The New UAE Civil Transactions Law: A New Era for Construction Contracts and Project Management

The UAE's construction industry has never stood still, and neither should the law that governs it. From iconic skyscrapers and mega infrastructure projects to luxury residential developments, the country's construction sector has evolved into one of the most sophisticated in the world. Recognising this transformation, the UAE introduced Federal Decree-Law No. 25 of 2025 concerning the Civil Transactions Law, which came into force on 1 June 2026.

 

While the new law does not radically alter the fundamentals of construction contracting, it modernises the legal framework to better reflect today's commercial realities. More importantly, it encourages parties to move beyond simply signing contracts and towards managing them effectively throughout the life of a project.

 

Good Faith: A Practical Commercial Obligation

 

One of the defining features of the new law is its emphasis on the principle of good faith. In construction projects, employers, contractors, subcontractors, consultants and suppliers are required to work together over extended periods, often while responding to changing site conditions and commercial demands.

 

The legislation reinforces the principle that contractual relationships should be conducted honestly, transparently and fairly. Withholding material information, engaging in misleading negotiations or acting opportunistically can create unnecessary disputes and expose parties to legal consequences. In practice, good faith is no longer viewed merely as a legal principle; it is a commercial necessity for successful project delivery.

 

Better Contracts Mean Fewer Disputes

 

Many construction disputes begin long before a project encounters delays or defective works. They often originate from contracts containing vague or inconsistent provisions.

 

Clauses governing payment, variations, extensions of time, delay damages and termination should clearly reflect the commercial intentions of the parties. The new legal framework reinforces the importance of interpreting contracts according to their purpose and the parties' intentions, making careful drafting more important than ever.

 

For legal practitioners and commercial teams, the message is clear: standard templates should never replace contracts tailored to the realities of a particular project.

 

Greater Clarity for Muqawala Contracts

 

Muqawala (construction) contracts remain the cornerstone of the UAE construction industry. The updated Civil Transactions Law preserves the established rights and obligations of employers and contractors while providing greater coherence in areas such as project performance, completion, payment obligations and defective works.

 

The reforms also highlight the importance of proper contract administration. Compliance with contractual procedures, timely notices and accurate documentation are no longer administrative formalities; they are essential safeguards that can significantly influence the outcome of future disputes.

 

Termination Should Always Be the Last Resort

 

Termination remains one of the most significant remedies available in construction contracts, particularly where a contractor abandons the works, repeatedly misses contractual milestones or delivers defective work.

 

However, the new framework reinforces that termination must never be approached casually. Parties should ensure that they comply with both the contractual notice provisions and the applicable legal requirements before bringing a contract to an end. Properly documenting breaches, issuing clear notices and allowing contractual opportunities to remedy defaults not only strengthen a party's legal position but also reduce the risk of wrongful termination claims.

 

Documentation Is the Strongest Defence

 

Construction disputes are rarely decided by verbal assurances or competing narratives. More often, they are determined by documentary evidence.

 

Progress reports, site instructions, inspection records, variation orders, payment certificates, meeting minutes, correspondence and delay notices frequently become decisive evidence in litigation and arbitration. Effective record-keeping should therefore be viewed as a core component of project risk management rather than a routine administrative exercise.

 

A Broader Role for Legal Advisers

 

The new legal framework also reflects the changing role of construction lawyers. Legal advisers are no longer involved only after disputes arise. Increasingly, they assist clients in drafting balanced contracts, allocating commercial risks appropriately, reviewing contractual notices and ensuring compliance throughout the project lifecycle.

 

This proactive approach not only minimises disputes but also helps preserve commercial relationships, which is often as valuable as succeeding in litigation.

 

Conclusion

 

Federal Decree-Law No. 25 of 2025 marks an important step in the evolution of UAE construction law. Rather than replacing established legal principles, it strengthens them by promoting contractual certainty, commercial fairness and disciplined contract management.

 

For employers, contractors, consultants and legal practitioners alike, the message is straightforward: successful construction projects are built not only with engineering expertise and financial investment but also with carefully drafted contracts, transparent communication and meticulous project administration. As the UAE's construction sector continues to evolve, those who embrace these principles will be best positioned to navigate both opportunities and disputes under the new legal regime.

 

As practitioners begin working under the new legal regime, the real impact of the legislation will become evident not only through judicial interpretation but also in day-to-day project administration. Parties that treat contracts as living documents, rather than agreements to be revisited only when disputes arise, will be better equipped to manage risk, preserve commercial relationships and achieve successful project outcomes. In an increasingly competitive construction market, legal compliance and sound contract management are becoming strategic advantages rather than mere procedural requirements.

 

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