealth unjustly but only
[in lawful] business by mutual consent. And do not kill yourselves [or one another].
Indeed, Allah is to you ever Merciful. 4:29”
“And do not consume one another's wealth unjustly or send it [in bribery] to the
rulers in order that [they might aid] you [to] consume a portion of the wealth of the
people in sin, while you know [it is unlawful]. 2.188”

Shamil Bank of Bahrain v Beximco Pharmaceuticals Limited and Others 18

it involved a Murabaha Agreement (styled as Shari’ah-compliant). S (Shamil)

claimed against B (Beximo), as principal debtors in respect of monies advanced to
them by S under various Islamic financing agreements and as guarantors of some of
those agreements. there was a payment default by the B, arguing that they sought to
avoid their enforcement on the ground that the agreements were for interest-bearing
loans, and therefore invalid under Shari’ah, which categorically prohibits the
payment and collection of interest. This argument might have been successful had
Shari’ah applied. The Agreement contained the following wording regarding the
choice of law – “Subject to the principles of Glorious Shariah, this agreement shall
be governed by and constructed in accordance with the laws of England.” Thus, the
agreements would be governed by and construed in accordance with the laws of
England to determine any dispute as to the nature or application of such controversial
religious principles.

18
[2004] 2 Lloyd's Rep 1

29
 The judge held that "English law was the governing law because there could
not be two separate systems of law governing the contracts." The words used were
intended to reflect the Islamic religious principles according to which S held itself
out as doing business according to Islamic principles, rather than a system of law, At
English common law and under the Contracts (Applicable Law) Act 1990, the
“proper” law of a contract is English law or the law of another country, and not a
“non-national system of law, such as lex mercatoria, or ‘general principles of law’, or
the law of Sharia’a[h]" Principles of Sharia, it was pointed out, are not simply
principles of law but relate to other aspects of life and behaviour and, in any event,
are susceptible to differing interpretation depending upon the strictness with which
they are interpreted or applied.
Furthermore, it was said that it was highly unlikely that the parties had
intended that English Court should determine any dispute as to the nature or
application of religious principles. English Courts, in other words, determine disputes
on the basis of English law (although there may be occasions where they also accept
expert evidence of foreign law, this will be the law of a country and not religious
law).

2.3.3 Contractual Claims and Disputes

Some view claims as they are the symptoms of a problem that arouse the
emotions of the employer along with his professional advisers, and as ploys indulged
by unscrupulous contractors. It is mooted that some contractors price their tenders
low deliberately so as to secure the work, with the intention of making good their
losses and making a profit by way of claims. This could be true in some situation but
it is not the general case because it is incredibly risky, the opportunity of making
such claims are unpredictable unless the contract administrator (Architect or
Engineer) is incompetent. Whilst others view them as a defence mechanism against
shortcomings (real or imagined) of the employer and his (inhuman) professional

30
advisers i.e. Architects, Engineers and Quantity Surveyors, or fate in the shape of
unexpected circumstances. This view is as untrue as the previous view. 19

Claims always occur in construction during and/or after the projects. Very
difficult to avoid, particularize or quantify. Claims became an accepted norm rather
than exception, causing budgetary difficulties and financial embarrassment to the
employers. They cause cash-flow restriction, loss of liquidity or even worse to the
contractors. It is simply as defined in the oxford dictionary of law "demand for a
remedy or assertion of a right" under the terms of a contract or under law. Usually,
comes down to either a right to additional time to complete the work or to additional
payment and very often a combination of both. Possibly, developing to a long and
drown-out affair (dispute) involving many people and parties with varying degrees of
skills and experience in such matters. 20
Claims can arise from the unanticipated site conditions; late approval by
authorities; change in the statutory requirements; site possession; lack of information
in the contract documents specially drawings necessary for the construction work
being continually amended and many discrepancies found; problems in possessing
specific materials; late delivery of employer's supplied materials; suspension of all or
part of the work; change in the program and sequence; late or inconsistent decision
by contract administrator; disagreement of measures of quantities; large changes in
quantities; variation and extra works; late payment; delays caused by weather
conditions; requirements to accelerate; and interpretation of contractual provisions. 21

The provision of claims in the FIDIC contracts is arguably the most important
part of the contract and the most frequently used clauses. 22 The FIDIC conditions
include provisions for the submission, consideration and resolution of claims and
disputes in different clauses. Whilst clause 20 is titled ‘Claims, Disputes and
Arbitration’, there are also many clauses the provide procedures to be followed and
complied with by the Employers, Contractors and the Engineer for the submission
19
Hughes, G. A. (1983). building and civil engineering claims in perspective, Construction Press,
London and New York.
20
Hewitt, A. (2011). Construction Claims and Responses effective writing and presentation. Wiley-
Blackwell , London.
21
Rajoo, S. & Singh. H. K. S. (2011). Construction Law in Malaysia. Sweet & Maxwell Asia,
Malaysia.
22
Totterdill, B. W. (2006). FIDIC users’ guide a practical guide to 1999 red and yellow books.
Thomas Telford, London.

31
and responses to claims. It is important to co-ordinate between different clauses and
list those clauses which include similar procedures.

Following is a full listing of clauses of the contract that entitles the contractor
to make a claim:

TABLE 2. 2: CONTRACTORS CLAIMS.

Sub-Clause Title Money Time
1.9 Delayed Drawings or Instruction x x
2.1 Right of Access to the Site x x
4.7 Setting out (errors) x x
4.12 Unforeseen Physical Conditions x(c) x
4.24 Fossils x(c) x
7.4 Testing x x
8.4 Extension of Time for Completion - x
8.5 Delay Caused by Authority - x
8.9 Consequences of Suspension x(c) x
10.2 Taking Over of Part of Works x -
10.3 Interference with Tests on Completion x x
11.8 Contractor to Search x x
12.4 Omissions (by Variation) x(c) -
13.2 Value Engineering x -
13.7 Changes in Legislation x(c) x
14.8 Delayed Payment x(c) -
16.1 Contractor’s Entitlement to Suspend x x
16.4 Payment on Termination x -
17.1 Indemnities (by Employer) x(c) -
17.4 Consequences of Employer’s Risks x x
18.1 General Requirement for Insurance (if x(c) -

32
Sub-Clause Title Money Time
supplied by Employer)
19.4 Consequences of Force Majeure x x
19.6 Optional Payment Termination x -
20.1 Contractor’s Claims (Procedural) x x

NOTE: in most cases Contractor claim cost and reasonable profit. However, in
some cases he can only claim ‘cost’, those are marked (c).

For completeness, a listing of clauses entitling the Employer to make a claim

is provided in the table below:

TABLE 2. 3: EMPLOYERS CLAIMS

Sub-Clause Title
4.18 Electricity, Water, Gas (if stated in the contract)
4.19 Employer’s equipment and Free-Issue Material
7.5 Rejection (Defective Plant and Materials)
7.6 Remedial Work (Contractor fails to carry out)
8.6 Rate of Progress (Contractor adopts revised methods that causes
Employer additional cost)
8.7 Delay Damages (Contractor fails to complete on time)
9.4 Failure to pass tests on completion (only if Employer incurs
additional costs)
11.4 Failure to rectify defects (Contractor fails to rectify)
13.7 Adjustment for changes in legislations
15.3 Valuation at Date of Termination (Contractor property valued by
Employer at Termination)
15.4 Payment after Termination (Employer may claim losses and Damage
after Termination)
17.1 Indemnities (Employer claims costs of events for which he is

33
Sub-Clause Title
indemnified by contractor)
18.1 General requirements for insurances (Employer makes claim if the
Contractor fails to insure)
18.2 Insurance for works and Contractor’s Equipment (Employer can
claim refund if Contractor is unable to insure in accordance with
Contract)

Notice of Claims in UAE

Sometimes, the Procedure of claims should be amended to suite the project

requirement and the applicable law of the contract but these amendments are based
on the provisions of the applicable law. For example notice of claim in Sub Clause
20.1 which provides:

“If the Contractor considers himself to be entitled to any extension of the

Time for Completion and/or any addition payment, under any Clause of these
Conditions or otherwise in connection with the Contract, the Contractor shall give
notice to the Engineer, describing the event or circumstance giving rise to the claim.
The notice shall be given as soon as practicable, and not later than 28 days after the
Contractor became aware, or should have become aware, of the event or
circumstance.

