Thursday, October 6, 2011

The Need for a Dedicated Construction Law in Oman

For construction contracts with the Omani government, the typical standard terms and conditions are modeled broadly on the early 1980s version of the International Federation of Consulting Engineers (FIDIC) terms and conditions. In light of the prevalence of such off-the-shelf standard terms in government-sponsored construction projects, there has historically been little focus or effort toward enacting a comprehensive legal framework for the construction sector.

However, this lack of a comprehensive legal framework sometimes can pose difficulties in relation to private sector construction contracts. Private parties often eschew standard terms like those used by the government, and instead prefer bespoke, project-specific construction contracts. The problem is that, in the absence of a specific, construction-focused law in Oman, the parties to these customized private construction contracts may find themselves in a legal vacuum in the event of a dispute. While private construction contracts may be well negotiated, it becomes difficult to form a view on the enforceability of certain crucial terms under Omani law. Although most construction contracts are subject to arbitration, it is critical to ascertain the enforceability of certain provisions such as limitation of liability, allocation of risks, exclusion of or caps on liability, consequential damages, and liquidated damages.

For this reason, the relevant authorities would do well to consider enacting a dedicated construction law for Oman.

In the meantime, the most viable approach is to reason by analogy and extrapolate from existing laws to various scenarios specific to the construction industry. This article highlights a few such principles from the Law of Commerce (Royal Decree No. 55/1990), the Consumer Protection Law (Royal Decree No. 81/2002) and the Law Regulating the Establishment and Functioning of Engineering Consultancies (the “Engineering Consultancy Law”) (Royal Decree No. 120/1994), which are often cited as bearing most relevance to the construction industry. While the foregoing laws offer limited guidance in interpreting contractual terms of construction contracts, this of course does not vitiate the need for a robust, construction-specific law to provide greater clarity in one of Oman’s most critical industries.

From the Law of Commerce

The Law of Commerce embodies the fundamental principles for doing business in Oman and contains many implicit terms for sale-and-purchase-of-goods transactions that would apply in the absence of a contract, and that could also be extended by analogy to the sale and purchase of services, including construction services. Thus, in the construction context, generally applicable principles from the Law of Commerce could be cited to argue for the enforcement of milestone requirements, termination provisions or other commercially important clauses of the contract.

From the Consumer Protection Law

Unlike the Law of Commerce, which broadly encompasses all commercial transactions, the Consumer Protection Law applies only to business-to-consumer transactions. However, certain principles from the Consumer Protection Law, such as the obligation to provide defect-free service (failing which the consumer is entitled to compensation), could be cited in the business-to-consumer construction context, for example to argue for the enforcement of warranty clauses.

From the Engineering Consultancy Law

The Engineering Consultancy Law is specific in its approach and applies directly to certain key aspects of construction, such as providing for the joint liability on the engineering consultant and the contractor for defects in the construction of a building or structure even if such defect is attributable to the land upon which such structure is constructed. The ten-year liability period of the engineering consultant and the contractor runs from the date of delivery of the structure; however, any legal action must be brought forth by the owner within three years of detection of the defect.