The civil transaction law UAE framework for construction contracts is now governed by Federal Decree-Law No. 25 of 2025 Promulgating the Civil Transactions Law, which came into force on 1 June 2026 and replaced Federal Law No. 5 of 1985. For construction and other contracts for work, the new UAE Civil Transactions Law regulates Muqawala contracts mainly through Articles 812 to 839.
These provisions affect contractor obligations, defective work, contract pricing, variations, agreed damages, termination and decennial liability. They operate alongside the express terms of the construction contract, while certain statutory protections cannot simply be excluded by agreement.
Developers, contractors, consultants and other project parties can also review their position through Al Ramsy’s construction law services in the UAE.
What Is the Current Civil Transaction Law UAE?
The current law is Federal Decree-Law No. 25 of 2025 Promulgating the Civil Transactions Law.
It replaced Federal Law No. 5 of 1985 with effect from 1 June 2026 and now provides the principal federal framework governing contracts, obligations, civil liability and other private-law relationships in the UAE.
For construction, the change is important because many provisions traditionally cited under the former UAE Civil Code now have new article numbers.
| Construction Issue | Former Law | Current Law |
|---|---|---|
| Muqawala contracts | Articles 872–896 | Articles 812–839 |
| Decennial liability | Articles 880–883 | Articles 821–824 |
| Agreed compensation | Article 390 | Article 340 |
| Governing legislation | Federal Law No. 5 of 1985 | Federal Decree-Law No. 25 of 2025 |
The new law generally applies prospectively. Older contracts, events and disputes may therefore continue to engage the former Civil Transactions Law depending on their timing and the transitional provisions.
For construction parties, identifying which version of the law applies should be one of the first steps in reviewing a claim.
This article focuses on construction contracts governed by the federal onshore UAE legal framework.
How Does the Civil Transaction Law UAE Apply to Construction Contracts?
Construction agreements fall within the statutory rules for Muqawala contracts.
Under Article 812, a Muqawala is a contract under which one party undertakes to manufacture something or perform work for consideration paid by the other party.
For a construction project, this can include agreements involving:
- building works;
- engineering works;
- fit-out;
- infrastructure;
- specialist works; and
- other contracted project work.
Article 813 requires the Muqawala contract to specify the subject of the work, its nature and quantity, the method of performance, the completion period and the consideration payable.
In practice, those matters are usually developed through the main agreement together with:
- drawings and specifications;
- Bills of Quantities;
- project programmes;
- scope documents;
- Particular Conditions; and
- other incorporated contract documents.
The civil transaction law UAE framework therefore does not replace the construction contract. Instead, the contract and the statutory provisions need to be read together.
Detailed agreements will normally also regulate payment, variations, extensions of time, delay damages, defects, termination and dispute resolution.
For that reason, construction contracts in the UAE should be reviewed against both their express terms and the current Civil Transactions Law.
Contractor Obligations and Defective Work
The new UAE Civil Transactions Law contains specific rules dealing with contractor performance and problems discovered while the work is being carried out.
Contractor Notice Obligations
Article 816(3) creates an express notification requirement.
If defects appear in materials supplied by the employer, or other circumstances arise that may prevent the work from being properly executed, the contractor must notify the employer immediately.
If the contractor fails to provide the required notice, it may be liable for the consequences resulting from that failure.
On a construction project, this can become relevant where the contractor discovers issues involving:
- employer-supplied materials;
- existing site conditions;
- information affecting execution;
- design-related problems; or
- other circumstances preventing proper performance.
This statutory obligation should be considered alongside any contractual notice provisions.
A FIDIC or bespoke contract, for example, may impose its own deadlines, content requirements and methods for delivering notices.
What Happens if the Work Is Defective?
Article 818 requires the contractor to carry out the work according to the contract and within the agreed period.
If the contractor performs defective work or acts contrary to the contractual requirements, the employer may give notice requiring the contractor to correct the problem within a reasonable period.