If the Contractor fails to give notice of a claim within such period of 28 days,
the Time for Completion shall not be extended, the Contractor shall not be entitled to
additional payment, and the Employer shall be discharged from all liability in
connection with the claim. Otherwise, the following provisions of this Sub-Clause
shall apply.”

34
 In UAE Civil Code, Sub Clause 20.1 is void and not enforceable.
Construction contracts governed by UAE law which is subject to the UAE Civil
Code, whereby all the contract terms should not contradict with any mandatory term
in this code or other public policies. Article 473 of the Civil Code states that “A right
shall not expire by the passage of time but no claim shall be heard if denied after the
lapse of fifteen years without lawful excuse, but having regard to any special
provisions relating thereto”. This article is a binding provision in the Civil Code.
The law clearly mentions the time bar for any civil claim is 15 years therefore; the
right cannot be barred before this period, unless it’s mentioned otherwise in a
specific provision in other related law. As sub clause 20.1 is a conditional term in
construction contracts it should not oppose the civil law under any circumstances. 23

Dispute Resolution in Saudi Arabia

Until last year, for public sector projects, FIDIC’s clause 20, which provides
for dispute resolution through a Dispute Adjudication Board (DAB), and then
through a binding arbitration under the rules of arbitration of the International
Chamber of Commerce (ICC Arbitration), presented a problem being contrary to
Saudi Law. Public sector Employers were obliged to refer disputes to a body known
as Board Of Grievances (BOG). It is a separate and independent body from the
Sharia’ Court, which sits a panel of three judges, and the decision of this panel
cannot be challenged or appealed unless to the King directly. 24

The latest dispute resolution for those considering legal remedies in Saudi
Arabia for their international contractual dispute is arbitration, avoiding any issues as
to lack of expertise or speed in the local courts. Arbitration in Saudi Arabia has in
fact taken a significant step forward with the launch, last year, of its new Arbitration
Law. Broadly in line with the UNCITRAL Model Law, it brings Saudi Arabia into

23
AlJallaf, E. (2013). The Enforceability of FIDIC Sub Clause 20.1: Contractor’s Claims in the
Legal Systems (Common Law and UAE Federal Law). www.uaesocietyofengineers.com. Retrieved
April 1, 2014, from
http://www.uaesocietyofengineers.com/(S(4e4xxlugryg33wzkgkrlllqe))/magazineCurrentIssuemore.as
px?id=122
24
Knutson, R. (2005). FIDIC: An Analysis Of International Construction Contracts, Kluwer Law, Netherland

35
line with other countries in the region. Saudi Arabia is also a signatory to the New
York, ICSID, Riyadh and GCC (Gulf Cooperation Council) Conventions. 25

But the new Arbitration Law, and the enforcement regulations enacted earlier
this year, do not change is the fact that an award, or part of it, which conflicts with
Shari’a law26, will not be enforced in the Kingdom. Interpreting Shari’a principles to
suit today’s commercial world and its desire for predictability and certainty is a
challenge for Saudi Arabia. It is also a reason for potential investors to be mindful of
a different legal landscape in a country which, at the same time, offers huge
opportunities.

2.3.4 Variation

Due to the inherent nature of construction, the precise scope of work the
needs to be executed by the contractor may not be capable of being ascertained prior
to the award of the contract and therefore no provision is included in the contract
concerned. there may be a further necessity for extra or different type of work to be
undertaken by the contractor during the construction. Most of the times, the designer
27
or contract administrator is the initiator of such changes. To avoid disputes, a
viable and mutually acceptable option would be to agree on a contractual mechanism
that allows both parties to practice their rights to changes the scope of work
reasonably following the procedure provided in the mechanism normally called
“Variation”.

Sub-clause 1.1.6.9 in FIDIC defines “Variation” means any change to the

works, which is instructed or approved as a variation order. This may consist of
additional or less work, a change in specification of part of the work, or in some
cases changes in the contractual basis of the project such as contract price or period.
25
Brown, M. (2013). Saudi Arabia. Construction & Engineering London Legal Update. Construction
& Engineering Group. 65, 10-11.
26
See sub-heading 2.2.2.3
27
Rajoo, S. & Singh. H. K. S. (2011). Construction Law in Malaysia. Sweet & Maxwell Asia,
Malaysia.

36
In FIDIC contracts, the employer is permitted to make such changes and this is
usually administered by his appointed agents such as the engineer whom can
contemplate variation, under the FIDIC sub-clause 13.1 “Right to Vary”, by
following the variation procedure in sub-clause 13.3.; or instruct variation.

In reality, variation is often instructed; contractor rarely receives a request to

submit a proposal but rather receives instructions issued in a form letter, response to
request for information, revised drawings or even verbal instruction. In many cases
the instruction, however it is issued, will not acknowledge the fact that it comprises
28
variation to the works. In this case, Sub-Clause 3.3 must be referred to. For
contractor to ensure he is compensated properly for what he considers he has
entitlement for additional payment, he should acknowledge the receipt of the
instruction and confirm that he considers the instruction to be a variation. If the
Engineer agrees, he should issue a variation order. If no such confirmation is
forthcoming or if the Engineer disagrees, then contractor may resource to the
provision of clause 20 in FIDIC (Claims, Disputes and Arbitration). 29

Variation in Saudi Arabia

The application of the variation provisions in Saudi Arabia is different from

elsewhere in global construction markets. For the public sector contracts, Clause 43
of the Saudi contracts limits and article 36 of the government procurement
regulations, the amount of variation which can be ordered by the employer to
increase ten percent (10%) and decrease twenty percent (20%). However, there are
no similar limitations imposed on private sector contracts.30

28
Jaeger, A. and Hok, G (2010). FIDIC - A Guide for Practitioners, Springer, Germany.
29
See discussion 2.2.3
30
Knutson, R. (2005). FIDIC: An Analysis Of International Construction Contracts, Kluwer Law, Netherland

37
2.3.5 Delayed Payment

If the Contractor does not receive payment from the Employer when due, in
accordance with Sub-Clause 14.8 he is entitled to receive financing charges
compounded monthly on the unpaid amount. This entitlement is irrespective of any
claim the Employer may have against the Contractor. These financing charges shall
be calculated based on an interest rate three percentage points above the discount rate
of the central bank in the country of the currency of payment and shall be paid in
such currency. 31

Typically the Contractor will have elected to be paid in both local and foreign
currencies. Due to a lack of foreign currency, the delayed payment is most likely to
occur with the foreign currency portion of the Contractor’s payment entitlement.

The Contractor is not required to give notice of his entitlement to payment of

these financial charges. These charges may be conveniently included as a separate
item within any Interim Payment Certificate.

This sub-clause does not provide for the Contractor to claim an extension of
time arising as a consequence of delayed payment.

Delayed Payment in Saudi Arabia 32

according to the representative of the International Federation of Consulting

Engineers (FIDIC) in Saudi Arabia, Nabil Abbas, Delays in paying contractors on
government contracts in Saudi Arabia means that firms are owed more than SR 100
31
Bunni, N. G. (2005). The FIDIC forms of contract : the fourth edition of the Red Book, 1992, the
1996 Supplement, the 1999 Red Book, the 1999 Yellow Book, the 1999 Silver Book, Blackwell, UK.
32
KSA government owes contractors over $26bn - FIDIC. (2013). Retrieved Aughust 19, 2013, from
http://www.constructionweekonline.com/article-23855-ksa-government-owes-contractors-over-26bn--
fidic/#.U0LJ06iSzRg

38
billion ($26.7 billion) and the money outstanding represents around 30% of the total
volume of government projects.

Although government agencies require contractors to implement work once

deals have been signed and that delayed payments are not a valid reason for downing
tools and putting projects on hold, however, international law obliges government
agencies to pay contractors for work already completed within 30 days. In Saudi
Arabia, contractors can wait for up to a year for payments in many cases.

2.3.6 Risk Allocation and liabilities

A construction contract should not be a gamble if disputes are to be avoided.

Hence, risk allocation in any contract is a matter for individual negotiation, and it is
always possible for the parties to negotiate their own particular allocation of risk. 33

FIDIC sets out the principles of balanced (red and yellow books) risk
allocation in connection with ground conditions and outlines the procedure when the
risk of unforeseeable physical obstructions or physical conditions eventuates. Risk
might be allocated differently in different types of project using different FIDIC
Books, Red, Yellow, or Silver Book.

