For the last 20 years in Oman, the standard form construction contract most widely used in the market has been the 4th edition September 1999 Standard Documents for Building and Engineering Works, particularly for government-led major infrastructure works. Summer 2019 has seen the introduction of a much-awaited new edition, which has been published by the Ministry of Finance and the Ministry of Legal Affairs.
FIDIC Red Book 1999
The Standard Form Contract for Building and Civil Engineering Works has an employer-design and contractor-build risk profile and is based on the FIDIC red book (building and engineering works designed by the Employer). FIDIC published the first version of its red book in 1957, and has since published updated editions in 1969, 1977, 1987, 1999 and 2017, as well as an intermittent amended version published for use by Multilateral Development Banks in 2005.
The Oman 2019 Standard Form is based on the 1999 FIDIC Red Book, not the 2017 edition. Overall, this is a safer approach as the 2017 FIDIC Red Book is less used in the market than its 1999 counterpart.
The 1999 FIDIC Red Book has been used as a base for standard form conditions of contract in other jurisdictions in the GCC for some time, one example of which is the Abu Dhabi Government Conditions of Contract, which came into force in September 2007
Key updates
There was much deliberation in the market about what the new Oman Standard Form may include, and indeed when it would be released. Now that it is here, what does it look like and what are the key differences between the 1999 and 2019 versions? We discuss a handful of some of the updates below.
In relation to defects liability the 1999 Standard Form provided for a 'Period of Maintenance' of 365 days, whereas the new 'Defects Notification Period' (DNP) under the 2019 Standard Form must now be agreed between the Parties, and also allows the Employer to extend the DNP. The Engineer's role in determining the condition of the works has been limited.
With regard to dispute resolution, the 1999 Standard Form contained provisions for referral of disputes or differences to the Engineer and thereafter to ad hoc arbitration. The 2019 Standard Form allows, where positively elected, for court-based litigation. This highlights the importance of obtaining legal advice when negotiating construction contracts and indeed Standard Forms must not be treated as an off-the-shelf contract to be signed between the parties and then neglected throughout the life of the project. With a rise in contentious construction in the region and with increasing pressure on time and money in the construction sector, it is crucial that parties consider which will be the most efficient escalation and dispute resolution process for the project. This will be informed by the nature of the parties, the value of the project, the language of the project documents and other key factors. The provisions relating to Dispute Adjudication Board (DAB), which appear in the FIDIC red book, perhaps unsurprisingly do not feature in the 2019 Standard Form.
The variations provisions have also been improved in the 2019 Standard Form, with value engineering built into the contract, providing greater scope for efficiencies and potential costs-savings to the Employer.
There is also the option in the 2019 Standard Form for the Contractor to undertake to engage Omani SME contractors, in relation to supply and sub-contracts. Omanisation is also now explicitly referenced but with the details to be agreed between the parties.
Anti-Bribery and Corruption (ABC) provisions feature in the 2019 Standard Form, bringing Oman in line with international best practice. The ABC provisions oblige, for example, the Contractor to operate effective anti-bribery and corruption reporting and disclosure controls and procedures. We would generally expect international contractors to request amendments to the Standard Form to require the ABC provisions to be reciprocal, particularly where the Employer is not wholly government-owned.
A further addition is a clause governing Intellectual and Industrial Property Rights (IP) which contains reciprocal obligations and indemnities in relation to IP infringements. This is important as IP is an area of law which has developed over the last 20 years with significant advancements in the design, IT and technology arena.
The 'Special Risks' regime has been replaced with 'Force Majeure' provisions and associated termination rights. Testing and Suspension mechanics, as well as Commencement, Delay and Extension of Time provisions, have also witnessed considerable changes.
There are many other interesting updates, mostly substantive and some cosmetic, a detailed discussion of which is outside the scope of this brief bulletin. However, our overall view is that the Standard Form should, if used correctly, provide greater certainty to both Employer and Contractor in terms of the two fundamental considerations; being (1) the scope and (2) the price of the works. As always, the Standard Form is a starting point only and the parties should continue to seek legal advice to ensure the risk profile is understood and amended where appropriate. Good contract housekeeping can also not be emphasised enough. Both of these will ultimately save time and cost during the life of the project for both parties, particularly where difficulties and disputes arise.
Market progress The issue of the updated Oman Standard Form is another step in the continuing development of Oman's construction sector, alongside other crucial advancements such as the upcoming establishment of an arbitration centre, which was announced last year and the prospective establishment of an Oman branch of the Chartered Institute of International Arbitrators. We understand that other standard form contracts are soon to be released which follow certain contracts under the framework of the FIDIC rainbow suite.
Trowers & Hamlins has recently run a construction law seminar with the Ministry of Legal Affairs in relation to construction contracts and managing disputes. Please do get in touch if you would like more information about our project advisory, non-contentious and contentious work in Oman's construction and energy sector, and the wider GCC and Middle East region, or to join our mailing list for market updates and event invitations.