If the contractor fails to remedy the breach, the employer may, subject to the requirements of Article 818:
- rescind the contract; or
- appoint another contractor to complete or correct the work at the original contractor’s expense.
The Article also deals with circumstances where more immediate action may be available, including situations where correction is impossible or the contractor’s conduct makes proper completion unlikely.
Termination or replacement should still be considered carefully against the contract itself, including any notice, certification and dispute-resolution procedures.
Construction Prices, Variations and Cost Increases
Pricing disputes are particularly important under lump-sum construction contracts.
Under Article 829, where a Muqawala contract is based on an agreed design for a lump-sum price, the contractor generally cannot demand an increase merely because:
- material prices increased;
- labour became more expensive; or
- other execution costs increased.
Ordinary cost escalation therefore does not automatically transfer to the employer.
What About Variations?
A modification or addition can create a different position where it results from the employer’s fault or is authorised by the employer and the parties agree on the increase in remuneration.
This makes proper variation procedures important.
Project parties should clearly record:
- what changed;
- who instructed it;
- when it was instructed;
- whether the contractor gave the required notice;
- the effect on price; and
- the effect on time.
Exceptional General Circumstances
Article 829 also introduces an important rule for exceptional circumstances.
Where unforeseen general exceptional circumstances fundamentally disturb the financial balance between the employer and contractor, the court may consider restoring the contractual equilibrium.
Depending on the circumstances, this may include:
- extending the performance period;
- increasing the remuneration;
- reducing the remuneration; or
- rescinding the contract.
This does not give contractors a general right to recover every increase in project costs.
The circumstances must satisfy the statutory requirements, and the contract’s existing allocation of risk remains relevant.
Liquidated Damages Under the UAE Civil Transactions Law
Construction agreements often contain predetermined compensation for delay, commonly described as liquidated damages or delay damages.
Under the current UAE Civil Transactions Law, agreed compensation is governed by Article 340, replacing former Article 390.
The parties can agree compensation in advance, but the contractual figure is not necessarily beyond judicial review.
The court may reduce the amount where, for example:
- the agreed compensation is excessive;
- the underlying obligation was partly performed; or
- the creditor contributed to causing or increasing the damage.
Where fraud or gross fault is established, the creditor may also seek compensation above the agreed amount in the circumstances permitted by Article 340.
For construction delay disputes, evidence remains critical.
Relevant records can include:
- baseline and updated programmes;
- extension-of-time notices;
- progress reports;
- instructions;
- variation records;
- correspondence;
- delay analysis; and
- evidence of employer-caused events.
A delay damages provision should therefore not be reviewed in isolation from the actual causes and contractual allocation of delay.
Decennial Liability Under the New UAE Civil Code
The current UAE civil code construction framework retains the important concept of decennial liability, but the applicable article numbers have changed.
The relevant provisions are now Articles 821 to 824 of Federal Decree-Law No. 25 of 2025.
Where the statutory conditions apply, the contractor and relevant engineer may face joint liability for serious problems affecting buildings or other fixed installations, including:
- total collapse;
- partial collapse; or
- defects threatening structural stability or safety.
The liability period generally runs for ten years from delivery of the works.
A claim under the statutory decennial liability regime must generally be brought within three years from the collapse or discovery of the qualifying defect.
Can Decennial Liability Be Excluded?
No.
Article 823 prevents the parties from excluding or limiting the statutory decennial liability.
A construction contract therefore cannot simply reduce this mandatory protection by agreement.
What About Subcontractors?
The current provisions also clarify the relationship between decennial liability and subcontractors.
The statutory decennial liability regime governs the relevant liability to the employer, while a main contractor’s right to recover against a subcontractor is dealt with separately.
The subcontract therefore remains particularly important.
Main contractors should consider clauses dealing with:
- warranties;
- structural defects;
- indemnities;
- liability periods;
- insurance; and
- back-to-back obligations.
Termination of Construction Contracts
The Civil Transactions Law also contains important provisions dealing with the end of a Muqawala contract.
