EPC Contracts in the UAE: How Engineering, Procurement and Construction Deals Allocate Risk

Direct answer. An EPC contract is a single contract under which one contractor handles the engineering (design), procurement (buying equipment and materials) and construction of a project. The contractor usually hands it over complete, for a fixed price, by a fixed date. That is why it is also called a turnkey contract. In the UAE, an EPC contract is a contracting agreement (muqawala) under the Civil Transactions Law. The current law is Federal Decree-Law No. 25 of 2025, in force since 1 June 2026, which replaced Federal Law No. 5 of 1985. The contract decides most of the risk split, but the law sets some defaults and a few fixed rules. By default, a lump-sum price on an agreed design cannot rise because materials or labour cost more, unless the contract provides for escalation. A court can rebalance the deal after general, unforeseeable events. For buildings and fixed installations, a 10-year warranty covers structural collapse, and a clause that exempts or limits the designer's or contractor's liability under that warranty is void. Below: what EPC means, how the risks fall, and how to decide whether it suits your project.

What an EPC contract means

An EPC contract puts design, purchasing and building in one pair of hands, so the employer (the owner) deals with one counterparty for the whole job.

The letters stand for the three things the contractor does:

• Engineering: the design, from concept to detailed drawings.
• Procurement: buying and delivering the plant, equipment and materials.
• Construction: building, installing and testing until handover.

The International Federation of Consulting Engineers (FIDIC) publishes a widely used standard form, the Conditions of Contract for EPC/Turnkey Projects, commonly called the Silver Book. FIDIC's published guidance on choosing a contract, written for an earlier edition of its forms, describes it as a contract where "the Contractor takes total responsibility for the design and construction". It says the employer gets "a higher degree of certainty that the agreed contract price and time will not be exceeded". In return, the parties are "willing to see the Contractor paid more ... in return for the Contractor bearing the extra risks".

EPC compared with other delivery models

FIDIC's guidance places the Red Book where "the Employer did nearly all the design" and the Yellow Book where "the Contractor (or Supplier) did the majority of the design". EPCM (engineering, procurement and construction management) looks similar on paper but is the opposite on risk. The EPCM firm is a manager, not a builder, so you sign the construction packages and you carry their cost and delay.

How UAE law classifies an EPC contract

Under UAE civil law an EPC contract is a muqawala, a contracting agreement for work. So the muqawala chapter of the Civil Transactions Law applies alongside whatever the parties wrote.

Article 812 of the Civil Transactions Law defines a muqawala: one party "undertakes to manufacture a thing or to perform a work for a consideration to be paid by the other contracting party". Article 813 requires the contract to specify the subject matter, its nature and quantity, the method of performance, the completion period and the price. Article 814 lets the contractor supply the work only, or the work plus all or part of the materials. An EPC contract is the second kind. Under Article 815, a contractor who supplies materials "shall be responsible for their quality and shall warrant them to the employer".

Which law applies to your contract

The current Civil Transactions Law is Federal Decree-Law No. 25 of 2025. Article 3 of the decree says it entered into force on 1 June 2026, and Article 2 repealed Federal Law No. 5 of 1985, the former Civil Code. Article 4 of the new law says it "shall not apply retroactively to preceding facts and acts, unless the law provides otherwise". If your EPC contract was signed before 1 June 2026, which law governs a given issue is a question for a licensed UAE lawyer. Articles 6 and 7 of the new law also set transitional rules for time limits, so check how they apply to a claim deadline that started running before 1 June 2026. You can read the official text on the UAE legislation portal.

Free zones with their own civil law, such as the DIFC and ADGM, follow different rules. This guide covers onshore UAE law.

Who carries which risk in an EPC deal

The contract allocates most risks. The law sets defaults for some, and a few, such as the structural warranty and the court's power over agreed compensation, cannot be drafted away. Read this table before you price or sign.

