ConstructionandprojectsinOman:overview

Resourcetype:CountryQ&A
Status:Lawstatedasat01Oct2013
Jurisdiction:Oman

AQ&AguidetoconstructionandprojectslawinOman.
TheQ&Agivesahighleveloverviewofthemaintrendsandsignificantdealsthemainpartiesprocurementarrangementstransaction
structuresandcorporatevehiclesfinancingprojectssecurityandcontractualprotectionsthatfundersrequirestandardformsof
contractsriskallocationexcludingliability,includingcapsandforcemajeurecontractualprovisionscoveringmaterialdelaysand
variationsappointingandpayingcontractorssubcontractorslicencesandconsentsprojectsinsurancelabourlawshealthandsafety
environmentalissuescorruptbusinesspracticesandbriberybankruptcy/insolvencypublicprivatepartnerships(PPPs)dispute
resolutiontaxandmitigatingtaxliabilitythemainconstructionorganisationsandproposalsforreform.
Tocompareanswersacrossmultiplejurisdictions,visittheconstructionandprojectsCountryQ&Atool.
ThisQ&Aispartofthemultijurisdictionalguidetoconstructionandprojectslaw.ForafulllistofjurisdictionalQ&Asvisit
www.practicallaw.com/constructionmjg.
DavidCourtneyHatcher,StevenTee,DianneHamiltonandJamesBarton,Dentons&Co,Oman

Contents
Overviewoftheconstructionandprojectssector
Procurementarrangements
Transactionstructures
Finance
Securityandcontractualprotections
Standardformsofcontracts
Contractualissues
Contractors'risks
Excludingliability
Capsonliability
Forcemajeure
Materialdelays
Materialvariations
Othernegotiatedprovisions
Architects,engineersandconstructionprofessionals
Paymentforconstructionwork
Subcontractors
Licensing
Projectsinsurance
Labourlaws
Healthandsafety
Environmentalissues

Corruptpractices
Bankruptcy/insolvency
PPPs
Disputeresolution
Tax
Otherrequirementsforinternationalcontractors
Reformandtrends
MainConstructionorganisations
TheOmanSocietyofEngineers
TheOmanSocietyofContractors
Contributorprofiles
DavidCourtneyHatcher,Partner
StevenTee,SeniorAssociate
DianneHamilton,SeniorAssociate
JamesBarton,Associate

Overviewoftheconstructionandprojectssector
1.Whatarethemaintrendsinthelocalconstructionandprojectsmarket?Whatarethemostsignificantdeals?

Maintrends
TheconstructionandprojectsmarketintheOmanisingoodhealth.BearinginmindOman'srelativelysmallpopulationofonly2.8million
people,thescaleoftheconstructionandinfrastructuredevelopmentprojectsthathavealreadybeencommittedorareunderconstruction
isimpressive.
ThepublicsectorisbyfarthelargestprocurerofconstructionservicesintheSultanateofOman(seeQuestion2).Inthe2011budget,
thegovernmentannouncedOman'seighthfiveyearplan,torunfrom2011to2015.ItenvisagesatotalcapitaloutlayofUS$79billion,of
whichthebulkissettobeinvestedinlargeconstructionprojectsacrossthecountry.Thechiefbeneficiariesofthisinvestment
programmewillbethefollowingsectors:
Transportation:particularlyairports,ports,highwaysand,inthelongerterm,railways.
Tourism:severalupscaleresortandhotelprojectsareplannedorunderconstructionacrossOman,capitalisingonits:
mountain,desertandcoastalscenery
ecotourismpotential.
Oilandgas:althoughmakingsteadyprogresstowardsdiversifyingintomoredownstreamorientatedindustriessuchas
petrochemicals,steelandaluminium,Omanremainsatheartahydrocarbonsbasedeconomy.Ithasanumberofworldclass
explorationandproductionprojectsunderdevelopment,includinginvestmentheavyenhancedoilrecoveryschemes.
Inaddition,significantprojectsinthepowergenerationandtransmission,wastewatertreatmentandwaterdesalination,healthcareand
housingsectorsarealsounderconstructionorinadvancedstagesofplanning.

Majorprojects
Majorprojectsalreadyunderconstructionorinadvancedstagesofengineering,designand/orplanninginclude:

OmanConvention&ExhibitionCentre.ThishasaprojectcostofUS$1billion,andanestimatedcompletiondateof2016.
SoharAirport.ThishasaprojectcostofUS$500million,andanestimatedcompletiondateof2014.
SalalahPortexpansion.ThishasaprojectcostofUS$450million.
Oman'snationalrailnetwork.Theprojectcostisnotyetknown,andtheestimatedcompletiondateis2018.
Duqmcity,drydocksandrefinery.TheprojectcostisatotalofUS$20billion.
GhubrahIndependentWaterProject.TheprojectcostisUS$380million,andtheestimatedcompletiondateis2014.
BatinahExpressway.TheprojectcostisUS$2.59billion.
Muscat&SalalahInternationalAirportexpansion.TheprojectcostisUS$5.2billion.
SalalahMedicalCity.TheprojectcostisUS$1billion.

Procurementarrangements
2.Whicharethemostcommonprocurementarrangementsifthemainpartiesarelocal?Arethesearrangementsdifferentif
someorallofthemainpartiesareinternationalcontractorsorconsultants?
Asinotherjurisdictions,themainpartiesinvolvedinprojectsinOmanwillbethe:
Projectownerordeveloper(usuallyreferredtointhecontractastheemployerorthepurchaser).
Employer'sengineering,architecturalandotherconsultants.
Employer'scontractor(s).
Contractor'ssubcontractorsandsuppliers.

Publicsectorprocurement
ThepublicsectorisbyfarthebiggestprocurerofconstructionservicesinOman(seeQuestion1,Maintrends).Publicworksare
generallyawardedbycompetitivetender.Withverylimitedexceptions,suchasdefenceprocurement,publicsectorprocurementis
governedbytheTenderLaw(aspromulgatedbySultaniDecreeNo.36/2008,asamendedbySultaniDecree19/2011and120/2011),
whichprovidesthatprocurementmustcomplywiththeprinciplesof:
Transparency.
Equalopportunities.
Equality.
Freedomofcompetition.
TheTenderLawdoesnotdistinguishbetweenlocalandinternationalcontractors,orconsultants,althoughasarule:
ContractsforpurelylocalprojectscanbeintheArabiclanguage.
Contractsforinternationalprojects,whereconsultantsand/orcontractorsarewhollyorpartlyforeignowned,willbeintheEnglish
language.