In red and yellow books, the contractor usually bears the risk of delay and
additional cost, if he is able to control the relevant events. For example, where
physical conditions cause delay or additional cost, the contractor will bear the risk of
both if the conditions were reasonably foreseeable; however, if the physical
conditions (including ground conditions) were not reasonably foreseeable then the
contractor will be entitled (subject to complying with the requirements for making a

33
Godwin, W. (2013). International Construction Contracts: A Handbook, Wiley-blackwell, UK.

39
contractor’s claim under clause 20.1) to additional time and cost resulting from the
unforeseeable conditions (clause 4.12).34

Where damage or delay to the works results from war or civil commotion, on
the other hand, under the Red and Yellow Books the employer bears the risk of delay
to the contract and additional costs to the contractor, by clause 17.3/4. The contractor
is entitled to recover his costs incurred in rectifying damage resulting from war or
civil disorder, and to an extension of time if delay has resulted to the contract works.
He will not, however, be entitled to any profit on the costs incurred. 35

In the Silver Book, the contractor bears the risk of design and unforeseen
difficulties unless this is otherwise stated in the contract. The risk borne by the
contractor here is therefore total.

The silver form impose on the Contractor the obligation to ‘design execute
and complete the works in accordance with the Contract’ so that, when complete, the
Works will be ‘fit for the purposes for which [they] are intended as defined in the
Contract’ (clause 4.1). the contractor is responsible even where the Employer’s
Requirements or provided information and data contain errors, even where the
contractor could not reasonably have been expected to detect them. By clause 4.12 in
the silver book, unless the contract states otherwise:
 the contractor is to be taken to have obtained all necessary information as to
risks, contingencies and other circumstances which may influence or affect
the works;
 by signing the contract the contractor accepts total responsibility for having
foreseen all difficulties and costs of successfully completing the works; and
 the contract price is not to be adjusted to take account of any unforeseen
difficulties or costs.

34
Robinson, M. D. (2011). A Contractor’s Guide to the FIDIC Conditi ons of Contract, Wiley-
blackwell, UK.
35
Robinson, M. D. (2013). An Employer's and Engineer's Guide to the FIDIC Conditi ons of Contract,
Wiley-blackwell, UK.

40
 The concept of responsibility and liability of both the employer and the
contractor towards each other and towards third parties is based on the sharing of the
risks in accordance with the obligations allocated to them under the contract.

Provisions relating to the topics of risk, responsibility, liability, indemnity are

contained in clause 17 of the general conditions of contract.

Sub-Clause 17.1 sets out the indemnities required by the employer and the
contractor towards each other in respect of:
a) death or injury to any person; or
b) loss of or damage to any property (other than the works) and against all
claims, proceedings, damages, costs, charges and expenses whatsoever in
respect thereof or in relation thereto.

In summary, under clause 17.1 the Contractor must indemnify the Employer
for the injury or damage arising out of his design, execution and completion of the
works, unless the injury or damage is due to the negligence, wilful act or breach of
contract of the Employer or the Employer’s personnel or agents, the Employer must
indemnify the Contractor.

Sub-Clause 17.2 is placing the responsibility for care of the works, material
and plant for incorporation in the works with the contractor. This responsibility
continues until the date of issue of the taking-over certificate for the whole of the
works. The contractor’s obligation to rectify such loss or damage when caused by
either the risks allocated to him or to the employer.

Sub-Clause 17.6 is a very important provision in the FIDIC Books that covers
both the scope and the extent of the parties’ liabilities to each other in general. The
first limitation of liability, is that neither party is to be liable to the other for ‘indirect’
or ‘consequential’ loss or damage. Such as ‘loss of use of any Works, loss of profit,
loss of any contract’.

Second limitation is the total amount of the Contractor’s liability to the

Employer. Except in the case of fraud, deliberate default or reckless misconduct, the

41
total liability of the Contractor to the Employer in connection with the contract is not
to exceed the sum stated in the Particular Conditions or, if no sum is stated, the
Contract Price (if Silver Book) or Accepted Contract Amount (if Yellow).

In Saudi Arabia

The Shari’a law does not recognize vicarious liability. The actions of an
employee, whether of employer or contractor, may not be imputed to his employer
and the employee is responsible for loss or damages arising out of his act or failure to
act. As the prophet Mohammed said “no person may be made to answer the deed of
another person”.36

In addition to contractor risks aforementioned, Contractor must bear the risk

of termination under certain circumstances laid out in Article 53 of the Procurement
Law 2006. These include:
 Where it is discovered that the contractor has committed bribery.
 Any delay or breach of the contract, and failure to rectify the activity within
15 days of the government’s notice to do so.
 Assigning or subcontracting the contract (or any portion of it) without
permission from the government.
 The contractor’s bankruptcy.
 The contractor’s death (where his personal qualifications were of substantial
value to the bid).
If the government chooses to terminate the contract, it has the right to retain all
monies paid to it by the contractor in bonds and guarantees. 37

36
Knutson, R. (2005). FIDIC: An Analysis Of International Construction Contracts, Kluwer Law, Netherland
37
Husein, Amgad T. (2013, July). Construction and projects in Saudi Arabia:
overview. Retrieved January 11, 2014, from http://uk.practicallaw.com/resource/2-534-0319

42
 In United Arab Emirates

Risks are usually allocated as set by FIDIC. However, the terms of the
contract used by major employers often include amendments from the standard
FIDIC position to shift additional risk onto the contractor. For example, it is common
for a contractor to have:
 More onerous claim notification provisions.
 More restrictive suspension and termination rights.
 Entitlement to certain time-related costs removed.
 A greater risk of unforeseeable site conditions and errors in design
document.38

Decennial Liability

In Saudi Arabia and United Arab Emirates, the so-called decennial liability is
post-contract liability comprises a very strict form of liability for structural works
and structural design.39 The laws in these countries provides a strict liability for
structural elements over a period of 10 years, as a warranty period after the
completion and hand-over the facilities, for partial or total failure or collapse.
Contractors, architects and engineers will be held liable (in the absence of any
evidence of breach of contract or negligence) to compensate an owner or employer in
the event of defective works, therefore, must provide insurance cover for the whole
period. Insurance coverage available for inherent defects and decennial liability is
generally limited and, where available, would be expensive as a result of the need for
insurers’ heavy involvement in monitoring the design and construction process. 40

38
Kerr, M. and Ryburn, D. and McLaren, B. and Zehra (2013). Construction and projects in United
Arab Emirates: overview. www.practicallaw.com. Retrieved January 19, 2014, from
http://www.practicallaw.com/1-519-3663
39
Jaeger, A. and Hok, G (2010). FIDIC - A Guide for Practitioners, Springer, Germany.
40
Cowling, B. and Hudson, D. (2013). Construction in Saudi Arabia: Decennial liability.
www.clydeco.com. Retrieved April 9, 2014, from
http://www.clydeco.com/insight/updates/construction-in-saudi-arabia-decennial-liability

43
2.3.7 Delay Damages (Liquidated Damages v. Penalty)

If the contractor fails to comply with the time for completion, then he shall
pay ‘delay damages’ to the employer. These are to be paid at a rate stated in the
contract's Appendix to Tender, and are meant to compensate the employer for being
kept out of his plant or other facility for longer than he should have been, by reason
of the contractor’s default in not completing on time.

FIDIC provides that the Delay Damages shall be the only damages due from
the Contractor as a consequence of the default. The Employer cannot claim his actual
costs, but equally does not have to demonstrate his actual loss. The FIDIC Contracts
Guide explains that ‘the Contractor cannot prevent the imposition of Delay Damages
by submitting claims for extension of time. However, the Employer may lose his
entitlement to claim delay damages if he prevents extensions of time being agreed or
determined in accordance with Sub-Clause 20.1’ 41

Should he wish to claim Delay Damages, the Employer must give a notice of
his claim to the contractor, and the engineer. It should be noted that requires the
Engineer to consult with each Party before making a ‘fair determination’.

