A UAE Perspective on Subcontracting and Back-to-Back Contracts
In December 2025, we participated in the Society of Construction Law India's 5th Biennial International Conference on Construction Law & Arbitration, themed "The Future of Construction Disputes: Navigating Change in India and Beyond". The conference provided an invaluable platform to exchange insights with construction law practitioners globally.
The conference's theme naturally led us to focus on subcontracting and back-to-back contracts. Why? Because as construction projects grow more complex and international, the subcontracting chain has become a key source of disputes. We discussed how the UAE's legal framework addresses these challenges, offering insights that resonate across jurisdictions facing similar issues: how to allocate risk fairly across multiple tiers, how to avoid inconsistent dispute outcomes, and how to structure contracts that are both commercially practical and legally enforceable.
Why Subcontracting Matters
Subcontracting is the fundamental business model underpinning the UAE construction industry, with most projects involving 100 to 200 subcontracted work packages, and even more for mega projects. Iconic projects like the Burj Khalifa and Dubai Expo 2020 depend on extensive subcontracting, with subcontractors providing critical expertise in MEP systems, façade engineering, steel works, and high-end fit-out.
This creates intense interface risk. With multiple different work packages, coordination challenges are enormous, and subcontracting becomes a macro-level commercial and dispute driver. The majority of construction disputes in the UAE ultimately trace back to subcontracting issues.
UAE Legal Framework
The legal framework governing subcontracting in the UAE is found in Federal Law No. 5 of 1985, the Civil Code, specifically Articles 872-896 dealing with Muqawala. Three critical provisions shape the landscape:
- Article 890(1) allows the main contractor to subcontract without employer permission, unless the contract stipulates otherwise. In practice, most UAE employers insist on approval rights over key subcontractors.
- Article 890(2) establishes that the main contractor remains liable to the employer for the subcontractor's performance—the main contractor cannot escape liability by pointing to subcontractor failures.
- Article 891 provides that the subcontractor may not claim from the employer any dues unless assigned by the main contractor, creating significant commercial pressure on subcontractors.
Why Back-to-Back Contracting Is Essential
Back-to-back contracting is the primary tool to align risk, time, and scope between main contracts and subcontracts. When managing extensive subcontract packages, consistency is crucial to avoid gaps where risk falls through the cracks or double exposure is created for the main contractor.
Critically, the UAE has no statutory prompt payment regime like the UK. The UAE Civil Code allows freedom of contract, which means pay-when-paid clauses are generally enforceable, subject to good faith requirements.
Key Conference Insights
- Liquidated Damages and Proportionality: When drafting subcontracts, there is fundamental uncertainty about whether a particular subcontractor will be solely responsible for delay, partially responsible, or not responsible at all. Under the UAE Civil Code's proportionality principle, courts will scrutinise whether liquidated damages provisions are genuine pre-estimates of loss or penalties. If a subcontractor is held liable for 100% of main contract liquidated damages when they were only 20% responsible for the delay, a UAE court may reduce the liability to a proportionate amount.
- Payment Provisions: The UAE has no statutory prohibition on pay-when-paid clauses. They are generally enforceable, subject to the good faith requirement under Article 246. Pay-when-certified clauses can achieve similar commercial outcomes without the same legal vulnerability, though the main contractor bears the risk if it certifies but the employer does not pay.
- Avoiding Contradictory Positions: One fascinating discussion concerned contractors adopting conflicting positions when an issue arises simultaneously under tier 1 and tier 2 contracts. For example, blaming the subcontractor in disputes with the employer whilst blaming the employer in disputes with the subcontractor. The result: the main contractor loses credibility in both disputes and may lose both. The solution lies in careful case management: conduct an immediate, objective analysis of causation when an issue arises, adopt a consistent position based on the facts, and where multiple parties contributed to a problem, apportion responsibility fairly and consistently.
- Umbrella Arbitration: Umbrella arbitration provisions allow disputes under tier 1 and tier 2 contracts to be addressed by the same tribunal. The advantages are clear: one tribunal determines all related issues, avoiding inconsistent findings, evidence is presented once, and cost savings result from one set of proceedings rather than two.
Looking Forward
The conference reinforced several critical themes: precision in drafting is essential; main contract and subcontract provisions must be properly aligned; overly one-sided provisions may be unenforceable; even the best-drafted contracts require active management; and contracts must comply with the applicable law.
The exchange of ideas with practitioners from India and other jurisdictions highlighted both the universal challenges of construction projects and the importance of understanding local legal frameworks. As construction projects become increasingly complex and international, forums like the SCL India Conference play a vital role in advancing best practices and fostering collaboration across borders.