Commoncontractualstructures
Generally,theplatformdocumentsusedwillbethestandardformcontractspublishedbythegovernment(OmanStandardConditions),
whichcover:
Civilandbuildingworksinthetraditionalemployerdesign/contractorbuildformat(expectedtobereissuedinamodifiedandupdated
format(seeQuestions6and37)).
Plantandmechanicalandelectrical(M&E)worksincontractordesign/buildorEPC(energy,procurementandconstruction)format.
FormoreinformationconcerningtheOmanStandardConditions,seeQuestion6.
EPCM(energy,procurementandconstructionmanagement)isnotunusualforprojectsinthehydrocarbonssector.
Onshore/offshoresplitcontractstructuresareroutinelyusedoninternationalprojects(seeQuestion35).

Paymentstructures
Thefollowingpaymentstructuresarethemostcommon:
Fixedprice(lumpsum)withpaymentonmilestonesachieved.
Traditionalmeasureandvalue(wherethepaymentisbasedoncertificationofmeasuredquantitiesofworkcompleted).
Targetcost,guaranteedminimumprice(GMP)orothersucharrangementsarenotgenerallyused.

Transactionstructures
3.Whattransactionstructuresandcorporatevehiclesaremostcommonlyusedinbothlocalandinternationalprojects?

Localprojects
Tospreadriskandpoolexpertiseandresources,localcontractors,includinglocallyincorporatedsubsidiariesofforeigncontractors,will
typicallyenterintounincorporatedjointventurestoundertakethelargeandcomplexcivilworksprojectswhichcharacteriseOman's
infrastructuredevelopmentprogramme.

Internationalprojects
Projectsrequiringspecialistexpertiseandresourcesthatarenotavailablelocally(forexample,intheairports,powerandwaterand
hydrocarbonssectors),arelikelytoattractforeignandlocalcontractorsworkingtogetherinunincorporatedjointventurestructures(see
above,Localprojects).
Governmentorotherpublicsectorprocurerswillnottypicallyestablishspecialpurposevehicles(SPVs)orsimilarvehicleswhenacting
asanemployer.However,asinotherjurisdictions,projectprocurementunderlongtermpublicprivatepartnership(PPP)style
concessions,notablyinthepowerandwatersectors,willbeundertakenthroughprojectspecificSPVs(seeQuestion29).

Finance
4.Howareprojectsfinanced?Howdoarrangementsdifferformajorinternationalprojects?
ForthelargePPPstyleprojectstypicallyseeninthepowerandwatersectors,limitedrecoursefinancing(wherethesecurityisprincipally
overtheprojectassetsaloneratherthanthoseofthesponsors'orinvestors'assets)isusuallyobtained.Thesefinancingarrangements
arepredominantlybasedontheprecedentsoftheLoanMarketAssociation(LMA)andwillinvolveasyndicateoflenders,whichislikely
toincludeinternationalfinancialinstitutions.

Governmentorpublicauthorityprojectsareusuallyselffinanced,althoughthereareindicationsthatprojectswhichhavetraditionallybeen
entirelygovernmentfinanced(forexample,roadconstruction)mayinfuturebeprocuredusingprivateinvestmentorfinancing.
Privatelyfundedprojects(otherthanPPPstyleprojects)consistmainlyofsmallerrealestateortourismdevelopmentprojectswhichare
financedbylendersonacorporateorfullrecoursebasis.
ThefollowingarenottypicallyusedtofinanceprojectsinOman:
Mezzaninefinancearrangements.Evenlargeprojectsrarelyhavemezzaninefinancearrangementsandthereforeintercreditor
arrangementsarealsorare.Inaddition,mezzaninefinancearrangementstendnottocomeinaconventionalform(oneformthathas
beenusedisthesubordinatedloannotesarrangement).
Bondissues.

Securityandcontractualprotections
5.Whatformsofsecurityandcontractualprotectionsdofunderstypicallyrequiretoprotecttheirinvestments?

Security
SecuritytypicallytakenbylendersinOmandoesnotdiffersignificantlyfromthenorminotherjurisdictionsintheregion.Itislikelyto
includeoneormoreofthefollowing:
Acommercialmortgageovercompanyassets,plantandmachinery.Omanilawdoesnotrecognisetheconceptofafloatingcharge.
Alegalmortgageoverthelandorsite.Thismaytaketheformofamortgageoverasubusufruct.Forexample,ausufruct(thatis,the
righttouse,enjoyandoccupylandorpropertybelongingtoanotherpersonforafixedterm,notexceeding50years)maybegrantedto
afreezoneentityoutofgovernmentland(whichisthesubjectoftheconstructionproject).(Omanhasanumberoffreetradezones
intendedtopromoteinvestmentfromdomesticandforeigncompanies.)Thefreezoneentitywillthengranttheborrowerasub
usufruct,overwhichthelenderswilltakealegalmortgage.
Guaranteesfromtheemployer'sparentcompanyorshareholdersoftheemployer.
Employerswillgenerallyrequirecontractorstoprovideeitherorbothof:
Performancebonds(wheretheissuerundertakestopayifthecontractorfailstomeetitsobligations),inunconditionalorondemand
form,issuedbyalocalinsurancecompanyorbank.
Parentcompanyguarantees.

Contractual
Theemployerwillaimtotransferriskinacosteffectivewaytothecontractorintheconstructioncontract.Whereoffbalancesheet
financing(thatis,financingwhichdoesnotappearasaliabilityonacompany'sbalancesheet)isused,funderswillbeconcernedto
ensurethatthetransferenhancestheriskprofileoftheprojectandborrower.Thefunderswillrequiredirectagreements,whichgrantthe
usualstepinrightsenablingthefunderstotakeoverinthecaseofdefault.
Theapproachdoesnotdifferbetweenalocalandinternationalcontract.

