The Abu Dhabi Executive Committee has issued an Executive Council Circular which signifies an important new step in regulating the payment process under Government contracts. Under Circular No. (1) of 2019, dated 26 March (“Circular”), Government Bodies and companies are now required to observe the following requirements:

1. Payment of all entitlements to contractors and suppliers within 30 days as of the date of receipt of the relevant invoices.
2. The inclusion of a clause in their contracts with contractors and suppliers that stipulates the obligation of contractors and suppliers to pay the dues of subcontractors and sub-suppliers within 30 days as of the date of receiving their entitlements from the Government Bodies and companies.
3. Amending all valid contracts with contractors and suppliers as stipulated above.
4. In the event of a disagreement between the parties on part of the amounts due, the undisputed amount shall be paid. This shall not be regarded as a waiver of the right of any of the parties until an agreement is made on the remaining amount according to the contract.

The above requirements have been introduced with retrospective effect and therefore must be reflected in all contracts previously entered into with contractors and suppliers prior to the date of issue of the Circular, in addition to all new contracts.

This recent announcement comes at a time when contractors and suppliers in the UAE are increasingly feeling the strain of reduced liquidity and cash flow, in part due to reduced economic growth as a result of lower oil prices.

Our Construction & Infrastructure team regularly advise on all elements of the construction procurement process. If you have any questions or would like further information, please don’t hesitate to contact our team:

Euan Lloyd
Senior Counsel, Construction & Infrastructure
e.lloyd@tamimi.com

Leith Al-Ali
Associate, Construction & Infrastructure
l.alali@tamimi.com