Tag: Contract

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Good Faith in the Middle East
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Technological Advances in Construction Payment Management

Good Faith in the Middle East

By Darran J. Jenkins, K&L Gates, Doha

The concept of good faith as applicable in the Civil law jurisdictions of Qatar and the United Arab Emirates (“UAE”) is one that may be unfamiliar to lawyers from a common law background where good faith is applies in a very limited fashion, if at all. [1]

The Position in the Middle East

The position in Qatar is set out in Article 172 of the Qatar Civil Code[2]:

1.    The contract must be performed in accordance with its contents and in a manner which consistent with the requirements of good faith.

2.    The contract is not confined to obliging a contracting party to its contents, but also includes its requirements in accordance with the law, custom and equity as per the nature of the obligation.

The corresponding article in the UAE Civil Code[3] is Article 246 which states:

“(1)     The contract must be performed in accordance with its contents, and in a manner consistent with the requirements of good faith.

(2)     The contract shall not be restricted to an obligation upon the contracting party to do that which is (expressly) contained in it, but shall also embrace that which is appurtenant to it by virtue of the law, custom, and the nature of the transaction.”

In Bahrain, Article 127 of the Civil Code[4] requires:

A contract is not only limited to its expressed conditions, but also as regards everything which according to law, usage and equity is deemed in view of the nature of the obligation, to be a necessary sequel to the contract, taking into consideration custom and usage, requirements of equity, nature of business, good faith and honesty.”

And Article 129 provides:

A contract must be performed in accordance with its contents and in compliance with the requirements of good faith and honesty.”

Each of these Civil Codes takes an almost identical approach to the treatment of good faith. As a result, a contract will not be interpreted using solely its terms but will be interpreted against the requirements of customs, equity and good faith.

The requirement to act in good faith is a strong, positive obligation on the parties to a contract.  It is not merely a requirement not to act in bad faith and not to deceive one another. Each party is instead under a legal obligation to exercise good faith in the performance of its contractual obligations and it is dealings with the other party. In a construction context, the duty of good faith would require an employer to cooperate with the contractor and deal with change requests in a timely and fair manner, whilst a contractor would be obliged to avoid delaying the performance of their works.

It is interesting to note that the obligation within the Qatar Civil Code is to perform the contract in good faith but it does not extend to negotiating the contract in good faith. The parties are free to adopt an adversarial approach to negotiation of the contract to try to obtain the best possible deal for themselves. Only once the contract has been signed does the duty to act in good faith arise.

In relation to insurance contracts, the duty to perform in good faith under the Civil Code does not in any way limit the duty of the insured to act with utmost good faith when placing the policy.  This is because the Civil Code also recognizes and enforces a higher standard of care where the parties have agreed it should apply.

[1] Please note, all English extracts in this Article are taken from an unofficial English translation of the Qatar and UAE Civil Code, reference should always be made to the original Arabic text.

[2] Law Number 22 of 2004

[3] Law Number 5 of 1985

[4] Law Number 19 of 2001

Technological Advances in Construction Payment Management

By Jesse G. Shallcross and Daniel E. Raymond, K&L Gates, Chicago

A number of technology companies offer construction billing-management software designed to assist in the construction invoicing and payment collection process by electronically integrating billing, process claims, lien waiver collection, statutory declarations, sub-tier waivers, compliance management and payments.

Construction billing-management software has become increasingly popular among general contractors; a major reason is the simplification of the lien wavier collection process.  Before construction billing-management software, most general contractors managed the lien waiver process manually by creating a spreadsheet of all prime subcontractors, sub-tier contractors, and suppliers.  This process was time consuming, prone to error, and required updating.  Construction billing-management software eases this process by streamlining the collecting and tracking of lien waivers.  When a general contractor uses construction billing-management software, prime subcontractors are required to submit their contractor and material supplier information at the beginning of the project or the start of a new contract.  The information input by the prime subcontractors automatically appears in the general contractor’s master tracking index.  Further, the master tracking index is updated any time a prime subcontractor enters a change—thereby easing the general contractor’s burden of manually creating a spreadsheet and updating it.  The real benefit to general contractors, however, comes from construction billing-management software’s automated prime and sub-tier lien waiver collection process.  The software allows for electronic signature of prime and sub-tier lien waivers, and the general contractor’s master tracking sheet is updated as the electronic lien waivers are received.  As a further benefit, construction billing-management software automatically prevents payments to subcontractors that are missing or include incorrectly submitted lien waivers.  As a result of using construction billing-management software, general contractors can be assured a streamlined and efficient lien waiver process.

But, construction billing-management software’s efficiency does not come without a cost.  Often, subcontractors are unaware that projects they are bidding on require the use of construction billing-management software; accordingly, subcontractors take a significant financial hit by being unable to include the subscription cost in their bid.  The American Subcontractors Association, Inc., addressed this issue with a leading construction billing-management software company a few years ago; in response, the company altered its pricing from pre-transaction to a subscription model, with the idea this would simplify pricing.[1] With the addition of possible fees for the use of construction-billing management software, subcontractors should be even more vigilant in determining whether a general contractor requires the use of construction billing-management software before bidding on a contract.


[1] Letter from Walter Bazan Jr., President, American Subcontractors Association, Inc., to membership (September 2013), available here.

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