Standardformsofcontracts
6.Whatstandardformsofcontractsareusedforbothlocalandinternationalprojects?Whichorganisationspublishthem?

Contractsforbuildingandcivilworksawardedbypublicauthoritiestolocalandinternationalcontractorsaretypicallybasedonthe
SultanateofOmanStandardDocumentsforBuildingandCivilEngineeringWorks,ThirdEdition1981.Thereisanupdated1999Fourth
Edition.However,theearliereditionisstillwidelyused.Publicationofthe2012fifthedition(basedonFdrationInternationaledes
IngnieursConseils(FIDIC1999))isstillawaited(seeQuestion37,Reformproposals).Itappearsthatafinalreviewisbeingcarriedout
bytheMinistryofLegalAffairs.
Forelectricalandmechanicalworks,theGovernmentpublishesaseparatesetofStandardDocuments,basedonanearliereditionofthe
FIDICYellowBook.
TheFIDICsuiteofcontracts(andforplantprojectstheIChemEsuite)arealsowidelyusedandaccepted.
TheOmanStandardConditionsandtheFIDICsuiteofcontractsareusedforbothlocalandinternationalprojects.

Contractualissues
Contractors'risks
7.Whatrisksaretypicallyallocatedtothecontractor?Howaretheserisksoffsetormanaged?
InternationalcontractorsbiddingforprojectsawardedbyOmanipublicauthoritiescanexpectFIDICstyleriskallocation.Thismeansthat
wherethecontractisatraditionalemployerdesign/contractorbuild:
Theemployertypicallybearstheriskofcostincreasesduetochangeinlawor"specialrisks"(forexample,warrisks).
Thecontractortypicallybearscostincreasesduetoforexample,generalinflationinmaterials,labourorconsumablepricesand
adversephysicalconditions(otherthanweatherconditions).
WherethecontractisinEPC(engineer,procureandconstruct)turnkeyformat,theriskstypicallyallocatedtothecontractorwillinclude
the:
Suitabilityofthedesignorengineeringandthecompletedplantorfacilityforitsspecifiedpurpose.
Suitabilityofthesiteandgeologicalconditionsandcostofnecessarysiteremediation.
Materials,labourandconsumablecostinflation(exceptforincreasedcostsduetopostawardcontractchangesinlaw).
Contractorsbiddingforcontractsonprojectswheretheemployerisoneofthemajorglobaloilandgascompaniescanexpecttocontract
undertheemployer'sworldwidestandardformcontracts.ThesetendtoplacefullEPC,designverificationandsometimesevenlocal
conditions(forexample,changeinlaw)riskonthecontractor.Asaresult,possibilitiesforthecontractortoclaimtimeorprice
adjustmentsunderthesecontractscanbelimited.
Therearenosignificantdifferencesinthisrespectbetweenlocalandinternationalprojects.
Constructionrisksareoffsetandmanagedinthewaysusualinotherjurisdictions:subcontracting,insurance,relianceonlocalpartners
familiarwithlocalconditions,andsoon.

Excludingliability
8.Howcanliabilitybeexcludedorrestrictedunderlocallaw?
Omanihasacivillawsystem,largelyderivedfromEgyptianlaw.Howeverunlike,forexample,EgyptandtheneighbouringUnitedArab
Emirates(UAE),Oman,untilrecently,hadnoCivilCode.InMayofthisyear,anewCivilTransactionCodewaspromulgatedbutwill
onlyhaveeffecton13August2013.Untilsuchtime,thefollowingfirmlyestablishedcivillawprinciplesaregenerallyacceptedtoform
partofOmanilaw,andcanbeexpectedtobeappliedbythelocalcourtsortribunalsapplyingOmanilaw:
Clausesexcludingliabilityforconsequentiallosses,lossofproductionandlossofrevenuearegenerallyenforceableunderOmanilaw.
Itispreferabletobespecificastowhatismeantby"consequentialloss"toreducethelikelihoodofdisputes.

ContractsgovernedbyOmanilawaresubjecttocertainmandatorytermswhichcannotbeexcluded.Forexample,contractorsand
engineers(andotherdesigners)areboundbydecennialliability(thatis,liabilityfortenyearsfollowingcompletionandhandoverofthe
completedworks)fordangerousorstructuraldefectsinbuildingsorotherstructures(inthecaseofengineeringorarchitectural
consultancyfirmsthisprinciplesetoutinArticle16oftheEngineeringConsultancyLaw(promulgatedbySultaniDecree120/1994)).
Anyprovisionwhichentirelyexemptsaguiltypartyfromliabilityforbreachofcontractistreatedasvoid.
Apartytoacontractcanapplytothecourtorarbitraltribunaltooverridecontractuallyagreedcompensatoryarrangementsandadjust
thespecifiedcompensationtoequateittotheactuallosssuffered.Thisisparticularlyimportantinthecontextofconstruction
contracts,whichroutinelyincludeprovisionsimposingspecifiedpenalties(calledliquidateddamagesincommonlawjurisdictions)for
culpabledelay(seeQuestion9).
AcourtorarbitratorapplyingOmanilawcan,afterweighinguptheinterestsofeachparty,reduceacontractualobligationtoa
"reasonablelevel",ifallofthefollowingapply:
theobligationis"oppressive"(thatis,theobligationisonerous,althoughitdoesnothavetobeimpossibletoperform)
thereare"exceptionalcircumstances"ofapublicnatureand
theobligoristhreatenedwith"graveloss".
Thereissomeuncertaintysurroundingthecircumstancesinwhichthisprinciplecanbesuccessfullyinvoked,butcontractualattempts
toexcludethisprinciplearetreatedasvoid.