The rate of delay damages needs to be agreed with some care. In some legal
systems, a distinction is drawn between ‘liquidated damages’ (an agreed daily rate to
compensate the employer for the loss which is likely to result to him from delay to
the works) and ‘penalties’(a sum of money that might far exceeds the amount of
damages that would be sustained). In civil law jurisdictions the doctrine of penalty
prevails. In contrast, Common law courts permanently hold that penalty clauses are
not equitable and therefore void.42

41
Robinson, M. D. (2011). A Contractor’s Guide to the FIDIC Conditi ons of Contract, Wiley-
blackwell, UK.
42
Jaeger, A. and Hok, G (2010). FIDIC - A Guide for Practitioners, Springer, Germany.

44
 In Saudi Arabia

As stipulated in the Government Tenders and Procurement Law, any delay

for completion of government projects caused by contractor's default can be subject
to penalties. For a contractor’s delay in executing a contract, the penalty is 10% of
the value of the contract. Any default by a contractor can result in a penalty of 10%
of the contract price and a deduction equal to the value of the uncompleted work.

Meanwhile, in private sector construction contracts may contain provisions

for liquidated damages. However, such liquidated damages are ultimately subject to
the Shari’a (Riba Doctrine). That is, any amount of money sought to compensate a
party with liquidated damages must accurately reflect the actual damages suffered by
the damaged party without interest, lost of profit or any other speculative damages.
thus, contractor's sometimes may find it more viable and attractive to deliberately
delay the completion.

In United Arab Emirates

The Emirates Code for Civil Transactions Code allows courts broad powers
and the discretion to vary or to change the level (upward or downwards) of liquidated
and ascertained damages the parties have agreed to under the contract to equal the
actual loss suffered. Article 390 of the Civil Code provides:

“(1) The contracting parties may fix the amount of damages by expressly
stating it in the contract or in the subsequent agreement without prejudice to the
provision of the law.

45
(2) The Judge may in all cases, upon the request of one of the parties, amend this
agreement in order to adjust the amount of compensation to the harm incurred. Any
agreement to the contrary shall be null and void.”43

2.4 Construction Industries of Saudi Arabia and United Arab

Emirates

Construction, generally, in the Middle East is driven by demand from shifting

population demographics, several cash-rich governments pursuing infrastructure
work and the region’s global sporting events. The financial strength of Saudi Arabia
and the U.A.E. encourages the publicly financed projects. 44

Saudi Arabia and Qatar have led the regional boom since the downturn, both
their construction sectors have grown at an average of 10% in 2010-13, in both
countries, public-sector spending has led the way as they implement ambitious plans
to develop their infrastructure and expand their cities. MEED (Middle East
Economic Digest) Projects estimates that around US$200bn will be spent on
megaprojects in Qatar in the run-up to the 2022 football World Cup, That Makes
Qatar a focal point for many of the infrastructure projects that must be complete in
time.

The UAE, especially Dubai, was the epicenter of the previous construction
boom, and the most unfavorably influenced when the global economic crisis burst a
bubble in the real estate sector. 45 This was in light of the fact that a significant part

43
Savage, D. (2012). The top 10 things you need to know about FIDIC. www.charlesrussell.co.uk.
Retrieved January 15, 2014, from
http://www.charlesrussell.co.uk/userfiles/file/pdf/Bahrain/FIDIC.pdf
44
MIDDLE EAST CONSTRUCTION HANDBOOK. (2013). Retrieved March 11, 2014, from
http://www.aecom.com/deployedfiles/Internet/Geographies/Middle%20East/2013%20ME%20Handb
ook_9%20June%202013%20FINAL%20w%20cover.pdf
45
Bueno, J. C. (1989). The Projects and construction review. Law Business research ltd, London.

46
of the construction was being undertaken by the private sector or by state-owned
developers that were intensely leveraged with debt, as opposed to being to a great
extent funded by the oil revenues, as in Saudi Arabia. The recent revival in the Dubai
real estate market has raised expectations of a broader pick up in the private sector
sentiment across the region and a gradual resumption of hindered projects.

2.4.1 Saudi Arabia

2.4.1.1 Introduction

Saudi Arabia has one quarter of the world’s oil reserves which makes it the
largest producer and exporter of oil in the world. As a result, the Saudi economy is
constantly on the rise, with GDP increasing by some 6% a year, and the construction
industry specifically has seen significant increases in activity. Saudi Arabia has a
rapidly-growing population; government has always been actively concerned with
the expansion or replacement of the infrastructure to meet the needs of the 21st
century. In addition to that, the Saudi government plans to diversify its economy
away from dependence on oil and gas and it becomes clear why the Kingdom intends
to spend more than US$367 billion over the next 10 years on infrastructure; new
roads, railways and urban transport systems, airport expansion, investments in water,
sewerage, electricity plants, telecoms and the IT sector and four million new
homes.46

Indications show that this concern will remain at the forefront of Saudi
decision making. 47 Contradictorily, most recently, severe restrictions have been
placed by the government specifically on foreign entities and labors seeking to

46
Brown, M. (2013). Saudi Arabia. Construction & Engineering London Legal Update. Construction
& Engineering Group. 65, 10-11.
47
Knutson, R. (2005). FIDIC: An Analysis Of International Construction Contracts, Kluwer Law, Netherland.

47
engage in construction activities in Saudi Arabia, which impacted the progress of the
construction industry negatively.

2.4.1.2 Contracts, Procurement and Finance

Saudi Arabia needs to make several billion dollars for the investment in
construction. Majority of the required projects investments will come from project
financing48, Sharia-complaint 49, which FIDIC silver book 50
(engineering,
procurement, and construction i.e. EPC agreements) is well-suited because of its risk
allocation scheme. For at least two reasons the government prefer the project
financing system. Firstly, the need for capital is so large that it is likely to exceed the
borrowing capability of the institution involved. Secondly, enables the harnessing of
the of the global capital market to assist in assuring that the huge amount of capital
required is most efficiently assigned to true deserving projects.

Within the public sector, however, the FIDIC book is usually amended to
give greater control to the employer for the administration of the contract. All public
work contracts are subject to the Saudi Government Tendering and Procurement
Regulations, as issued by Royal Decree M/58 dated 4.7.1427 AH.

In the private sector, Employers prefer lump sum versus re-measured

contracts and normally exercise great control in the administration of the
construction process by imposing various restrictions on the engineer’s (consultant)
authorities under the contract. All contracts are subject to Saudi laws where Islamic
Sharia51 is the prime source of legislation. Litigation and arbitration are both
available for resolution of disputes in the private sector.

48
Project financing is a form of dept finance provided for the development of project where the
lender relies upon its assessment of the project technical, financial and commercial viability by
considering the cash flow of the project and if necessary the assets of the project for the repayment of
the debt and intrest.
49
See sub-heading 2.2.2.3
50
See sub-heading 2.1.3
51
See sub-heading 2.2.2.3

48
2.4.1.3 Restrictions on International Contractors and Labors

For international contractors wishing to execute a construction project in

Saudi Arabia, a commercial presence must be registered with the authorities. It is
necessary to obtain a foreign investment license from the Saudi Arabian General
Investment Authority (SAGIA), and once this license has been received the
international contractor must then register with the Ministry of Commerce and
Industry. Until June of 2013, international contractor engaging in construction
projects in Saudi Arabia could register a commercial entity using several corporate
structures, the most common of which were LLC (Limited Liability Company),
branch offices, and Temporary Commercial Registrations (TCRs). As of June 2013,
however, SAGIA has restricted international contractors and investors engaging in
construction activity in Saudi Arabia so that they must be organized as either an LLC
or a joint stock company (JSC) in order to obtain the requisite foreign investment
license.52

It is clear that, recent move aimed at tightening labor laws is having an impact
on the construction industry in the country. A visa amnesty which ended in early
November last year has led to an estimated one million expats leaving the Kingdom
– many of whom worked in construction. This has simultaneously led to a slowdown
in projects and a rapid growth in labor costs, directly impacting on contract price.
The Saudi contracting market does offer opportunities but the recent visa crackdown
and Saudisation (Saudi policy strongly favours the hiring of local workers over
expatriates) policies is making life more difficult for contractors. Work permits and
visas are considered a nightmare to them. 53

52
Husein, A. T (2013). Construction and projects in Saudi Arabia: overview. www.practicallaw.com.
Retrieved January 17, 2014, from http://www.practicallaw.com/2-534-0319
53
Fahy, M. (2014). Analysis: Saudi Arabia's contracting market. www.constructionweekonline.com.
Retrieved February 27, 2014, from http://www.constructionweekonline.com/article-26698-analysis-
saudi-arabias-contracting-market/3/#.UzxVK6iSzRg

49
2.4.2 United Arab Emirates

2.4.2.1 Introduction

United Arab Emirates experiences one of the world’s largest construction

booms. this industry has experienced a constant growth over the course of the last
few years . Driven by the UAE's oil wealth, the country has witnessed an unmatched
development and transformation. Oil revenues have lead to driving construction
boom and completely change the face of the state.

