Engineering, Procurement, and Construction (EPC) contracts are commonly used in the construction and engineering industries, including in the United Arab Emirates (UAE). An EPC contract is a form of agreement where a single contractor takes responsibility for the entire project, from design and procurement to construction and commissioning.
EPC contracts cover key concerns such as the scope of the agreement, including procurement of material and equipment and construction services. Further, the agreement contains a clause to allocate risk between the parties involved. Providing clear specifications and performance criteria is crucial in these contracts to mitigate disputes and ensure the project meets the client’s expectations.
EPC Contracts must also adhere to local laws and regulations, and an understanding of the legal framework is necessary for both parties. Payment in EPC contracts is often milestone-based, tied to completing specific phases or deliverables.
Choice of Law and Jurisdiction
EPC contracts typically include provisions for dispute resolution mechanisms, such as arbitration, to address disagreements between the parties.
The UAE courts will not uphold an agreement that gives jurisdiction to a foreign court where the UAE courts would otherwise enjoy jurisdiction. This includes disputes involving:
-The ownership of properties situated within the UAE,
-Proceedings involved a transaction that was made, formed or supposedly formed in the UAE,
-An event occurring in the UAE.
Moreover, the UAE will not accept and recognize jurisdiction clauses that provide for a foreign court or arbitration tribunal to determine disputes involving commercial agencies, employment, and certain real estate matters connected to the UAE. Furthermore, where the UAE courts have jurisdiction, they will usually apply UAE law instead of the governing law chosen by the parties.
Time Bar to bring out Dispute
Article 880 of the UAE’s Civil Code provides a time limit until a dispute can be raised in cases of Construction Contract. The article imposes joint liability on the Architect and Engineer for a period of 10 years to provide compensation to the employer in case there is a total or partial collapse of the building they made.
The article makes them liable for collapse and any defect that threatens the stability or safety of the building. This 10-year minimum guarantee period is applicable unless the parties intended otherwise for the project. For instance, they can increase or decrease the time limit if they intend for the building to last longer or shorter.
The Article completely abdicates the employer’s responsibility for the defect even if the employer had permitted the same earlier. The period of 10 years to file a legal compensation claim begins at the time of the delivery of the work and not earlier. An important caveat here is Article 883, which disallows any claim that comes after three years after the defect is discovered.
The parties need to be careful about the contractual terms that they are subject to in the EPC contracts. For instance, an EPC contract may change the ten-year guarantee period ensured by Article 880. However, it may not, through a contractual agreement, increase the time limit of three years within which a legal compensation claim has to be filed as per Article 883. Article 880 specifically provides for such flexibility; however, Article 883 does not. Further, Article 882 declares a contract void if it exempts a contractor or an architect from liability posed by Article 880.
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