Capsonliability
9.Dothepartiesusuallyagreeacaponliability?Ifyes,howisthisusuallyfixed?Whatliabilities,ifany,aretypicallynot
capped?
Overallcapsonliabilityarecommon.Theymaybesubjecttoprecontractnegotiationandthelevelofthecapcanvarydependingon,for
example,whichgovernmentdepartmentisthecontractingauthority.Thefollowingarecommonlynegotiated:
Capsondelay.
Performancepenalties.
Liquidateddamages.
Itisalsonormaltoprovidecarveoutsfromthecaponliabilityforliabilitieswhichcannotlawfullybeexcludedorcapped,suchas:
Thirdpartyliabilities.
Certainstrictliabilities.
Therearenovariationsbetweendifferentsectorsandlocalandinternationalprojects.

Forcemajeure
10.Areforcemajeureexclusionsavailableandenforceable?
Contractualforcemajeureprovisionsarecommonandcanbeexpectedtobeenforceableaswritten.Typicallyaforcemajeureeventwill:
Excuseliabilityfornonperformanceofanobligation.
Notexcuse:
failureorinabilitytopaymoneyotherwisedueor
failuretoobtainpermitsorinabilitytoraisefinance.

Itisanestablishedcivillawprinciplethatreliefwillbegrantedtoacontractorintheeventofexceptionalandunpredictableeventsofa
publicnature.Ifthecontractor'sperformanceofacontractbecomesimpossibleordelayedduetothoseevents,Omanilawrecognises
thatthecontractormaybeentitledtoappropriaterelief(seealsoQuestion8).

Materialdelays
11.Whatcontractualprovisionsaretypicallynegotiatedtocovermaterialdelaystotheproject?
ConventionalextensionoftimeprovisionsarefoundintheOmanStandardConditionsandintheinternationalstandardformcontracts
(FIDIC,IChemE)widelyusedinOman.
Theextentofreliefavailabletothecontractorwilldependontheriskallocationprofileunderthecontract.Typically,thefollowingwill
entitlethecontractortoanextensionoftime:
Employergeneratedchangesinscope(variations).
Employeractsofprevention(forexample,architecturalorengineeringdrawingsarrivingtoolate,anddelaysbyothercontractors).
Forcemajeureevents(seeQuestion10).
Unlikeinmoderninternationalstandardformcontracts,thecumbersomeandoutdated"engineer'sdecision"procedure(whichgenerally
providethattheemployer'sengineer'sdecisionisanecessaryfirststepinthedisputeresolutionprocess,andmaybecomebindingifnot
challengedwithinspecifiedtimelimits),widelydiscardedinotherjurisdictions,stillappliesintheOmanStandardConditions.

Materialvariations
12.Howarematerialvariationstotheworksusuallydealtwithinthecontract?
MaterialvariationstendtobedealtwithinorthodoxFIDICfashion.UndertheOmanStandardConditions,theengineercandirecta
variationtothe"form,qualityorquantity"oftheworks.Theengineercandirectthecontractortocarryoutanyofthefollowing:
Increaseordecreasethequantityofwork.
Omitpartofthework.
Changethecharacter,qualityornatureofthework.
Executeadditionalworknecessaryforthecompletionoftheworks.
Disputesarise,asinotherjurisdictions,astotheprecisescopeandmeaningoftheabovewords.
Variationsarevaluedbyreferencetotheratesandpricessetoutinthecontractiftheengineerconsidersthesetobeapplicable.If
applicableratesandpricesarenotsetoutinthecontract,theengineerandcontractorwillendeavourtoagreethepriceorrate.Failing
agreement,theengineerwillfixthepriceforanyvariation.Asinotherjurisdictions,thisvaluationproceduretendstogiverisetodisputes.
Variationsalsotendtogiverisetodisputesconcerningthecontractor'srelatedextensionoftimeentitlement(seeQuestion11).
Therearenokeydifferencesbetweenlocalandinternationalprojects.

Othernegotiatedprovisions
13.Whatothercontractualprovisionsareusuallyheavilynegotiatedbytheparties?
Thefollowingmattersarefrequentlyheavilynegotiated:
Performancesecuritiesandparentcompanyguarantees(seeQuestion5).
Remediesforlateornonpaymentofsumsdue.

Limitationsorexclusionsofliabilityandrelevantcarveouts(seeQuestion9).
Liabilityforriskrelatingtogroundconditions.
Completionobligations,risksandpenalties.
Governinglaw(usuallyOmanibutsometimesEnglish).
Arbitrationvenueandrulesintheeventofadispute.
Rulesgoverningtheconsequencesandnumbersofchangeinlawsandother"political"riskevents.
Therearenokeyvariationsbetweenlocalandinternationalprojects.

Architects,engineersandconstructionprofessionals
14.Howareconstructionprofessionalsusuallyselected?Followingselection,howaretheythenformallyappointed?
TheTenderLawappliestotheselectionandtheappointmentofconstructionprofessionalsbypublicauthorities(seeQuestion2).
Constructionprofessionalsareusuallyappointedunderconventionalprofessionalservicescontracts.TheFIDICWhiteBook
(Client/ConsultantModelServicesAgreement)iswidelyused.Bespokeservicescontractsarealsocommon.
Typically,constructionprofessionals'appointmentswillinclude:
Provisionsimposingthefamiliarstandardof"professionalskillandcare".
Exclusionsofliability,suchasforindirectandconsequentialloss.
ImpositionofdecennialliabilityrequirementsundertheEngineeringServicesLaw(seeQuestion8).
Theusualrequirementsfortheconsultanttocarryprofessionalindemnityinsurance.Liabilitymaybecappedattheagreedlevelof
professionalindemnitycover.
Alloftheabovemaybesubjecttonegotiation,althoughwherestandardformcontractsareusedbythepublicsector,scopefor
negotiationwillbelimited.

15.Whatprovisionsofconstructionprofessionals'appointmentsaremostheavilynegotiated?Areliabilitiesroutinelylimited
orcappedinconstructionprofessionals'appointments?
SeeQuestion14.

Paymentforconstructionwork
16.Whataretheusualmethodsofpaymentforconstructionwork?Aretherewaysforthecontractorandconsultantsto
securepaymentormitigaterisksofnonpaymentunderlocallaw?