Design and quality

In an EPC deal, you hand the design to the contractor. So a design error is the contractor's problem under the contract, not yours. Article 819 adds that the contractor is liable for damage caused by its work. It escapes only where the damage "results from an unavoidable event". Materials the contractor buys come with the quality warranty in Article 815.

Delay and delay damages

Article 818(1) requires the contractor to finish within the agreed period. EPC contracts usually fix delay damages per day or week, often with a cap. Article 340 allows agreed compensation. But a court may reduce it if the debtor proves it was excessive or the work was partly performed. It may also reduce it where the employer's own fault contributed to the loss, and award more if the debtor committed fraud or gross fault. Our guide to liquidated damages and penalty clauses explains how courts treat these clauses.

Ground conditions and the unknown

The employer usually knows the site best, yet an EPC contract often moves ground risk to the contractor. FIDIC's guidance warns against doing that blindly. It says that where "underground works in uncertain or difficult ground conditions are likely", that risk "should be borne by the Employer". Pushing it onto the contractor anyway tends to raise the price.

The lump-sum price: what "fixed" means under Article 829

Article 829 is the core of an EPC deal under UAE law. It makes a lump-sum price hard to reopen, with two exits.

The rule. Where a muqawala is agreed on a set design for a lump sum, Article 829(1) says the contractor "may not claim any increase in the remuneration". This holds even if the prices of materials, wages or other expenses have risen. For an employer, that is the certainty you pay a premium for. For a contractor, it means price escalation is your risk unless the contract says otherwise.

Exit one: changes the employer causes or approves. Under Article 829(2), the contractor may not claim more for a change or addition to the design. There are two exceptions: the change is due to the employer's fault, or the employer authorised it and agreed the increase with the contractor. So agree price and time for every variation in writing before the work starts.

Exit two: general exceptional circumstances. Article 829(3) covers "general exceptional circumstances that could not have been foreseen at the time of contracting". If they upset the balance between the two sides' obligations, the court may restore the balance. It can extend the time, increase or reduce the price, or rescind the contract. The word "general" matters: the event must be wider than one party's own difficulty. The decision rests with the court, so this is not a route you can count on when you price the job.

Re-measured work is different

Some EPC packages include parts priced on a bill of quantities. Article 828 sets a separate rule for them. If the quantities must exceed the estimate by a non-burdensome amount, the contractor must notify the employer of the expected increase. If it does not, it loses the right to recover the excess. If the excess is burdensome, the employer may withdraw without delay, paying for the work done as valued under the contract, or ask the contractor to continue and pay the increase.

Decennial liability when the contractor is also the designer

Under a contracting agreement for buildings or other fixed installations, onshore UAE law imposes a 10-year warranty against collapse, unless the parties intended the structure to last less than 10 years. In an EPC deal it matters more, because the contractor usually designed what it built. Whether plant and equipment inside an EPC scope count as a fixed installation is a point to check with a lawyer.

Articles 821 and 824 set the core rules: a 10-year warranty against total or partial collapse and against defects that threaten structural safety, running from the date the employer takes delivery, and a 3-year window to bring a claim after the collapse or the discovery of the defect.

Article 822 splits liability where the engineer only designed (design defects) or only supervised (execution defects under its supervision). In an EPC deal, the contractor usually does both jobs. The contract makes it answerable to you for design and for building. Ask a lawyer how Articles 821 and 822 apply to your project's set-up, especially where the contractor hired an outside design firm. For the basics of the warranty, see our Q&A on decennial liability for contractors and architects.

Liability caps and exclusion clauses

Article 823 sits inside the warranty articles, between Articles 822 and 824. It says: "Any clause intended to exempt or limit the liability of the engineer or the contractor shall be void." EPC contracts commonly carry an overall liability cap and an exclusion of indirect loss. How far Article 823 reaches beyond the structural warranty, and so whether a general cap holds, is a point to take advice on before you rely on the cap.

The employer's rights: defective work, withdrawal and handover

The law gives the employer strong tools, but each carries a cost or a procedure you must follow.