Under Article 834, a Muqawala contract ends when:
- the agreed work is completed;
- the parties mutually agree to end it; or
- it is terminated by court order.
Article 835 allows either party to seek rescission or termination where a supervening impediment prevents performance or completion.
Can an Employer Terminate for Convenience?
Article 836 expressly allows an employer to withdraw from the contract and stop execution before completion.
Where the Article applies, the employer must compensate the contractor for:
- expenses already incurred;
- work already completed; and
- the profit the contractor would have earned if the work had been completed.
The court may reduce the lost-profit element where appropriate, including by taking into account expenses the contractor saved or income earned by using its resources on other work.
This provision can be particularly important where the construction contract does not contain a detailed termination-for-convenience mechanism.
Where the contract does contain one, the contractual wording and statutory position should be reviewed together.
How Do FIDIC Contracts Work With the Civil Transactions Law?
FIDIC forms are widely used in UAE construction projects, but they operate as contractual terms rather than replacing UAE law.
FIDIC Conditions and Particular Conditions may regulate matters including:
- contractor notices;
- variations;
- extensions of time;
- payment certification;
- delay claims;
- employer claims;
- termination; and
- dispute resolution.
Where UAE law governs the agreement, the civil transaction law UAE framework remains relevant even when a FIDIC form is used.
The statutory rules may become particularly important where:
- the contract is silent;
- a provision is unclear;
- a default statutory rule applies; or
- the issue involves a mandatory legal requirement.
Contracts must also be performed consistently with the UAE Civil Transactions Law’s general contractual principles, including good-faith performance.
Parties using standard FIDIC forms should therefore review the Particular Conditions and project-specific amendments rather than assuming the unamended international wording answers every UAE law issue.
A construction contract review can help identify clauses that require adjustment under the current legal framework.
What Should Construction Parties Review Under the New Law?
Developers, contractors, consultants and subcontractors should review existing contract templates and new projects against the updated UAE Civil Transactions Law.
Particular attention should be given to:
- Applicable law and contract date
Establish whether Federal Decree-Law No. 25 of 2025 or the former law governs the relevant contract and events. - Notice provisions
Ensure project teams understand both statutory and contractual notice requirements. - Defective work procedures
Review cure periods, replacement-contractor rights and termination procedures against Article 818. - Variation and price clauses
Clearly document instructed changes and distinguish variations from ordinary cost escalation. - Liquidated damages
Review agreed compensation provisions against Article 340 and maintain proper delay records. - Decennial liability
Update contracts that still refer to former Articles 880–883 and review warranties, insurance and subcontract protections. - Termination rights
Check how contractual termination clauses interact with Articles 834–836. - Dispute resolution
Confirm whether disputes are subject to court litigation or arbitration and maintain the documents needed to support a claim.
Where a construction dispute has already developed, the appropriate route may include negotiation, construction litigation in the UAE or arbitration, depending on the agreement and dispute-resolution clause.
Frequently Asked Questions
What is the current civil transaction law UAE?
The current legislation is Federal Decree-Law No. 25 of 2025 Promulgating the Civil Transactions Law. It came into force on 1 June 2026 and replaced Federal Law No. 5 of 1985.
Which UAE Civil Transactions Law provisions apply to construction contracts?
Muqawala contracts, including construction contracts, are principally regulated by Articles 812 to 839, together with general contractual and liability provisions elsewhere in the law.
Does the new UAE Civil Transactions Law apply to old construction contracts?
Not automatically. The law contains rules governing its temporal application, and older contracts, acts or disputes may remain subject to the former Civil Transactions Law depending on the relevant dates and circumstances.
Can a UAE construction contract exclude decennial liability?
No. The statutory decennial liability under Articles 821 to 824 includes mandatory protections that cannot be excluded or limited by contract.
Can a contractor increase a lump-sum price because construction costs increased?
Ordinary increases in labour, materials or other execution costs do not automatically allow the contractor to increase an agreed lump-sum price. Authorised changes and qualifying exceptional general circumstances may produce a different result under Article 829.
.