Methodsofpayment
Advancepaymentsforconstructionworkarenormal.Subsequentpaymentsaregenerallybasedoncertificationofmeasuredquantitiesof
workcompletedormilestoneachieved.Thedetailsareamatterofprecontractnegotiation,andtherearenospecificregulationsorother
legalrequirements.

Securingpayment

Employers(particularlyinthepublicsector),donotusuallyprovideanyformofsecurityforpaymentobligations.Theconceptofa
constructor'slienisnotpartofOmanilaw.However,itisacceptedthatinterestcanbechargedforlatepayment.TheOmanStandard
Conditionsexpresslyprovideforlatepaymentinteresttobepaidandinterestispaidinpractice.

Subcontractors
17.Howdothepartiestypicallymanagetheirrelationshipswithsubcontractors?
Backtobacksubcontracts(thatis,wherethesubcontractorisboundbyalltherelevantobligationsofthemaincontract)arenormalin
Oman,asinotherjurisdictions.Onlargerinternationalprojects,thetermsofthesubcontractmaybedraftedandnegotiatedtospecifically
matchthoseofthemaincontract.Moreinformalarrangementsbetweenthemaincontractorandsubcontractortendtobeadoptedonlocal
projects.
UnderOmanilaw,Englishlawterminologysuchas"indemnify"doesnotcarryanymeaningdifferentfrom"compensate".Therefore,an
obligationonthepartofasubcontractortoindemnifyamaincontractoragainsttheconsequencesofbreachofthesubcontractisnot
likelytoprovideafullindemnityintheEnglishlawsenseofthatterm.
Directpaymentsbyfundersoremployerstoasubcontractor,inthecaseofdefaultbythemaincontractor,willbeamatterfornegotiation
betweenthepartiesconcerned.

Licensing
18.Whatlicencesandotherconsentsmustcontractorsandconstructionprofessionalshavetocarryoutlocalconstruction
work?Arethereanyspecificlicensingrequirementsforinternationalcontractorsandconstructionprofessionals?
AforeigncompanymustestablishaformalpresenceinOman.Therearevariousrequirementstobesatisfied,suchas:
Omanisationlevels(thatis,minimumemploymentlevelsofOmaninationals).
Otherregistrationformalities,whichwilldependonthenatureofthecontractawarded.Forexample,aforeigncontractorawardeda
contractwithagovernmentbodywillbeexemptfromcertainregistrationrequirements.
ContractorsandconstructionprofessionalsmustobtainalicencefromtheMinistryofCommerceandIndustry.Forconstruction
professionals,thelicenceisissuedinaccordancewiththerequirementsoftheEngineeringConsultancyLaw,whichspecifiesthelevelof
qualificationsandexperiencerequiredofconstructionprofessionals(seeQuestion8).
AllcompaniesmustobtainthefollowingtoregisterapresenceinOman:
ACommercialRegistrationCertificatefromtheMinistryofCommerceandIndustry.
AcertificatefromtheOmanChamberofCommerceandIndustry.
ItmayalsobenecessaryforacompanytoobtainaMunicipalityPermit.Thismustbeobtainedfromtherelevantmunicipalityinwhichthe
companyintendstohavepropertyandoperate.

19.Whatlicencesandotherconsentsmustaprojectobtain?
Permits,licencesandconsentsmustbeobtainedfromdifferentgovernmentministries,dependingonthenatureoftheproject.In
principle,theyshouldbeobtainedbythe"beneficiary"oftheproject,andincludethefollowing.

Before
Thefollowingmustbeobtainedbeforetheproject:
SiteapprovalfromtheMinistryofEnvironmentandClimateAffairs(MECA),therelevantmunicipality,theMinistryofHousing(MOH)
andthePublicAuthorityforElectricityandWater(PAEW).

BuildingorconstructionconsentfromtherelevantmunicipalityandMECA.
Excavationpermitsfromtherelevantmunicipality,MECA,MOH,RoyalOmanPoliceandanyinterestedserviceproviders(for
example,water,gas,electricity,andtelephone).
Othermunicipalitypermits,suchasdemolitionpermits,transferofsoilpermits,offsiteactivityapproval,installationofsiteworks,and
campsite/storagesiteapproval.
SeveralpermitsfromtheDirectorGeneralofCivilDefenceattheRoyalOmanPolicerequiredbeforeconstructioninrelationto,among
otherthings,studyingofconstructionprojects,transportofhazardoussubstances(ifnecessary,anddoneinconjunctionwiththe
DirectorGeneralofTraffic,andfiresafetyequipmentclearance.
Inadditiontositeapproval,otherPAEWapprovalsandpermits,suchassitehandover,temporarywatersupplyandmainsclearance
(inconjunctionwithMOH).
GascrossingexcavationpermitsfromtheOmanGasCompany.

During
Duringtheproject,itisnecessarytoobtainthosepermitsthatarerequiredfortheconstructionprogramme,includingpermitsfromthe
DirectorGeneralofTrafficfor:
Thetransportofheavygoods.
Consenttoopenuphighwaysorotherroadsforcrossing.
Trafficroutingplansfortransportationofpersonnel,plantandmaterials.

Oncompletion
Thefollowingmayberequiredoncompletion:
Municipalitypermits,suchascertificateofcompletion.
ApermanentelectricityconnectionrequesttobemadetotheMuscatElectricityDistributionCompany(MEDC).
AfiresafetycertificatefromtheDirectorGeneralofCivilDefence.
WatersupplyrequeststobemadetoPAEW.

Projectsinsurance
20.Whattypesofinsurancemustbemaintainedbylaw?Areothernoncompulsorytypesofinsurancemaintainedunder
contract?

Compulsoryinsurance
Therearenospecificconstructionrelatedinsurancesthatacontractormustobtainbylaw.Responsibilityfortheinsuranceisamatterfor
precontractnegotiation(seebelow,Noncompulsoryinsurance).

Noncompulsoryinsurance
Typicallycontractorswillberequiredtotakeoutandmaintain:

Allrisksinsurance.
Worker'scompensationinsurance.
Constructionprofessionalsareusuallycontractuallyrequiredtocarryprofessionalindemnityinsurance.

