UAE Construction Contracts 2026: Practical Checklist to Update Progress Payments, Hardship, Delay Damages & Dispute Resolution

Federal Decree‑Law No. 25 of 2025, the new Civil Transactions Law, takes effect on 1 June 2026, and every party to a UAE construction contract needs to act now. The legislation reshapes the rules governing progress payments, hardship relief, delay damages and termination rights that underpin virtually every building, infrastructure and EPC project in the country. For contractors, developers, in‑house counsel and project managers, the window to redline existing agreements and update standard‑form templates is closing fast. This article delivers a practitioner‑focused construction contract checklist: concrete drafting edits, model clauses and a dispute‑resolution playbook designed to bring your UAE construction contracts into compliance before the statutory deadline.

Background: Civil Transactions Law, Key Changes That Affect UAE Construction Contracts

Quick answer: The Civil Transactions Law replaces and modernises several core provisions of the former Civil Code that directly govern construction works agreements (muqawala), introducing express hardship provisions, updated payment‑remedy mechanics and clarified termination thresholds.

Four clusters of change matter most to construction practitioners:

• Progress payments. The new law strengthens the contractor’s entitlement to interim payments commensurate with completed work and introduces clearer remedies, including a statutory right to suspend, where payment is withheld without justification.
• Hardship (changed circumstances). A codified hardship regime now permits judicial adjustment of contractual obligations when supervening events make performance excessively onerous, provided notice and mitigation requirements are satisfied.
• Delay damages and termination. The law refines the court’s power to reduce agreed damages that are disproportionate to actual loss and sets out a structured framework for termination on default, including mandatory cure‑period notices.
• Dispute resolution. While the law does not override freely negotiated arbitration clauses, its interplay with FIDIC notice regimes and local‑court jurisdiction rules requires careful drafting to avoid unintended forum conflicts.

Projects using FIDIC Red Book, Yellow Book or bespoke forms should cross‑reference these statutory changes against their existing particular conditions. Where the contract is silent, the Civil Transactions Law will fill the gap, and the default position may not reflect the risk allocation the parties intended.

Effective Date & Key Deadlines

Progress Payments UAE, What to Revise Now

Quick answer: Yes, you should revise progress‑payment clauses. The Civil Transactions Law reinforces the contractor’s right to be paid for completed work and introduces a statutory suspension remedy for unjustified withholding. Contracts that rely on vague certification language or uncapped retention now carry significantly higher risk for employers.

Invoicing & Certification Mechanics

The first step is to tighten the payment‑application workflow so that it aligns with the new statutory framework. Industry observers expect that courts will scrutinise certification timescales more closely post‑1 June 2026, making loosely drafted clauses a litigation target.

1. Standardise invoicing intervals. Specify whether applications are monthly or milestone‑based; do not leave the question to custom or discretion.
2. Fix certification periods. Require the engineer or employer’s representative to certify (or reject with reasons) within a stated number of days, 14 to 21 days is emerging as market practice for UAE projects.
3. Define the payment window. State the number of days from certification to payment (commonly 28 days) and expressly provide for automatic interest at an agreed rate if the window is exceeded.
4. Cap retention and prescribe release triggers. Set the retention percentage (typically 5–10 %), the conditions for release (e.g., issuance of taking‑over certificate) and the form of retention security (bond or cash).

Remedies for Non‑Payment

Under the new law, a contractor whose certified payment is withheld without lawful justification may suspend performance after serving written notice. Contract drafters should therefore include an express suspension trigger clause that mirrors or exceeds the statutory baseline. Key drafting points include:

• Notice period before suspension. Specify the number of days of written notice required (e.g., 21 days after payment falls due).
• Accrual of costs and time. State that the contractor is entitled to an extension of time and recovery of reasonable costs incurred as a consequence of employer‑caused suspension.
• Termination escalation. If non‑payment persists beyond a second threshold (e.g., 56 days), entitle the contractor to terminate for employer default.

Model Progress‑Payment Clause Examples

Below are two illustrative clause frameworks, one favouring the employer’s cost‑control objectives, the other prioritising the contractor’s prompt‑payment protection. Both should be adapted to the specific project context and reviewed by UAE‑qualified counsel.