Construction industry is still one of the engines of economic growth in the

UAE. particularly in Dubai and Abu Dhabi where there is no contraint on
constructional imagination and there is no other place in the world where
construction moves as fast as in the UAE. with some of the most innovative mega
projects such as "Burj Khalifah" (the tallest building in the world), or "the Palm" (the
world's largest man-made islans). The UAE construction industry remains
unbeaten. 54

As newer projects are announced and financial institutions begin to invest in

infrastructure at levels, the UAE’s ‘building boom’ is having a positive effect within
the construction sector, as well as the industries that supply it. Especially in Dubai,
which has witnessed financial crisis but now the revival of the construction industry,
restores and continues the development projects that were shelved during the
financial crisis such as the expansion of the Business Bay Canal.

54
Gorgenl, V. (2011). A Strategic Analysis of the Construction Industry in the United Arab Emirates:
Opportunities and Threats in the Construction Business, Diplomica Verlag.

50
2.4.2.2 Procurement

Construction contracts in UAE for substantial projects are commonly based

on one of the International Federation of Consulting Engineers (Fédération
Internationale des Ingénieurs Conseils) (FIDIC) forms of contract. The three main
ones are:

 The Conditions of Contract for Construction (Red Book).55

 The Conditions of Contract for Plant and Design Build (Yellow Book). 56
 The Conditions of Contract for EPC/Turnkey Projects (Silver Book). 57

Any international contractor that is engaged to undertake a project in the UAE

must establish a local presence. By recognising the importance of local and
international experience, it is now common for local and international contractors
and consultants to form a consortium or joint venture to bid and undertake projects
together.

Subject to limited exceptions, Abu Dhabi Government departments that procure

construction projects must use the Abu Dhabi Government Conditions of Contract
for construction or design and build contracts, which were introduced in 2007. These
are based on the 1999 FIDIC Red and Yellow books respectively, but have been
amended to shift significant additional risk onto the contractor.

There are no conditions of contract prescribed for use by all Dubai Government
departments. However, many government departments, including the Roads and
Transport Authority (RTA) and the Dubai Municipality (DM), have their own
conditions of contract. The RTA and DM conditions of contract are both based on

55
See sub-heading 2.1.1
56
See sub-heading 2.1.2
57
See sub-heading 2.1.3

51
the 1987 FIDIC Red Book with amendments to impose additional risks and
obligations on the Contractor.58

58
Kerr, M. and Ryburn, D. and McLaren, B. and Zehra (2013). Construction and projects in United
Arab Emirates: overview. www.practicallaw.com. Retrieved January 19, 2014, from
http://www.practicallaw.com/1-519-3663

52
 CHAPTER 3

3 DATA CO LLECTIO N

2.0 Data Collection

3.1 Introduction

This chapter encompasses on how the study has been carried out. It is an
overview on the methodology of this study and the medium used in order to achive
and fulfill the objectives of the study.

53
3.2 Questionnaire survey

Data of this study has been obtained by a set of questionnaire survey to

selected correspondents. The questionnaire consisted of three parts. The
questionnaire is shown in the appendix.

Part one, involved general information about the respondent; the location of
the project intended to be the reference of the respondent to fill in the questionnaire;
the law chosen to govern the contract and the procedure of DAB / Arbitration and/or
Litigation. Lastly in part one is the procurement method in relation to the selected
book of FIDIC.

Part two, is the core of the survey, using the cross tabulation, for respondents,
to indicate the occurrence of the issues and the magnitude of the relationship between
the contractual issues and their root causation, either caused by language or FIDIC
and the governing law or both. These listed issues and their possible causations were
sourced from a wide range of litrature including books, journal papers, and
WebPages on contractual issues of international projects in general and FIDIC
practices in the Middle East.

Part three, contains nine questions that give an insight of issues specifically
occur from practicing in the two countries in focus i.e Saudi Arabia and UAE.

The total number of contractors' companies involved construction projects in

these two countries, based on CIDB web-based database that contains of information
on completed and current overseas projects undertaken by Malaysian contractors, is
29 contractors, 10 in Saudi Arabia and 19 in UAE. the survey data was collected
from 8 respondents, using various methods:

54
 1) construct the questionnaire online and distribute for open access
2) E-mailed to selected companies who performed in those two
countries
3) Face-to-face meetings with a Director, General Managers, and
Project Managers who were directly involved in projects in these
countries, to fill in the survey and to obtain additional commentaries
on the subject matter.

3.3 Respondents

The questionnaire was structured to allow the views of Malaysian contractors

who performed in Saudi Arabia and UAE. Therefore, approached decision-maker
personnel from the managerial levels in these contractors companies (such as
Directors, General Managers, and project managers) to make the findings indicative
and meaningful.

Participants are from a range of company sizes, as well as being from both the
public and private companies. A full range of professions took part, including
Architects, Legal Professionals, Quantity Surveyors, and Civil Engineers.

55
 CHAPTER 4

4 DATA ANALYSIS

3.0 DATA ANAS

4.1 Introduction

In this chapter, all the results collected from the questionnaire distribution
have been analyzed in SPSS for more accuracy, and the results been extracted in the
form of graphs and tables. Based on the results collected, the objectives of the study
can be achieved and verified as fulfillment of the objectives is the requirement
needed.

56
4.2 Overall results of questionnaire distribution

4.2.1 Part 1: Background of the project:

This part of the questionnaire acts as an introduction, whereby, respondents

would make a reference to a project in order to proceed with the rest of the
questionnaire. Respondents indicate the location of the project, governing and
procedural law, language of the contract, and the type of procurement which defines
the FIDIC book used. The tables and graphs below illustrate the results.

57
1. The Project was performed at:

Saudi Arabia. 4 50%

United Arab Emirates. 4 50%
Other 0 0%

FIGURE 2: LOCATION OF PROJECTS

2. The governing law of the contract is

Saudi Law 4 50%

UAE Law 4 50%
Malaysian Law 0 0%
Other 0 0%

FIGURE 3: THE GOVERNING LAW OF THE CONTRACT

3. Was the governing law of the contract same as the DAB and arbitration
procedural law?

Yes 6 75%
No 2 25%

FIGURE 4: PROCEDURAL LAW

58
4. The language stated in the appendix of the contract as the ruling language

Arabic 0 0%
English 8 100%
Other 0 0%

FIGURE 5: LANGUAGE OF THE CONTRACT

5. Type of procurement (FIDIC book):

Traditional procurement (Red Book) 3 37.5%

Design-Build (Yellow Book) 2 25%
EPC \ Turnkey (Silver Book) 1 12.5%
Other 2 25%

FIGURE 6: PROCUREMENT (FIDIC BOOK)

59
4.2.2 Part 2: Issues and causing factors

Part 2 of the questionnaire is the core part which serves the purpose of better
examining the issues arising from FIDIC contracts, extracted from FIDIC provisions
of claims and events which entitle contractors to claim, and the potential causation of
these issues. This part uses Cross tabulation which is a statistical process that
summarizes categorical data to create a contingency table. It provides a basic picture
of the interrelation between two variables i.e. issues and causes, and can help find
interactions between them.

Method of calculation

The table (4.4) is calculated by merging all respondents’ answers in one table.
Whereby, each tick () is converted to 1, and if 2 respondents ticked in the same slot
or cell it will be counted as 2. Total numbers are summed vertically and horizontally.
Horizontally, the percentage is calculated with regards to the total number of
respondents = 8. Vertically, percentage is calculated using total number of issues =
25.

