When Project Delivery Comes Under Pressure: What It Means for Contractors and Employers

12 November 2026

Part of ADG Legal’s What’s the Impact? series

Major construction projects already allocate risk in considerable detail. The new UAE Civil Code, which came into force on 1 June 2026, can change that allocation and give rights in addition to the contract.

For construction projects, the law addresses good faith during contract negotiations, site problems, defective performance, exceptional pressures on lump-sum prices and stopping the works.

Good faith during contract negotiations

Some project disputes begin before construction starts. A contractor may price the works based on information provided during negotiations, including site conditions, access arrangements or the scope of work.

The new UAE Civil Code requires parties to negotiate in good faith and, in specified circumstances, disclose information decisive to the other party’s consent. Neither party is obliged to enter into a contract, but negotiating or ending negotiations in bad faith may give rise to liability for actual loss.

For contractors and employers, tender clarifications, qualifications and records of information exchanged during negotiations can become important if the assumptions on which the contract was agreed are later disputed.

Site problems need to be raised quickly

A defect may emerge in material supplied by the employer. Site conditions or technical information may reveal factors that hinder proper execution of the works.

Where defects become apparent in materials supplied by the employer, or other factors arise that hinder proper execution, the contractor must notify the employer immediately. Failure to do so makes the contractor liable for the consequences of that omission.

Timely reporting is more than just good administration; it is a means to preserve entitlement.

A contractor’s reporting system needs to identify issues affecting execution and escalate notification quickly. Employers, in turn, need clear records of what was raised, when it was raised and how the issue was dealt with.

On major projects, that evidence may sit across site reports, correspondence, meeting minutes, programmes and technical records. The statutory obligation gives those records greater significance when responsibility is later disputed.

When performance starts going wrong

An employer can require the contractor to correct defective performance within a reasonable period. If the contractor does not do so, the employer may rescind the contract or have the work completed or corrected by others at the original contractor’s expense.

In more serious situations, where correction is impossible or inconsistent with the contract, where delay makes completion within the agreed period effectively unattainable, or where the contractor’s conduct indicates an intention not to perform, the employer may be entitled to rescind the contract without first allowing a cure period.

For employers, poor performance is therefore not simply a question of whether the works are falling short. How the issue is identified, communicated and managed can affect the remedies available if the problem continues.

Contractors should likewise treat notices of defective or delayed performance as part of the project’s legal risk, not simply routine correspondence between site teams.

When a lump-sum price comes under pressure

Cost escalation is one of the most commercially sensitive issues on a major project.

Most contracts are for a fixed lump-sum price and do not provide for escalation of costs. Notwithstanding the contract, it may be possible for the contractor to claim relief where unforeseen general exceptional circumstances disrupt the contractual equilibrium and undermine the financial basis of the contract.

Depending on the circumstances, relief may include an extension of time, an increase or reduction in the contract price or, possibly, rescission of the contract.

That is not a general escape from a bad bargain or ordinary cost inflation. The circumstances must be exceptional enough to disturb the foundation on which the contract was agreed.

Evidence becomes critical where this is alleged. The project records should be capable of showing what changed, why it was unforeseeable, how it affected performance or cost and whether the contractual balance was genuinely undermined.

Stopping the works has financial consequences

Sometimes the issue is not how to complete the project, but whether the employer wants it completed at all.

The employer has a right to withdraw from the contract before completion.

If the employer takes this step, it must compensate the contractor for expenditure incurred, work already performed and the profit the contractor would have earned had the works been completed, although the court may reduce the lost-profit element where the circumstances make that equitable.

Therefore, before taking such a step, project teams should understand what work has been completed, what costs have been incurred, what commitments remain outstanding and what financial exposure may follow.

For contractors, contemporaneous cost and progress records become equally important to maximise the claim by establishing what has already been spent, delivered and potentially lost.

The practical impact

The new Civil Transactions Law does not replace the contract. It changes parts of the statutory framework against which those contracts are administered when project delivery comes under pressure.

Contractors and employers should now ensure that:

• Site issues that hinder proper execution are identified and notified promptly.
• Project records clearly show when performance problems arose and how they were addressed.
• Where a lump-sum project faces severe disruption, records distinguish ordinary cost escalation from circumstances that may genuinely disturb the contractual equilibrium.
• Programme, cost and correspondence records are strong enough to support decisions if relief or termination is later disputed.
• If the employer is considering stopping the works, the likely financial consequences are assessed before that decision is made.

This article was prepared by Scott Lambert.

Want to know more about construction contracts, project delivery or the impact of the UAE Civil Transactions Law on construction projects? Get in touch with Scott Lambert or the ADG Legal team.

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