Option A, Employer‑Favouring:

“The Contractor shall submit interim payment applications on the last working day of each calendar month. The Engineer shall certify or issue a reasoned rejection within 21 days. The Employer shall pay the certified amount within 28 days of certification. Retention of 10 % shall apply to each interim certificate and shall be released as to 50 % upon issuance of the Taking‑Over Certificate and 50 % upon expiry of the Defects Notification Period.”

Option B, Contractor‑Favouring (Prompt Payment Protection):

“The Employer shall pay each certified interim amount within 21 days of certification. If payment is not received by the due date, interest shall accrue automatically at [Central Bank base rate + 2 %] per annum. If any certified sum remains unpaid for more than 42 days, the Contractor may, upon 14 days’ written notice, suspend the whole or part of the Works without prejudice to its right to an extension of time and recovery of costs. If the default continues for a further 28 days after the suspension notice, the Contractor shall be entitled to terminate the Contract.”

Red‑flag negotiation tip: avoid “pay‑when‑paid” or “pay‑when‑certified” cascading clauses in subcontracts. The likely practical effect of the new law is that such provisions will face increased judicial scrutiny and may be set aside as inconsistent with the contractor’s statutory right to payment for completed work.

Hardship and Force Majeure Under the New Civil Transactions Law

Quick answer: The Civil Transactions Law now provides a statutory hardship clause that sits alongside, but is distinct from, force majeure. Contractors and employers can invoke hardship where supervening events make performance excessively onerous (but not impossible), provided they comply with strict notice and mitigation requirements.

Differences Between Hardship and Force Majeure

Force majeure excuses performance entirely when an event is unforeseeable, unavoidable and renders performance impossible. Hardship, by contrast, applies where performance remains possible but has become so burdensome that the equilibrium of the contract is fundamentally altered. The distinction matters because the remedies differ: force majeure may lead to termination without liability, whereas hardship entitles the affected party to renegotiation, and ultimately to judicial adjustment of price or obligations if renegotiation fails.

Notice and Mitigation Obligations

The new statutory framework imposes specific procedural requirements that, if missed, can extinguish the right to relief:

• Prompt written notice. The affected party must notify the other party within a reasonable time of becoming aware of the hardship event. Industry practice in UAE construction projects, particularly those governed by FIDIC, typically calls for notice within 28 days.
• Mitigation duty. The claiming party must demonstrate that it took reasonable steps to mitigate the impact of the event. Passive reliance on the hardship clause without evidence of mitigation will weaken or defeat the claim.
• Good‑faith renegotiation. The parties are required to renegotiate in good faith before resorting to judicial or arbitral intervention. Drafting should prescribe a renegotiation window (e.g., 60 days) to prevent indefinite delay.

Draft Hardship Clause & Sample Notice Template

Model hardship clause UAE:

“If, after the date of this Contract, events occur that were not reasonably foreseeable at the time of contracting and that fundamentally alter the equilibrium of the Contract, rendering performance excessively onerous for either party without rendering it impossible, the affected party shall be entitled to request renegotiation of the affected obligations in accordance with the following procedure:

1. The affected party shall give written notice within 28 days of becoming aware of the hardship event, setting out the nature and estimated impact of the event.
2. The parties shall negotiate in good faith for a period not exceeding 60 days from the date of notice.
3. If agreement is not reached within the negotiation period, either party may refer the matter to [arbitration / the competent court] for adjustment of the Contract terms.”

Model force majeure notification:

“NOTICE OF FORCE MAJEURE EVENT, Pursuant to Clause [X], [Party] hereby notifies [Other Party] that a force majeure event occurred on [date]. The event consists of [description]. [Party] has taken / is taking the following mitigation steps: [list]. The estimated duration and impact on the programme is [details]. [Party] reserves all rights under the Contract and applicable law.”

Practical tip: maintain a contemporaneous evidence file for any hardship or force majeure claim, correspondence, cost records, programme updates and third‑party reports. Early indications suggest that UAE courts will apply the new hardship provisions rigorously, and a well‑documented notice trail will be critical to success. For a deeper treatment of construction law terminology, see our glossary.