60
 LANGUAGE Governing law Application of FIDIC

Insufficient communication

Differences between FIDIC

Improper interpretation of

provisions and governing

Poor \ late\ no translation

practice in Malaysia and

Government restrictions

Differences between the

Poor implementation of

Frequency in UAE (%)

Frequency in KSA (%)

discrepancies between

particular conditions
the relevant country

FIDIC general and

Frequency (%)
Lack of clarity of
CAUSES

law provisions
governing law

TOTAL
contract

contract
ISSUES

1 Procedure of claims 1 1 2 1 5 62.5 12.5 50

2 Variation and extra works 3 1 1 2 7 87.5 37.5 50

3 Variation order 3 1 1 2 7 87.5 25 62.5

4 Large changes in quantities 1 1 2 1 5 62.5 0 62.5

5 Disagreement of measures of quantities 2 1 2 1 6 75 0 75

6 Delayed payment 1 1 2 1 1 6 75 25 50

7 Extension of time 1 3 1 5 62.5 12.5 50

8 Delay damages 1 3 1 1 6 75 25 50

9 Extra risk and liabilities allocation 1 2 1 2 1 7 87.5 25 62.5

Lack of information in the contract 0 50

10 1 1 1 1 4 50
documents.
11 Drawings amended constantly 1 1 3 1 6 75 25 50

12 Late decision by contract administrator 3 1 2 6 75 25 50

13 Late approval by authorities 2 1 2 2 7 87.5 50 37.5

14 Change in the statutory requirements 3 1 2 2 8 100 50 50

15 Issues with site possession such as delay 1 2 2 1 6 75 12.5 62.5

16 The unanticipated site conditions 2 1 2 1 1 7 87.5 12.5 75

61
 LANGUAGE Governing law Application of FIDIC

Insufficient communication

Differences between FIDIC

Improper interpretation of

provisions and governing

Poor \ late\ no translation

practice in Malaysia and

Government restrictions

Differences between the

Poor implementation of

Frequency in UAE (%)

Frequency in KSA (%)

discrepancies between

particular conditions
the relevant country

FIDIC general and

Frequency (%)
Lack of clarity of
CAUSES

law provisions
governing law

TOTAL
contract

contract
ISSUES

17 Delays caused by weather condition 1 3 1 1 1 7 87.5 25 62.5

18 Changes in the program and sequence 1 2 1 1 5 62.5 12.5 50

19 Suspension of all or part of the work 1 2 3 1 7 87.5 12.5 75

20 Changing the Employer’s requirement 1 1 1 1 0 1 5 62.5 12.5 50

21 Employer’s power to issue instruction 1 1 2 1 5 62.5 0 62.5

22 Requirements to accelerate 1 1 2 1 1 6 75 0 75

23 Unnecessary testing 1 2 1 1 5 62.5 0 62.5

24 Additional remedial work 1 2 2 1 6 75 12.5 62.5

25 Short \ long Defect liability period 1 2 2 5 62.5 0 62.5

TOTAL 2 4 32 7 0 31 43 9 20
Frequency (%) 8 16 132 28 0 124 172 36 80
Average (%) 52 50.67 96
TABLE 4. 4: RESULT OF PART 2 OF THE QUESTIONNAIRE DESCRIBING THE RELATIONSHIP BETWEEN ISSUES AND CAUSING FACTOR

62
4.2.3 Part 3: Extras (optional)

Even though this part of the questionnaire is optional, yet all the respondents
participated have answered. This part is meant to give insight of selected issues to
support the study to better evaluate the issues by expressing facts and opinions
related to their practice in UAE and Saudi Arabia.

1. FIDIC provisions are usually amended, such as notice of claims, was there
any amendment to FIDIC claim provisions?

No 25

Yes 75

FIGURE 7: AMENDMENT OF FIDIC PROVISIONS

For those answered YES, explained breifly as follows:

- The period of notice on the delay in event and the submission of claims for the
purpose of progressing the claims.
- Clause 17.3 – Employer’s risk – paragraph 1 delete sub-paragraph (e) and (h)
- Progress payment clauses was amended.
- Notification to employer when we become aware not ought to be aware

63
2. Dispute avoidance mechanism was applied because

Others 25

Preference to maintain relationship for future job(s) 12.5

Powerful employer, fair resolution is not guranteed. 75

The chosen DAB and arbitration law of the country
0
governing the contract is not suffecient
Dispute resolution procedures are expensive 12.5

FIGURE 8: DISPUTES AVOIDANCE

3. For projects in UAE only, regarding FIDIC sub-clause 20.1(Notice of

Claims) was

Unaware about the provision of the civil code 0

Amended to comply with provision in civil code 0

Not amended, i.e. complied with FIDIC provision 25

FIGURE 9: NOTICE OF CLAIM IN UAE

4. For projects in Saudi Arabia only, completed before 2012, How disputes
were resolved?

Others 25

Use alternative dispute resolution 25

Agree on different procedural law, which
0
enforces the UNCITRAL arbitration
Compromise even if it cause unbearable
50
difficulties to the harmed contractor

Take disputes to Board Of Greivence 0

FIGURE 10: DISPUTES RESOLUTION IN KSA

64
5. The provision of interest entitlement, when payment is delayed, was
amended to suite the Employer’s requirement and\or to comply with the
governing law provision

Strongly disagree 0

Disagree 12.5

Neutral 12.5

Agree 50

Strongly agree 25

FIGURE 11: INTEREST ENTITLEMENT

6. Examples of additional risks

Others 0

Unforseeable site conditions 25

Errors in design and contract documents 25

Time related costs removed 50

Claims restricted notification 12.5

More termination and suspension rights for employer 25

FIGURE 12: ADDITIONAL RISK

7. Who’s liable for death and \ or injury of construction worker(s) during the
construction work?

Depends on Court to judge 0

subcontractor 25
Contractor 75
Contract administrator 0
Employer 12.5

FIGURE 13: LIABILITY FOR DEATH AND \ OR INJURY OF CONSTRUCTION WORKER(S)

65
 8. Decennial liability (10 years warranty to compensate owner for total or
parial collaps) for my company is

Considered as a risk but managed in a different method

25
rather than financially
A factor to increase bidding price to be prepared for
37.5
expensive insurance coverage

Not considered and given much thaughts as a risk. 25

FIGURE 14: DECENNIAL LIABILITY

9. Delay Damages is agreed to be in a form of

both 12.5

Penalty (a sum of money that might far exceeds

12.5
the amount of damages that would be sustained)
Liquidated damages. (daily rate to compensate the
employer for the loss which is likely to result to 75
him from delay to the works)

FIGURE 15: DELAY DAMAGES

66
4.3 Causes of issues

LANGUAGE Governing law Application of FIDIC

general and particular conditions

Differences between the practice
Lack of clarity of governing law

Poor implementation of contract

provisions and governing law

discrepancies between FIDIC

in Malaysia and the relevant

Differences between FIDIC

Insufficient communication
Improper interpretation of
Poor \ late\ no translation

Government restrictions
CAUSES

provisions
contract

country
Frequency (%) 8 16 132 28 0 124 172 36 80

Average (%) 52 50.67 96

TABLE 4. 5: CAUSES OF ISSUES

The contractual issues are caused by the application of FIDIC, language and
legal system governing the contract with the average of 96%, 52% and 50.6%
respectively. Poor implementation FIDIC, insufficient communication and
differences between Malaysian legal practice in those two countries i.e. Saudi Arabia
and UAE, are the main factors that are causing issues to the contract with results
extended beyond expectations.

4.3.1 FIDIC

The data shown in the graph and the table of figure 6, reflect that all FIDIC
books are used according to the type of procurement chosen by the employer.
However, the red book is used the most with percentage of 37.5% then design-build
25%, the turnkey silver book with 12.5%. And, last is other, modified version of
FIDIC 25%.

67
 The variety of choices of procurement methods used in Saudi Arabia obtained
from the result of the study, contradicts with the theory from the literature review
which author of the article is convinced that the most preferred book of FIDIC in
Saudi Arabia is the silver book i.e. turnkey procurement system.

Although FIDIC was drawn up in the nineteenth century, and much of the
construction law that is relied upon in the courts and in arbitration has been made as
a result of cases that took place in the industrial revolution. But FIDIC became
popular in the Middle East more recently as a result of the economical booms in
these countries due to oil prices.

Therefore, table 4.4, shows that application of FIDIC is the major causation
of problems in these countries with the average of 96%. The results shows that poor
implementation of the contract ranked at the top of the list of the-issue-causing-
factors with the frequency of more than 100%. then comes the discrepancies found in
the particular conditions against the general conditions of FIDIC with 80%, which
explains that drafting the particular conditions was done poorly. However, FIDIC is
proven to be the best international standard form of construction contract, even in
this study, due its possibility to be easily implemented in any legal system of any
country, as the result of discrepancies between FIDIC and governing law is merely
36% according to contractors' opinions.