Labourlaws
21.Arethereanylabourlawrequirementsforhiring(localandforeign)workers?
TheLabourLaw(promulgatedbySultaniDecree35/2003)andtheregulationsanddecisionsmadeunderitregulateallaspectsof
employmentinOman,includingthehiringofOmaninationalsandexpatriates.AllemployeesmustbeemployedbyanOmaninationalora
companyregisteredinOman.

Localworkers
OmaniemployeesmustberegisteredwiththePublicAuthorityforSocialInsurance(PASI).Thereisastandardformcontractwhichis
usedtoregisternationalemployeeswiththeMinistryofManpowerandPASI.

Foreignworkers
Expatriatesrequire:
Alabourclearance(fortheposition).
Anemploymentvisa.
Aresidencepermit.
ThereisanOmanisationpolicyinplacewhichprovidesaminimumpercentageofOmaniemployeesforeachemployer,basedonits
sectorofoperation.Somepositions,includingdrivers,receptionists,MinistryliaisonofficersandArabictypists,mustbefilledbyOmanis.

22.Whichlabourlawsarerelevanttoprojects?
TheLabourLawisrelevanttoprojects,andsetsout,amongotherthings:
Minimumwagerequirements.TheminimumwageforOmaniemployeesis:
OMR225asbasicsalarypermonth
OMR100asallowances,suchastransportandhousingallowance.
Thereisnoeffectiveminimumwageforexpatriates.
Maximumworkinghoursareninehoursperdayand45perweek.Overtimeworkispermittedbutthetotalworkinghoursinasingle
daymustnotexceed12hours.Employeesmustbepaidforthehoursworkedbeyondthemaximumdailyworkinghours.Theyare
alsoentitledtotworestdaysafterfivedaysofworkbutmayworkonthosedaysinreturnforovertimepayments.Ramadanworking
hoursforMuslimsaresixhoursperday.
Healthandsafetyrequirements(seeQuestion24).
BothOmaniandexpatriateemployeesarepermittedtobemembersoftradeunions.

23.Mustanemployerpaystatutoryredundancyorotherpaymentsattheendofaproject?Areallemployeeseligible?

TherearenostatutoryprovisionswithregardtoredundancyinOman.Redundancyisgenerallyconsideredawrongfulterminationin
Oman,otherthaninverylimitedcircumstances.Ifanemployeeiswrongfullyterminatedcompensationispayable.Thestatutory
minimumisthreemonths'grosssalaryplusaccruedentitlements.
Carefuldraftingofemploymentconditionscandealwiththisissueeffectivelyandallowtheendingoftheemploymentcontractwithout
theemployerbeingliabletopaycompensation.Onexpirationorterminationoftheemploymentagreement,entitlementstoaccruedleave
mustbepaidtogetherwith,inthecaseofexpatriates:
Anendofservicebenefit(oncompletionofstatutoryminimumservice).
Repatriationexpenses.

Healthandsafety
24.Whichhealthandsafetylawsapplytoprojects?
TheLabourLawimposesrequirementsonemployersto:
Protecttheiremployeesfrominjuryanddangersattheworkplace.
Acquaintemployeeswiththeprotectivemeasuresadoptedintheworkplace.
MinisterialDecision686/2008imposesmorespecificobligationsinrelationto:
Protectiveclothing.
Heatingandcooling.
Illumination.
Sleeping.
Eatingandworkingareas.
Workinginsummermonths.
Fire.
Chemicalradiation.
Otherhazards.
Italsoimposesrequirementsregardingreportingandinspectionsthatapplytoallemployers.Inaddition,therearespecificprovisions
regulatingworkonconstructionsites.
AbreachofhealthandsafetylawsmayresultinafineofbetweenOMR100andOMR500and/orimprisonmentforuptoonemonth.A
breachmayalsoresultincivilclaimsfordamages.

Environmentalissues
25.Whichlocallawsregulateprojects'effectsontheenvironment?
TheprincipalenvironmentallegislationinOmanistheLawonConservationoftheEnvironmentandPreventionofPollution(promulgated
bySultaniDecreeNo.114/2001).Ingeneral,thelawprohibitsthedisposalintotheOmanienvironmentofpollutantsinsuchquantities
andtypesasmayadverselyaffectthe:

Intactnessoftheenvironment,itsnaturalresourcesornatureconservationareas.
HistoricalandculturalheritageoftheSultanateofOman.
TheMECAistheauthorityresponsibleforprotectingtheenvironment.AnenvironmentalpermitmustbesoughtfromtheMECAforany
projectwhichmaydirectlyorindirectlycauseenvironmentalpollution.Thiswillincludeaninitialpreliminarypermitfollowedbya
subsequentfinalpermit.
Inaddition,itwillbenecessarytoobtainacampsiteapprovalfromthelocalmunicipality,aswellasfromMECA.

Air
RegulationswereissuedunderMinisterialDecision243/2005,whichwereintendedtoenhancethecontrolandmanagementofozone
depletingsubstances(ODSs).

Water
TheMarinePollutionLaw(SultaniDecree34/74)provides,amongotherthings,thatnopersonorshipcandischargeanypollutantina
pollutionfreezonefromaship,shorelocationoroiltransportfacility.

Waste
MinisterialDecision17/93ManagementofSolidNonhazardousWasteimposesobligationsonoperatorsofsolidnonhazardouswaste
treatmentfacilitiesandsanitarylandfills.
MinisterialDecision18/93ManagementofHazardousWastegovernsthemanagementandlicensingofhazardouswaste.Itrequiresthe
wastegeneratortousethebestavailabletechnologyrelevanttothetypeofproductiontominimisethegenerationofhazardouswaste.

Environmentalimpactassessments(EIAs)
Priortoapplyingforanenvironmentalpermitforaproject(suchasawaterorpowerproject),theMECAhasdiscretiontorequirea
detailedEIApriortotheapplicationforanenvironmentalpermitfortheproject(seeabove).

Sustainabledevelopment
TherearenostatutorilyprescribedgreenbuildingcodesinOman.However,therearesignsofincreasinginterestinthedevelopmentof
sustainableconstructionpractices.

