ARTICLES & UPDATES

The construction sector is one of the industry’s most prone to disputes due to the number of parties involved, the complexity of responsibilities, and the long execution period. However, these risks and disputes can be significantly reduced through contracts that are drafted with precision and clarity. Therefore, the contract must focus on essential elements that commonly lead to disputes, such as project cost, the responsibilities of each party, an accurate description of the work, the execution period, and, most importantly, clear legal obligations and penalties that leave no room for interpretation or ambiguity.

One of the most significant legal risks in construction contracts is the change of work scope (Variation Orders). Variation orders are the primary cause of disputes, especially when they are not documented in writing, when no agreement exists on the new prices, or when they are executed without formal approval. As a general rule, a contract may not be amended without mutual agreement, and any variation order must be issued in writing. 

The Court of Cassation has ruled that a claim for the value of additional works is not accepted unless supported by a written variation order.

Delays in project execution are another major source of disputes. The causes of delay vary, some relate to the contractor, others to the project owner, and sometimes to external factors or circumstances beyond the control of both parties. 

According to a ruling of the Court of Cassation, if the delay is due to other parties’ failure to approve drawings or issue necessary instructions, delay penalties shall not apply. Therefore, faults by the employer or cases of force majeure prevent the imposition of penalty clauses.

Many companies overlook the need to include a clear definition of delay or a mechanism for requesting an extension of time, making them vulnerable to substantial penalties. For this reason, the contract must include a detailed project schedule, a mechanism for calculating delay, and clear conditions outlining responsibility and the method of calculating delays.

As a general rule, a contract may not be terminated without a legitimate reason. Article (688) of the Civil Code provides: “The employer may terminate the contract and stop the work at any time before its completion, provided that he compensates the contractor for all expenses incurred, for the works already performed, and for the profits the contractor would have made had the work been completed. However, the court may reduce compensation for lost profits if the circumstances justify such reduction.”

The Court of Cassation has ruled that terminating a construction contract without legal justification constitutes a breach of contract requiring compensation and calculation of completed works.

The contractor must execute the work in accordance with the conditions set out in the contract and within the agreed period. If no such conditions or period exists, the contractor is required to complete the work according to established professional standards and within a reasonable time dictated by the nature of the work and industry custom. 

The Court of Cassation has also ruled that discrepancies in drawings and specifications do not exempt the contractor from liability, as the contractor must review them prior to entering into the contract.

If, during execution, it appears that the contractor is performing the work defectively or in a manner contrary to the contract, the employer may warn the contractor to correct the method within a reasonable deadline. If the contractor fails to comply within that period, the employer may request rescission of the contract or seek authorization to assign another contractor to complete the work at the expense of the original contractor, provided that the nature of the work allows for such substitution.

The employer may also request termination without notice if correcting the defect is impossible. In all cases, the judge may reject termination if the defect does not significantly diminish the value or usability of the work, without prejudice to the right to compensation where applicable.

If the contractor delays commencing or completing the work in a manner that makes timely completion unlikely, or behaves in a way indicating an intention not to fulfill the obligation, or commits an act that renders performance impossible, the employer may request rescission of the contract without waiting for the delivery deadline. Changes in the cost of the works do not affect the obligations under the contract unless unforeseen circumstances arise that could not have been anticipated.

Attorney / Abdulrazzaq Abdullah E-mail: azq@arazzaqlaw.com