Delay Damages UAE, Liquidated Damages and Termination Rights

Quick answer: Liquidated damages remain enforceable under the new law, but courts retain, and may now exercise more readily, the power to reduce agreed damages that are grossly disproportionate to actual loss. Termination rights are subject to mandatory cure‑period notice requirements.

Calculating Delay Damages & Avoiding Penalty Classification

The Civil Transactions Law preserves the long‑standing principle that contracting parties may agree in advance on a sum payable for delay. However, the court may reduce that sum if the obligor proves it is “manifestly excessive” relative to the actual loss suffered. To protect enforceability, delay damages UAE clauses should:

• Be calibrated to a genuine pre‑estimate of loss. Attach a brief schedule or annex explaining the methodology used to calculate the daily or weekly rate (e.g., lost rental income, financing costs, reputational harm).
• Set a cap. An overall cap, typically 5–10 % of the contract price, reduces the risk that a court will characterise the provision as penal.
• Include a notice‑and‑cure mechanic. Require the employer to issue a formal delay notice and grant the contractor a stated cure period (e.g., 14 days) before liquidated damages begin to accrue.
• Separate delay damages from termination. Ensure that the accrual of LDs and the right to terminate are treated as distinct remedies with independent triggers.

Suspension & Termination Mechanics Under the New Law

The Civil Transactions Law introduces a structured approach to termination of construction contracts. A party seeking to terminate for the other’s default must generally:

1. Serve written notice specifying the default and requiring remedy within a reasonable period.
2. Allow the defaulting party to cure (the cure period should be stated in the contract; absent an express term, industry observers expect courts to apply a period of 14–28 days).
3. If the default is not cured, serve a second notice confirming termination.

For contractors facing employer default, suspension before termination remains the recommended first step. For a detailed analysis of suspension‑to‑termination mechanics under the GCC 2025, see our companion guide.

Model Clause Examples and Negotiation Tips

Model liquidated damages clause:

“If the Contractor fails to complete the Works by the Date for Completion (as extended), the Contractor shall pay to the Employer liquidated damages at the rate of [amount] per day of delay, subject to a maximum aggregate liability of [X] % of the Contract Price. The Employer shall issue a written delay notice and the Contractor shall have 14 days from receipt to remedy the cause of delay before liquidated damages begin to accrue.”

Model termination trigger clause:

“Either party may terminate this Contract if the other party: (a) commits a material breach and fails to remedy that breach within 28 days of receiving written notice; or (b) becomes insolvent or enters administration. Termination shall take effect upon service of a second written notice confirming that the breach has not been remedied.”

Negotiation tip: resist clauses that permit termination “at will” or “for convenience” without compensation. Under the new law, the terminated contractor’s entitlement to payment for work completed and materials procured is strengthened, and attempting to draft around this protection may invite judicial intervention.

Construction Dispute Resolution UAE, Choosing Forum & Preserving Enforcement

Quick answer: The Civil Transactions Law does not override freely negotiated arbitration agreements, but project teams must review forum‑selection clauses to ensure they are compatible with the new notice and cure‑period requirements and to avoid drafting errors that create parallel proceedings.

Courts vs Arbitration vs DIFC/ADGM

UAE construction disputes can be resolved through several forums, each with distinct advantages and risks:

For further background on structuring multi‑tier dispute clauses in complex contracts, see our guide to complex dispute resolution clauses.

Model Dispute Resolution Clause(s) With Fallbacks

Model arbitration clause with emergency relief:

“Any dispute arising out of or in connection with this Contract shall be finally resolved by arbitration under the Rules of the [ICC / DIAC], as amended from time to time. The seat of arbitration shall be [Dubai / Abu Dhabi]. The language of the arbitration shall be English. The tribunal shall consist of [one / three] arbitrator(s). The parties agree that the Emergency Arbitrator Provisions of the applicable Rules shall apply and that either party may seek interim or conservatory measures from any court of competent jurisdiction without waiving the right to arbitrate.”

