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Contract Formation by Conduct — When Behaviour Binds

Works commence, invoices are paid, months pass — and then a dispute reveals that no one ever signed the contract. This is how behaviour-based contracts are formed on UAE sites, and why they are among the most dangerous instruments in construction procurement.

5 min read · Updated 21/04/2026

In this article

1. Why conduct-based contracts arise on UAE sites
2. The legal principle — objective assessment
3. Practical application for contractors and employers
4. The risks cut both ways
5. Mitigation — protecting your position
6. Conclusion

Key takeaway

The absence of a signed contract does not mean there is no contract. Courts will objectively assess the parties’ conduct to determine whether a contract has been formed — and will then determine its terms by reference to the last un-rejected document in the pre-contract exchange. The party whose terms are incorporated has a significant advantage. The cost of delay in contract execution rarely exceeds the cost of a dispute about what was agreed.

1. Why conduct-based contracts arise on UAE sites

In UAE construction procurement, the gap between commercial agreement and formal execution is frequently filled by activity. Contractors mobilise and start on site. Employers receive work, inspect it, and certify payment applications. Invoices are submitted and partly paid. Months pass. Then something goes wrong — a variation dispute, a delay claim, a payment shortfall — and both parties discover that no one ever signed the formal agreement.

The absence of a signed contract does not mean there is no contract. Both common law systems and the UAE Federal Civil Transactions Law recognise that a binding contract can be formed by the conduct of the parties. The difficulty is that conduct-based contracts are inherently uncertain as to their terms, which makes them fertile ground for dispute about what was actually agreed.

The common scenarios in UAE practice include: works commence before all commercial terms are finalised; the contractor starts on site following a letter of award without waiting for the formal contract to be returned countersigned; or a verbal instruction to proceed is given and acted upon. In each case, a tribunal examining the dispute will ask three questions: did the parties intend to contract, did they reach agreement on the essential terms, and was there consideration?

2. The legal principle — objective assessment

The foundational principle is that courts and tribunals will objectively assess whether a reasonable person, observing the parties’ conduct, would conclude that a contract had been formed. Subjective belief is not determinative — what matters is the outward behaviour of the parties judged against the factual background.

Once a contract is found to have been formed by conduct, the tribunal must then determine its terms. This is typically done by reference to the last document in the pre-contract exchange that was not expressly rejected — often the employer’s letter of award, the purchase order, or the contractor’s tender. The party whose terms are incorporated by this mechanism may hold a significant procedural and commercial advantage when the dispute is framed.

3. Practical application for contractors and employers

For contractors

Never commence works without at minimum a signed letter of intent identifying the contract terms that will govern. If the formal contract has not been executed, write to the employer identifying the terms on which you are proceeding and inviting confirmation. Do not assume that your tender conditions or standard terms are incorporated simply because you submitted them — the employer’s award letter may incorporate its own terms by reference, and that reference may prevail.

For employers

Issue formal contracts promptly after award. Do not allow contractors to commence on site without at minimum a countersigned letter of intent. Ensure that any pre-contract communications expressly reference the contract terms that are to apply, and that no subsequent contractor correspondence has sought to substitute different terms without rejection.

4. The risks cut both ways

The exposure created by a conduct-based contract is asymmetric but material for both parties.

For the contractor: the absence of formal contract terms means the loss of carefully negotiated protections. Limitation of liability caps, dispute resolution procedures, notice periods, payment terms, and retention provisions may all be absent — or replaced by unfavourable implied terms that the contractor never accepted.

For the employer: an implied contract may not include liquidated damages provisions. Without LDs, the employer’s remedy for delay is general damages — which must be proved — and in more serious cases the contractor may argue that time is at large, meaning the obligation is only to complete within a reasonable time. That outcome can be commercially catastrophic for a development with funding milestones.

5. Mitigation — protecting your position

The single most effective mitigation is to execute the formal contract before works commence. Where this is not possible, a well-drafted letter of intent that incorporates the contract terms by reference, and is signed by both parties, provides a workable alternative. See our related article on letters of intent for detailed drafting guidance.

• Maintain a contract execution register to track the status of every contract in the programme.
• Write formally when proceeding at risk — identify the terms on which works are continuing and invite confirmation.
• Escalate through project management channels when execution is repeatedly delayed beyond 30 days.
• Ensure that anyone authorised to start works has been briefed on contract status before mobilisation.

6. Conclusion

Contracts formed by conduct are an avoidable problem. The pressure to start works quickly is real, particularly on fast-track UAE developments with funding or handover deadlines. But the risk of starting without a formal agreement in place is greater than the delay caused by waiting. The cost of delay in contract execution rarely exceeds the cost of a dispute about what was or was not agreed — or a tribunal finding that turns on whose purchase order happened to be the last document sent before the concrete was poured.

Is your contract properly formed?

We advise UAE contractors, developers and law firms on contract formation disputes, conduct-based contracts, and the preservation of claims where no signed agreement exists. Early review often prevents what becomes a substantial arbitration.

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