Monday, December 23, 2013

Contractors' Warranty Period

Contractors beware! The recently enacted Civil Code has an impact on the contractor’s obligations under Engineering, Procurement and Construction (EPC) contracts. The Civil Code, which took effect on August 6th 2013, imposes a statutory warranty period that applies to all Muqawala Contracts (Contracts to build).

Article 634 of the Civil Code provides that both the contractor and the engineer shall be jointly liable for a period of ten years for any defect existing in the buildings and facilities which threaten the stability or safety of the building, unless the contract specifies a longer period. The period of ten years is expressed to commence from the time of delivery of the work as per Article 634(3).

Therefore, in view of the enactment of the Civil Code, it is recommended for contractors to consider such statutory provisions upon conception of EPC contracts; as it may be the case that their work is covered under a statutory warranty with a longer warranty period than that specified in the EPC contract itself.

Moreover, this statutory warranty contained in the Civil Code is separate and independent from any warranty given in the EPC contract. Hence claims can be brought under the statutory warranty regardless of the merits of any claim under the contractual warranty which may be of a shorter duration.

It is also noteworthy that Article 636 of the Civil Code provides that any agreement made for the purposes of exempting or limiting the contractor’s liability is deemed void. This Article may apply to a contractual warranty period that is shorter than the statutory warranty period.

From a legal prospective, the Civil Code reinforces the existing statutory warranty provisions mentioned in the Engineering Consultancy Law issued by RD 120/1994.

As always, contractors entering into contractual obligations should take legal advice to ensure that all provisions of the EPC contract are in accordance with statutory provisions in order to avoid liability or any other unnecessary legal consequences.

Corporate tax matters in Oman are one of the key concerns for any company wishing to pursue business opportunities within the Sultanate. As such, it is important for companies to remain current with developments regarding Omani tax law.