4.3.2 Language

All the respondents, figure 5, confirmed that English is the language they
used (100%) throughout the project, including discussions and the production of
documents. With reference to table 4.5, translation of documents and interpretation
of contract merely caused 8% and 16% respectively. On the other hand, sufficiency
of communication, including meetings, notification letters, circulated memos ect.,

68
have a major impact on project's performance, with more than 100% of assurance
that the language in communication needs to be improved to minimize claims.

4.3.3 Governing law / legal system

All projects performed in Saudi Arabia using Saudi law to govern the
contract, as well as projects located in UAE using the UAE law to govern the
contract (Figure 2 and 3). Parties to the contract did not exercise their discretion
carefully to choose an appropriate system of law as the governing law of the contract.
The choice of the applicable/governing law of the contract is, apparently, made by
the promoter of the project or the ‘employer’.

Overall, figure 4, 75% confirmed that the procedural law (the law of the
jurisdiction in which the arbitration proceedings are held – the place of arbitration –
which is technically referred to as the Seat of arbitration) is the chosen governing
law.

Those two respondents forming 25%, who answered NO, for the procedural
law not being same as governing law, performed in Saudi. They claimed that the
choice of procedural law was not made by the parties at the time of the formation of
the contract, mainly, because the employer removed the arbitration clause. When
dispute occurred the contractor took the dispute to the International Court of the
International Chamber of Commerce (ICC) then the court had chosen the procedural
law on the basis of its neutrality and as a place other than that to which either of the
parties is connected.

In general, as table 4.5 shows, government restrictions have a mild impact on

projects (28%). Meanwhile, 0% for the lack of clarity of governing law, therefore,
Malaysian contractors deemed themselves clear about the law under which they will
construct the project prior to undertaking project. However, during the construction,

69
many issues arose has been caused by unawareness of the differences between the
legal practice in Malaysia and the countries they are performing in (results more than
100%).

4.4 Level of Significance

Based on table 4.4, Issues are categorized based on the calculated total
percentage rating the significance of the issues, into:

1. High significance issues.

2. Medium significance issues.
3. Low significance issues.

4.4.1 High significance issues

The issues in the table below are ranked high, because 7 – 8 respondents
(maximum 8 respondents) faced them during their work in these two countries.

ISSUES UAE KSA Percentage

Change in the statutory requirements 50% 50% 100%

Variation and extra works 37.5% 50% 87.5%

The unanticipated site conditions 12.5% 75% 87.5%

suspension of all or part of the work 12.5% 75% 87.5%
Late approval by authorities 50% 37.5% 87.5%
Variation order 25% 62.5% 87.5%

Delays caused by weather condition 25% 62.5% 87.5%

Extra risk and liabilities allocation 25% 62.5% 87.5%
TABLE 4. 6: HIGH SIGNIFICANCE ISSUES

4.4.2 Medium significance issues

70
 The issues in the table below are ranked high, because 6 out of 8 respondents
faced them during their work in these two countries.

ISSUES UAE KSA Percentage

Late decision by contract administrator 25% 50% 75%

Requirements to accelerate 0% 75% 75%

Delayed payment 25% 50% 75%

Drawings amended constantly 25% 50% 75%

Delay damages 25% 50% 75%
Issues with site possession such as delay 12.5% 62.5% 75%
Disagreement of measures of quantities 0% 75% 75%

Additional remedial work 12.5% 62.5% 75%

TABLE 4. 7: MEDIUM SIGNIFICANCE ISSUES

4.4.3 Low significance issues

The issues in the table below are ranked high, because 4 - 5 out of 8
respondents faced them during their work in these two countries.

ISSUES UAE KSA Percentage

Short \ long Defect liability period 0% 62.5% 62.5%
Extension of time 12.5% 50% 62.5%
Changing the Employer’s requirement 12.5% 50% 62.5%

Changes in the program and sequence 12.5% 50% 62.5%

Unnecessary testing 0% 62.5% 62.5%
Procedure of claims 12.5% 50% 62.5%

Large changes in quantities 0% 62.5% 62.5%

Employer’s power to issue instruction 0% 62.5% 62.5%

Lack of information in the contract documents. 0% 50% 50%
TABLE 4. 8: LOW SIGNIFICANCE ISSUES

71
4.5 Important key issues to the unwary

4.5.1 Amendment of FIDIC clauses

According to Totterdill59, Major amendment in FIDIC are:

A. Notice of claims (Sub-clause 20.1)

B. Clause 17: Risk and Responsibility including all sub-clauses
C. Failure to pass the test (Sub-clause 9.4 and 11.4)
D. Fitness for purpose
E. Nomination of subcontractor (Sub-clause 5.1)

According to the results obtained from the survey, particularly from Figure 7,
75% of the respondents have had witnessed the amendment of FIDIC contracts.
Some of them noted the significant amendment in thier contract, Apperently, three
out of the four notes goes in line with Totterdill’s finding. Below is the respondents’
answers which complies with the list above.
o The period of notice on the delay in event and the submission of claims for
the purpose of progressing the claims.
o Clause 17.3 – Employer’s risk – paragraph 1 delete sub-paragraph (e) and (h)
o Notification to employer when we become aware not ought to be aware

Except the fourth one who noted that the amendment was made to the progress
payment clauses.

With reference to Figure 9, the notice of claims in UAE, regarding the duration of
which the notice should be submitted, is not amended although FIDIC provides that
submission should not be later than 28 days and the law in UAE provides that
contractor can submit the claim anytimes before 15 years from the day of the event.

59
Totterdill, B. W. (2006). FIDIC users’ guide a practical guide to 1999 red and yellow books.
Thomas Telford, London.

72
4.5.2 Disputes resolution

Dispute resolution clauses in any construction contract are the most important
clauses, especially in FIDIC which, usually, bind parties from different jurisdictions
and different backgrounds.

The result from the survey shows that, Figure 8, 75% percent of the
respondents avoided disputes because the employer was powerful and they did not
expect fair hearing from arbitration because, as in figure 4, 75% the seat of
arbitration is in the country whereby the project is performed. 12.5% avoided
disputes because the procedure is expensive. 12.5% preferred to maintain good
relationship for future projects. 25% specified that they had to escalate their dispute,
which was impossible to avoid, to international arbitration under international
chamber of commerce (ICC).

It appears that 50% (Figure 10) of the respondents, who performed in Saudi,
would rather Compromise even if the dispute cause unbearable difficulties to the
contractor. Meanwhile 25% used alternative dispute resolution. And other 25% used
international arbitation to resolve.

4.5.3 Delayed payment

The issue of employers’ delaying payment to contractor was discussed

previously. Though, Figure 11 reflects one the reasons payments are delayed
frequently in Saudi Arabia and United Arab Emirates. 75% of the respondents agreed
the employers have quashed the contractors’ entitlement for interest from the
contract, which would make delaying payment more convenient to Employer and
harmful to contractor. Only 12.5 percent disagreed with the statement.

73
4.5.4 Risk and liability

In general, construction is a very risky business, especially when it is

international, whereby, additional risks are involved. Figure 12 of the result of the
survey reveals few examples of additional risks. 50% for Time related costs
removed, which goes in line with previous topic about delayed payment. 25% for
more termination and suspension rights for employer; Errors in design and contract
documents; and Unforeseeable site conditions. 12.5% for claims restricted
notification.

Construction workers’ death and/or injury is agreed by 75%, of the

respondents to the survey, as shown in figure 13, to be the contractor’s responsibility
to indemnify. While other 25% have different view agreeing that it is the
responsibility of the sub-contractor, that in case the worker is under the sub-
contractor. Only 12.5% says it is the responsibility of the employer.

Decennial liability is dealt with differently by Malaysian contractors. To

illustrate the result from figure 14, 37.5% dealt with decennial liability as a risk
factor to increase bidding price to be prepared for expensive insurance coverage.
Other 25% did not consider it as a risk and 25%, as well, considered it as a risk but
did not manage it financially and rather use different method. A respondent
explained that they use back-to-back warranty which means the employer gets the
warranty from the contractor; the contractor gets the warranty from the sub-
contractors; and the sub-contractors from the supplier.