26.Donewbuildingsneedtomeetcarbonemissionsorclimatechangetargets?
Omanisnotsubjecttoanycarbonemissionsorclimatechangetargets.Nonetheless,ithasadoptedregulationstogoverntheissueof
approvalsforCleanDevelopmentMechanism(CDM)projectsundertheKyotoProtocoltotheUNFrameworkonClimateChange.The
DirectorateGeneralofClimateAffairshastheresponsibilityforassessingCDMprojectsinOman.

Corruptpractices
27.Arethereanyrulesprohibitingcorruptbusinesspracticesandbribery(particularlyanyrulestargetingtheprojects
sector)?Whataretheapplicablecivilorcriminalpenalties?
ThemainrelevantOmanilawsarethe:
ConflictsLaw(promulgatedbySultaniDecree112/2011).
PenalCode(promulgatedbySultaniDecree7/1974),whichmakesitacriminaloffenceforagovernmentemployeeto:

receivegiftstoperform,orrefrainfromcarryingouthisresponsibilities(Article155).Thepenaltyforthiscrimeisimprisonmentfor
threemonthstothreeyears,andafineequaltotheamountswhichtheemployeehadreceivedinordertoperform,ortorefrain
fromcarryingout,hisresponsibilities
acceptoraskforabribetodo(orrefrainfromdoing)somethingincompatiblewiththedutiesofhisjob(Article156).Theperson
givingsuchabribe(andanymiddleman)alsocommitsanoffence.Thepenaltyforthiscrimeisimprisonmentforaperiodofupto
tenyearsandafineequaltotheamoutnsreceivedorgiven.
ThepenaltiesunderArticles155and156applytothegovernmentemployee,thepersongivingthebribes,andtheattorneys
representingthemiftheyhadknowledgeorwereinvolvedinthistransaction.
CivilServiceLaw(promulgatedbySultaniDecree120/2004).Inparticular,agovernmentofficialisprohibitedfromacceptinganyform
ofgiftorrewardwhichhas"aneffectontheperformanceofhisdutiesunderhisjob"(Article104(k)).Therefore,"facilitation"or
"grease"paymentsareprohibited.PenaltiesundertheCivilServiceLawarerestrictedtopenalisingthegovernmentofficialwhohas
allegedlyacceptedthebribe,andinclude:
notice
warning
reductioninpay
suspensionfromwork
termination.
ThesepenaltiesarewithoutprejudicetoanycriminalprosecutionunderthePenalCode(Article108,PenalCode).Inrelationto
criminalpenalties,seeabove.
ItisunclearhowtheOmancourtswouldtreatprivatecompaniesprovidingtravelorhotelexpenses,corporateentertainmentandgifts
togovernmentofficials.Anysuchproposalsshouldbeverycarefullyconsidered.
TheOmanStandardConditionscontainprovisionsexpresslyentitlingtheEmployertocancelthecontractiftheContractorisinvolvedin
corruptpractices.Inthosecircumstancestheemployerwouldbeentitledtotreattheterminationasaterminationforcontractor'sdefault.

Bankruptcy/insolvency
28.Whatrightsdotheclientandfunderhaveonthecontractor'sbankruptcyorinsolvency?
Whethertherearerightsonthecontractor'sbankruptcyorinsolvencywilldependonthecontract:forexample,theOmanStandard
ConditionsallowtheEmployer,intheeventofthecontractor'sbankruptcy,toterminatethecontractforcontractor'sdefaultandcomplete
theworkitself.

PPPs
29.Arepublicprivatepartnerships(PPPs)commoninlocalconstructionprojects?Ifso,whichsectorscommonlyusePPPs?
WhatwouldbeconsideredtobePPPsinOmanvaryintheirforms,from:
Projectsrangingfromarelativelystraightforwardoutsourcingofoperationormaintenanceservices.
Amorecomplicatedgrantofalongtermconcessiontobuild,ownandoperateapowergenerationorwatertreatmentplant.
Privatesectorparticipationhasbeenpredominantlyseenintheutilitiessectorandanumberofindependent,privatelyfinanced,power,
waterandwastewaterprojectshavebeenimplemented.

30.WhatlocallawsapplytoPPPs?
OmanhasadoptedaprivatisationprogrammewhoseobjectivesandbroadtermsofimplementationaresetoutinthePrivatisationLaw
(promulgatedbySultaniDecree77/2004).Theprogrammeenvisages,amongotherthings,thegrantofconcessionsandsaleofsharesin
governmentownedcompanies.Thereisnosingle,comprehensivelegislationwhichgenerallyregulatesthedetaileddevelopmentand
implementationofPPPsinOman.However,therearesectorbasedlawswhichhavebeenenactedtoallowforprivatisationofservicesin
thatsector,forexampletheLawfortheRegulationandPrivatisationoftheElectricityandRelatedWaterSector(promulgatedbySultani
Decree78/2004as"Sector"lawamendedbySultaniDecree59/2009).

31.Whatisthetypicalprocurement/tenderprocessinaPPPtransaction?Doesthegovernmentoranotherbodypublish
standardformsofPPPprojectagreementandrelatedcontracts?
ThekeylegislationregulatinggovernmentprocurementistheTenderLaw(seeQuestion3,Publicsectorprocurement).TheTenderLaw:
EstablishestheTenderBoard,whichhastheprimaryresponsibilityforsuchtenders.
Setsout,amongotherthings,requirementsrelatingto:
advertisingoftenders
formsofbidsubmission
bidtimetable
bidevaluation.

Typically,thetenderprocesswillbecarriedoutintwostages,includinganinitialprequalificationstageandafinalbidstage.
ThereisnopublishedorprescribedformofagreementwhichisrequiredtobeusedinaPPPproject.Projectdocumentationgenerally
takestheformofawelldevelopedprecedentthathasbeensuccessfullyusedinthepastandisgenerallyknowntothemarket.

Disputeresolution
32.Whicharethemostcommonformaldisputeresolutionmethodsused?Whichcourtsandarbitrationorganisationsdeal
withconstructiondisputes?

