Price as an Essential Element of Muqawala

Under the Civil Code of 1985, Article 874 defines muqawala as a contract where one party undertakes work in return for remuneration. The presence of remuneration is therefore integral to the contract’s legal nature. Article 129 further provides that a contract cannot be considered concluded unless the parties agree on the essential elements of the obligation, including price or at least a determinable method for calculating it. The UAE Federal Supreme Court has consistently held that offer and acceptance must clearly reflect agreement on essential elements. Incomplete negotiations on remuneration may prevent a binding contract from forming.

The Civil Code of 2025 preserves this principle. Articles 124 and 131 require mutual consent on essential elements for a contract to be valid. However, the Civil Code of 2025 introduces commercial flexibility: where essential terms are agreed but subsidiary matters remain unresolved, a contract may still be concluded unless the parties expressly state otherwise. In disputes over these unresolved issues, including pricing, Courts may determine a fair solution in line with the nature of the transaction and applicable law.

Lump Sum Contracts and Price Adjustments

Under the Civil Code of 1985, Article 887(1) governs lump sum contracts. Contractors cannot demand an increase in remuneration required to execute an agreed plan. As a result, the contractor bears the risk of increased costs unless the employer instructs modifications or additional work.

The Civil Code of 2025 introduces a formal hardship mechanism. Article 829 allows the Courts, in cases of exceptional and unforeseeable circumstances that make performance excessively onerous, to restore contractual balance. Courts may adjust remuneration, extend deadlines, or, where adjustment is impossible, order termination

Works Performed Without an Agreed Price

The Civil Code of 1985 provides that if remuneration is not specified, the contractor is entitled to fair payment for work performed and the value of materials supplied. This applies in cases such as letters of intent, partially negotiated contracts, or oral instructions for additional works. Courts typically rely on expert evidence to determine a fair valuation, considering market rates, scope, and costs incurred.

The Civil Code of 2025 continues this approach. Articles 124 and 131 confirm that agreement on remuneration is essential, while Articles 119 and 120 provide principles for modern contractual interpretation, preserving continuity with the 1985 regime.

Variations and Remuneration

Under UAE law, contractors may recover additional remuneration where variations are instructed beyond the agreed plan. Cost increases inherent in the original scope are not recoverable under lump sum contracts. Both the Civil Code of 1985 and 2025 maintain this distinction while clarifying that Court-determined adjustments may apply under hardship provisions.

Termination and Financial Consequences

Article 892 of the Civil Code of 1985 allowed employers to terminate a muqawala contract, with compensation due for work performed and expenses incurred. The 2025 Code refines this mechanism. Article 836 of the Civil Code of 2025 entitles contractors to recover expenses, the value of completed works, and profit on work performed, subject to mitigation principles. Termination therefore has a direct impact on final financial recovery.

Conclusion

The Civil Code of 2025 does not overturn the fundamentals of construction pricing in the UAE. Remuneration remains an essential element of muqawala contracts, and lump sum structures continue to allocate cost risk primarily to the contractor unless variations are instructed. The Civil Code of 2025, however, introduces measured flexibility. Courts can adjust remuneration under exceptional circumstances, and termination provisions now clearly define contractor entitlements.

For employers, contractors, and developers, the takeaway is clear: pricing provisions must be drafted precisely, risk allocation must be deliberate, and financial exposure should be evaluated in light of both fixed-price certainty and the statutory adjustment mechanisms. While price certainty remains the foundation of construction contracts, the law now recognizes economic realities and the need for contractual balance.