Alternative, DIFC Courts jurisdiction clause:

“The parties irrevocably submit to the exclusive jurisdiction of the DIFC Courts for the resolution of any dispute arising out of or in connection with this Contract. This clause is an agreement to opt in to the jurisdiction of the DIFC Courts pursuant to Article 5(A)(2) of the Judicial Authority Law, DIFC Law No. 12 of 2004, as amended.”

These model clauses should be treated as starting points. The optimal forum depends on the project value, the parties’ enforcement objectives, and the need for urgent interim relief. For guidance on hearing preparation, see preparation for and conduct of arbitration hearings.

Practical Enforcement & Urgent Relief Checklist

• Confirm that the arbitration clause expressly preserves the right to seek interim relief from courts without waiving arbitration.
• Where using DIAC Rules, verify that Emergency Arbitrator provisions are not excluded in the particular conditions.
• For DIFC or ADGM court judgments, map the enforcement route into onshore UAE (e.g., the Dubai Courts – DIFC Courts mutual enforcement protocol).
• Maintain a compliant notice trail to satisfy claim‑notification conditions precedent under both the contract and the Civil Transactions Law.

Practical 10‑Point Construction Contract Checklist Before 1 June 2026

Quick answer: The following checklist summarises the ten essential contract‑update actions that every project team should complete before the Civil Transactions Law takes effect.

1. Establish a review committee. Assign responsibility across legal, commercial and project‑management functions. Target: by mid‑May 2026.
2. Audit existing contracts. Identify all live agreements that incorporate UAE law (including FIDIC with UAE governing law) and flag clauses affected by the new law.
3. Redline progress‑payment clauses. Update invoicing intervals, certification periods, payment windows, interest rates and retention caps.
4. Insert or update hardship and force majeure clauses. Ensure notice triggers, mitigation obligations and renegotiation windows are expressly stated.
5. Review liquidated damages provisions. Confirm that LD rates are supported by a genuine pre‑estimate of loss and that an overall cap and cure period are included.
6. Clarify suspension and termination mechanics. Add express cure periods, notice requirements and termination‑confirmation procedures.
7. Revise dispute resolution clauses. Confirm forum selection, emergency‑relief provisions and enforcement routes.
8. Prepare model clause annexes. Circulate approved template language to project teams for use in new tenders and subcontracts.
9. Issue early‑warning and preservation notices. Where hardship or delay claims are anticipated on live projects, issue notices now to preserve rights under the incoming law.
10. Engage specialist construction counsel. Obtain bespoke legal advice for high‑value or complex contracts that require tailored amendments.

Quick Implementation Timeline

Conclusion and Next Steps for UAE Construction Contracts

The Civil Transactions Law represents the most significant overhaul of the statutory framework governing UAE construction contracts in over four decades. Progress payments, hardship relief, delay damages and termination rights are all affected, and contracts that were compliant under the old regime may no longer reflect the parties’ intended risk allocation after 1 June 2026.

The practical message is straightforward: act now. Use the 10‑point construction contract checklist above to structure your review, adopt or adapt the model clauses provided, and ensure that your dispute‑resolution framework is fit for purpose under the new regime. For projects using FIDIC forms, pay particular attention to the interaction between the particular conditions and the statutory defaults.

Early indications suggest that the UAE courts will apply the new provisions proactively, particularly the hardship regime and the judicial power to reduce disproportionate liquidated damages. Contractors and employers who prepare thoroughly will be best positioned to protect their commercial interests and avoid costly disputes.

Sources

1. Chambers & Partners, Construction Contracts Under the UAE 2025 Civil Transactions Law
2. Dentons, United Arab Emirates: Construction Guide
3. ICLG, Construction & Engineering Laws and Regulations (UAE)
4. Global Arbitration Review, Construction Arbitration, UAE
5. Fenwick Elliott, Suspension and Termination of UAE Construction Contracts
6. HN Legal Consultants, Understanding FIDIC Contracts in UAE Construction Projects
7. ElpLegal, UAE Construction Contract Payment Changes 2026
8. FIDIC, Official Resources