Formaldisputeresolutionmethods
ConstructioncontractsinOman,otherthanforsmallscaleworks,andwhetherawardedbypublicorprivatesectorprojectprocurers,will
invariablyprovidefordisputestobereferredtoarbitration.TheLawofArbitrationinCivilandCommercialDisputes(promulgatedby
SultaniDecree47/1997),assubsequentlyamended,providesOmanwithacomprehensivemodernlegislativeregimeforarbitrationasan
alternativetocourtproceedings.ThecurrenteditionoftheOmanStandardConditionsdoesnotprovidethatarbitrationwillbe
institutionallyadministered.Partiessometimes,butnotinvariably,agreetoamendthistoapply,forexample,toICCadministrationand
rules(seebelow,Courtsandarbitrationorganisations).Courtlitigationisnotcommonlyusedtodetermineconstructiondisputes,notleast
becausethelanguageoftheconstructionindustrytendstobeEnglish,andlitigationproceedingsinOmanareconductedinArabicwithall
documentationrequiredtobetranslatedintoArabic.

Courtsandarbitrationorganisations
ContractsawardedbyOmanipublicauthoritieswilltypicallyprovideforresolutionofdisputesbyarbitration,ifnotamicablyresolved(see
above,Formaldisputeresolutionmethods).Inthatcase:
Theseatofarbitrationwillgenerally,butnotinvariably,beMuscatinOman.TheproceduresetoutintheLawofArbitrationinCiviland
CommercialDisputeswillapply.
Englishwillbethelanguageusedforthearbitration.

VenuesincludingLondon,Paris,orDubaiaresometimesagreedbynegotiation,includingincasesofcontractsawardedbyOmanipublic
authorities,typicallyaccordingtotheLondonCourtofInternationalArbitration(LCIA)(www.lcia.org),InternationalChamberofCommerce
(ICC)(www.iccwbo.org/court)orDubaiInternationalArbitrationCentrerules(www.diac.ae).

33.Whatarethemostcommonlyusedalternativedisputeresolution(ADR)methods?
OrthodoxADRmethods(suchasconciliation,mediationandadjudication)havenotbeenwidelyusedinOman,evenonlargeprojects.
Generally,negotiatedamicablesettlementsmaybeused,ratherthanformal,oreveninformaloralternativelegalproceedings.Thereare
signsthatFIDICstyledisputeadjudicationboards(DABs)willincreasinglybecomeafeatureofmajorpublicsectorcontracts,particularly
whentheOmanStandardConditionsarebroughtintolinewiththeFIDIC1999suitesofstandardforms(seeQuestion37).

Tax
34.Whatarethemaintaxissuesarisingonprojects?
ForeigncompaniesoperatinginOmanwillbeliabletopaythefollowingtaxes:
Customsdutiesonimports(certainitemssuchascementareexempt).
Incometaxontheprofitfromanybusiness(currentlyatarateof12%).

35.Areanymethodscommonlyusedtomitigatetaxliabilityonprojects?Arethereanytaxincentivestocarryout
regenerationprojects?
Wherethecontractor'sscopeofworkinvolvesengineeringormaterialsprocurementoffshore,EPCcontractswillusuallybepreparedin
a"split"structure,whichmeansthat:
Theonshorecontractscopewillbelimitedtolocalprocurement,buildingandcivilworksandsiteinstallation,testingand
commissioning.
Theoffshorecontractscopewillcoverengineering,procurementandshippingtoportofentry.
Theobjectiveistoexcludefromlocalincometaxationthevalueoftheoffshoreworks.

Otherrequirementsforinternationalcontractors
36.Arethereanyspecificrequirementsthatinternationalcontractorsorconstructionprofessionalsmustcomplywith?
Internationalcontractorsmustcomplywithcertainlicensingrequirementsandrequirementsconcerninghiringforeignemployees(see
Questions18and21).

Reformandtrends
37.Arethereanyproposalstoreformconstructionandprojectslaw?Arethereanynewlegalorregulatorytrendsaffecting
projects?

Reformproposals

Atthetimeofwriting,therearenosignificantproposalsforreformintheareaofconstructionandprojectslaw.However,asignificant
pendingchangetotheformofOmanStandardConditionsforconstructionofbuildingandcivilengineeringworksisinprogress.Thenew
OmanStandardConditionswillbebilingual(ArabicandEnglish).Thisshouldremoveanyuncertaintycausedbyinconsistencybetween
itstwoseparatepredecessors,theEnglishversionissuedin1987,andtheArabicversionpublishedin1999(seeQuestion6).
Thescopeoftheproposedamendmentsremainsuncertainatthemoment.Nevertheless,itwouldappearthatanobjectiveistobringthe
ConditionsintolinewithFIDIC99,aswellastoreflecttheregulatorychangesthathaveoccurredoverthepast13yearssincethe
publicationofthelastedition.
TheproposedbilingualOmanStandardConditionsarecurrentlypendingfinalapprovalfromvariousGovernmentbodies,andthedateof
publicationremainsuncertain.

Trends
Therehavebeennosignificantchangesinthemannerthatmajorpublicprojects,suchaswaterorpowerprojects,areprocuredthrough
privatefinance.

MainConstructionorganisations
TheOmanSocietyofEngineers
Mainactivities.TheOmanSocietyofEngineerswasestablishedbyMinisterialDecisionin2001.Itisanongovernmental
organisationwhichseekstoadvanceallmattersrelatedtoengineersandengineeringinOman.Itsobjectivesaretoregulate
engineeringpracticesandtosupporttheneedsandrightsofengineerswhilstcontributingtotheindustrialandarchitectural
developmentofOman.
Wwww.oseoman.org

TheOmanSocietyofContractors
Mainactivities.TheobjectivesoftheOmanSocietyofContractorsareto:
Assistintheamicableresolutionofdisputesamongmembersaswellasthirdpartiesandclients.
BuildabrandimageforOmaniconstructioncontractors.
Promoteandadvance,inaccordancewiththeneedsoftheindustry,thetrainingofallpersonsemployedintheindustry.
Continuallyreviewthestandardtermsandconditionsofcontracts.
Wwww.omansc.org

Contributorprofiles
DavidCourtneyHatcher,Partner
Dentons&Co,Oman