• Defective or late work (Article 818). If the work is defective or breaches the contract, the employer may serve notice to correct it "within a reasonable period". If the period passes, the employer may, after establishing the facts, rescind or bring in another contractor at the first contractor's expense. It may ask for immediate rescission where correction is impossible, or where delay makes completion on time "absolutely unlikely".
• Withdrawal for convenience (Article 836). The employer may stop the contract at any time before completion. It must then pay the contractor's expenses, the work done, and the profit the contractor would have made. A court may reduce the lost-profit part, deducting what the contractor saved and earned elsewhere.
• Taking delivery (Article 825). Once the work is complete and placed at your disposal, you must take delivery. If you refuse without good cause after formal notice, the contractor is not liable if the work is lost or damaged without its fault.

For termination for breach more generally, see terminating a commercial contract for breach.

Getting paid, and securing performance

Under Article 826, the employer pays on taking delivery unless the parties agree otherwise. EPC contracts usually agree otherwise, typically with milestone payments. Article 827 already allows proportionate payment for distinct, accepted parts of the work.

Both sides usually ask for security:

• Employer's security: performance and advance-payment guarantees from a bank, plus retention held from each payment. The amounts are contract terms, not set by law. See our guide to bank guarantees and how a call works.
• Contractor's security: Article 1421 gives contractors and architects a privilege over the structures they build, to the extent of the value their works added to the property at the time it is sold, for the sums owed to them. It must be registered, and its rank runs from registration.

Subcontractors in an EPC chain

An EPC contractor commonly subcontracts parts of the work. Article 832 allows it unless the contract forbids it, and the contractor "shall remain liable to the employer for the subcontractor". Under Article 833, a subcontractor cannot claim from the employer unless the main contractor has referred it to the employer. So a subcontractor's payment rights normally run up the chain, not to the owner.

Where EPC disputes end up

EPC contracts commonly send disputes to arbitration. Federal Law No. 6 of 2018 on Arbitration says, in Article 7(1), that the arbitration agreement must be in writing or it is void. Under Article 7(2)(b), a written contract can meet that test by referring to a model contract that contains an arbitration clause. The reference must clearly make that clause part of the contract. If you adopt FIDIC conditions by reference, check that the reference is clear.

Read our UAE arbitration law guide and the comparison of arbitration forums: DIAC, ADGM and ICC. Without an arbitration clause, a dispute goes to the civil courts; see how a civil lawsuit works in the UAE.

Should your project use an EPC contract?

EPC buys price and time certainty, and you pay for it in a higher price and less control. Use this checklist.

EPC tends to fit when:

• Lenders or investors need a fixed price and completion date. FIDIC names privately financed and BOT-type projects.
• You do not want to manage design or the day-to-day work. FIDIC's guidance describes an employer who "does not wish to be involved in the day-to-day progress".
• The scope is well defined, and bidders have time to price the design risk.
• The project is a plant, power, process or similar facility judged on performance at handover.

Think twice when:

• Ground conditions are uncertain or the work is largely underground.
• You expect to change the design often. Every change reopens price and time.
• You want to approve each design step closely. That cuts against the EPC model and blurs who is responsible for design.
• The market for materials is volatile and no bidder will price that risk sensibly.

Common mistakes in UAE EPC contracts

• Citing the old Civil Code. Federal Law No. 5 of 1985 was replaced on 1 June 2026. Update templates that still cite it.
• Weak arbitration wording. A vague reference to standard conditions may not satisfy Article 7 of the Arbitration Law.

When to get legal help

Get advice before you sign, not after the first claim. A lawyer can test the risk split against the articles above, check the variation and delay-damages clauses, and draft security that will hold. Our guide on when you need a contract lawyer explains what to ask. You can find construction lawyers on LEXAI and contact them directly. Or put a first question to the LEXAI AI assistant to frame your issues before a meeting.

This is general legal information, not legal advice. Confirm the current law and procedure with a licensed UAE lawyer.