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New Dubai law amends Performance Bond requirements of contractors

Law No. 08 of 2014 to include 10% Performance Bond exemption for contracts with a total value not exceeding $136,132

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Vice President and Prime Minister of the UAE and Ruler of Dubai, HH Sheikh Mohammed Bin Rashid Al Maktoum has issued a law which amends the performance bond requirements made of contractors operating in Dubai. Performance bonds are used by investors as guarantees ensuring full and satisfactory completion of work by contractors.

Law No. 08 of 2014 amends Law No. 06 of 1997 on Contracts of Government Departments in the Emirate of Dubai. According to the new law, the 10% performance bond exemption included in the previous law can now be granted to contracts with a total value of less than $136,132; these also include contracts comprising the commencement of work or provision of consulting services.

In the event the contractor fails to present the performance bond; and the contract value ranges between $136,132  and $544,528 ($2,00,000); then the contractor will benefit from the performance bond exemption, but 10% of the contract’s payable values will be held against the final performance bond until handover.

Dr Lowai Belhoul, director-general of government of Dubai’s Legal Affairs Department said that the new law will encourage services providers and small and medium enterprises (SMEs) in the construction sector. The new law has taken into consideration the “financial burden caused by the performance bond, which relatively increases the project’s cost,” he added.

The new legislation is expected to add flexibility to the Dubai government’s contracting procedures, relieve contractors of financial burdens and encourage SMEs to engage in the emirate’s economy, Dr Belhoul added.

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