74
4.5.5 Delay damages

Figure 15, shows that the common law principle of liquidated damages is highly used
in the Sharia and civil law jurisdictions with 75%. Other 12.5% applied penalty while
12.5% agreed to a contract which apply both liquidated damages and penalty.

75
 CHAPTER 5

5 CONCLUSIO N AND RECOM MENDATION

4.0 Conclusion

5.1 Introduction

This Chapter represents the findings and conclusion for this study.
Recommendations are suggested for contractors working or willing to work in Saudi
Arabia or United Arab Emirates, they are also presented for further research in this
area to enhance the level of understanding of the legal/contractual issues faced by
Malaysian contractor using FIDIC in the Middle East generally and Saudi Arabia or
United Arab Emirates specifically.

76
5.2 Conclusion

1) Categories of issues: in order

This study shows that the problems/issues are mainly those of which may
cause claims and/or disputes and harmful ending to any construction projects. These
issues listed below are expected to occur several times during the course of
construction. According to the level of significance, they are categorized as follows:

I. High significance issues

1. Change in the statutory requirements

2. Variation and extra works
3. The unanticipated site conditions
4. Suspension of all or part of the work
5. Late approval by authorities
6. Variation order
7. Delays caused by weather condition
8. Extra risk and liabilities allocation

II. Medium significance issues

1. Late decision by contract administrator

2. Requirements to accelerate
3. Delayed payment
4. Drawings amended constantly
5. Delay damages
6. Issues with site possession such as delay
7. Disagreement of measures of quantities
8. Additional remedial work

77
 III. Low significance issues

1. Short \ long Defect liability period

2. Extension of time
3. Changing the Employer’s requirement
4. Changes in the program and sequence
5. Unnecessary testing
6. Procedure of claims
7. Large changes in quantities
8. Employer’s power to issue instruction
9. Lack of information in the contract documents.

2) Effect of the factors

This study determined the measure of the effect of these factors causing the
contractual issue on the international construction projects in the Middle East
generally, and in UAE and Saudi Arabia specifically.

A. Application of FIDIC = 96%

B. Language = 52%
C. Governing law / Legal system = 50.67%

78
 3) Key issues

This study, also, shows some of the critical issues. Awareness of these issues
is necessary to prevent damages, by being prepared for, with more attention to them,
as may seem fit the parties of the contract.

 Amendment to FIDIC
 Dispute resolutions
 Delayed payment
 Risk and liabilities
 Delay damages

5.3 Recommendations

Malaysian Contractors are encouraged to expand their business horizon

globally. In order to succeed, inter alia, they should:

1. Discard negative local mindset, and not to export local culture that has been
a practice here in Malaysia. For example, according to one of the
respondents, Malaysian contractors are always taken advantage of because
they practice the culture of negotiation and discussion before sending a
notice of claim. Unlike contractors from Europe or America who fully
practice their contractual rights without any compromise;
2. Comprehend the legal system applied in the country they wish to expand to
by knowing the similarities and differences between the practice in Malaysia
and the host country. Appropriate knowledge of the interpretation of the

79
 contract in accordance with legal rules of interpretation of country is
required.
3. Conduct workshops and forums prior to formation of the contract to clarify
all foreseeable issues; to account for all the risks and their management
techniques; to decide the methods to be used to resolve potential issues and
which law will be the preferred procedural law.
4. Employ a competent member(s) to the team with ability to communicate
fluently in the local language used in the country where the project is
located.
5. Ensure the competency of the consultants appointed by the employer, by
studying their profiles and assessing their abilities to manage the project.
Though, consultants from other countries may be professionally qualified by
lower standards than the Malaysian.
6. Further research on the topic to be conducted in the future.

80
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APPENDIX

Questionnaire

84
[Please tick ( √ ) where applicable]

PART 1: Background of the Project

Kindly provide the following details:

Your designation: ........................................................................................................

Project Name: .............................................................................................................

Name of your company: .............................................................................................

Company stamp:

1. The Project was performed at:

Saudi Arabia.
United Arab Emirates.
Other. (please specify): ..................................

2. The governing law of the contract is

Saudi Law
UAE Law
Malaysian Law
Others (kindly specify): .............................................................

Was the governing law of the contract same as the DAB and arbitration law?

Yes No

If No, please specify the law chosen to govern DAB and arbitration:

.....................................................

3. The language stated in the appendix of the contract as the ruling language is:

Arabic.
English.
Other. (please specify): ..................................

4. Type of procurement (FIDIC book):

Traditional procurement (Red Book)

Design-Build (Yellow Book)
EPC – Engineer Procure Construct - \ Turnkey (Silver Book)
Others (please specify): ...........................................

85
PART 2: ISSUES AND CAUSING FACTORS

Instruction: Please tick ( √ ) in the appropriate box. With each one of the issues given
against its cause(s):

Language Governing law and FIDIC

Differences between the practice in

Improper interpretation of contract

Malaysia and the relevant country

general and particular conditions

Lack of clarity of governing law

Poor implementation of contract

provisions and governing law

discrepancies between FIDIC

Insufficient communication

Differences between FIDIC

Poor \ late\ no translation

Government restrictions
Causes of the

provisions
issues

Contractual issues

1 Procedure of claims

2 Variation and extra works

3 Variation order

4 Large changes in quantities

5 Disagreement of measures of quantities

6 Delayed payment

7 Extension of time

Delay damages, please select (penalty or

8
LAD)

9 Extra risk and liabilities allocation

lack of information in the contract

10
documents.

11 Drawings amended constantly

12 Late decision by contract administrator

13 Late approval by authorities

14 Change in the statutory requirements

15 Issues with site possession such as delay

16 The unanticipated site conditions

86
 Language Governing law and FIDIC

Differences between the practice in

Improper interpretation of contract

Malaysia and the relevant country

general and particular conditions

Lack of clarity of governing law

Poor implementation of contract

provisions and governing law

discrepancies between FIDIC

Insufficient communication

Differences between FIDIC

Poor \ late\ no translation

Government restrictions
Causes of the

provisions
issues

Contractual issues

17 Delays caused by weather condition

18 Changes in the program and sequence

19 suspension of all or part of the work

20 Changing the Employer’s requirement

21 Employer’s power to issue instruction

22 Requirements to accelerate

23 Unnecessary testing

24 Additional remedial work

25 Short \ long Defect liability period

87
PART 3: EXTRAS (OPTIONAL)

1. FIDIC provisions are usually amended, was there a significant amendment to FIDIC
provisions?

Yes No

If YES, please explain breifly:

..................................................................................................................................................

..................................................................................................................................................

..................................................................................................................................................

..................................................................................................................................................

2. Dispute avoidance mechanism was applied because

Dispute resolution procedures are expensive

The chosen DAB and arbitration law of the country governing the contract is not suffecient
Powerful employer, fair resolution is not guranteed.
Preference to maintain relationship for future job(s)
Other. (please specify): ..................................

3. For projects in UAE only, regarding FIDIC sub-clause 20.1(Notice of Claims) was

Not amended, i.e. complied with FIDIC provision

Amended to comply with provision in civil code
Unaware about the provision of the civil code

4. For projects in Saudi Arabia only, completed before 2012, How disputes were resolved?

Take disputes to Board Of Greivence

Compromise even if it cause unbearable difficulties to the harmed contractor
Agree on different procedural law, which enforces the UNCITRAL arbitration
Use alternative dispute resolution
Other. (please specify): ..................................

5. The provision of interest entitlement, when payment is delayed, was amended to suite the
Employer’s requirement and\or to comply with the governing law provision

Strongly agree
Agree
Neutral
Disagree
Strongly disagree

88
6. Examples of additional risks

More termination and suspension rights for employer

Claims restricted notification
Time related costs removed
Errors in design and contract documents
Unforseeable site conditions
Other. (please specify): ..................................

7. Who’s liable for death and \ or injury of construction worker(s) during the construction
work?

Employer
Contract administrator
Contractor
subcontractor
Depends on Court to judge

8. Decennial liability (10 years warranty to compensate owner for total or parial collaps) for my
company is

Not considered and given much thaughts as a risk.

A factor to increase bidding price to be prepared for expensive insurance coverage
Considered as a risk but managed in a different method rather than financially

9. Delay Damages is agreed to be in a form of

Liquidated damages. (daily rate to compensate the employer for the loss which is likely to
result to him from delay to the works)
Penalty (a sum of money that might far exceeds the amount of damages that would be
sustained)
both

89