Contractor payment schedules and retention in Dubai fit-out

# Contractor payment schedules and retention in Dubai fit-out

A normal Dubai fit-out payment schedule runs in four or five stages: 10 to 20% on mobilisation, around 20% each at first-fix MEP, joinery and finishes, then 10 to 20% against handover. Retention of 5 to 10% is deducted along the way, half released at taking-over and half after the defects liability period ends.

What a Dubai fit-out payment schedule actually looks like

The schedule should follow the work, not the calendar. Every stage needs a physical trigger that somebody can stand in the flat and verify: the strip-out is finished, the first-fix pipework has been pressure-tested, the joinery has landed on site. Payment dates tied to weeks rather than to work give you nothing to hold on to when the programme slips.

A residential fit-out in Dubai usually splits like this:

1. 1. Mobilisation and advance, 10 to 20%. Site protection, hoarding, the permit application lodged, first material deposits placed.
2. 2. Strip-out and first-fix MEP, around 20%. Old finishes out, new pipework and conduit in, waterproofing laid and flood-tested.
3. 3. Joinery and stone, around 20%. Normally triggered by delivery to site rather than by installation, because the factory wants paying before it ships.
4. 4. Finishes and second fix, 20 to 25%. Tiling, painting, sanitaryware, light fittings, doors, ironmongery.
5. 5. Handover, 10 to 20%. Paid against a cleared snag list and the taking-over certificate.

Put real money against it. A 140 m² apartment at AED 3,000/m² gives a contract of AED 420,000. On a 15 / 20 / 20 / 25 / 20 split you pay AED 63,000 at mobilisation, then AED 84,000, AED 84,000, AED 105,000 and AED 84,000. With 5% retention deducted along the way, you release AED 399,000 by handover and hold AED 21,000.

The size of the last payment matters more than the size of the advance, and most owners get this backwards. If the final stage is 5% of the contract, you are holding AED 21,000 against a snag list that might need three weeks, two subcontractors and a stone supplier who has moved on to the next job. Keep the last milestone at 10% or higher. If the rate inside the quote looks far off what other contractors are asking, the scope hidden inside it is usually the reason, and the per square foot bands and what they include are worth checking before you argue about stages.

Commercial work follows the same shape with heavier front-loading, because shopfronts, kitchen equipment and specialist MEP have to be ordered long before anyone sees them. On the 135 m² sweets boutique we fitted in Dubai Hills Mall, the landlord's programme and the mall's inspection regime sat above our contract with the tenant, and the payment plan had to respect a handover date nobody in the room had set.

Retention: how much, and when it comes back

Retention is money you owe and are entitled to hold for a period. UAE practice sits at 5 to 10% of the contract value, deducted from each interim payment rather than invoiced as a separate line. Where a contract says nothing about retention, the Civil Transactions Law is generally read as allowing up to 5% to be held. That reading is a legal question, so if the percentage matters to you, write it into the contract instead of relying on a default.

Release normally happens in two halves. The first comes out on the taking-over certificate, once the snag list is closed or the remaining items are listed with agreed dates against each one. The second comes out at the end of the defects liability period, against a defects liability certificate. On the AED 420,000 example above, that is AED 10,500 at taking-over and AED 10,500 twelve months later.

Two things belong in the release clause. Name the documents that have to arrive before the first half is paid, which normally means as-built drawings, MEP equipment warranties, and the DEWA and civil defence sign-offs where the works required them. Then set a calendar deadline for the release itself, because "released after the DLP" with no date attached is how retention quietly turns into a discount.

Between snagging and release there is real work, and it should be free. The snagging inspection produces a list; every item on it is defect rectification inside the original scope, so it carries no price. What it does carry is an owner and a date. A snag list with 60 open items and no dates means the handover has not really happened yet, and retention is the only leverage you have left to close it.

The defects liability period, and what it does not cover

Twelve months from the taking-over certificate is the standard DLP on Dubai fit-out contracts. Premium residential and hospitality work sometimes runs to 24 months, usually on named packages such as joinery finishes, pool plant or specialist glazing rather than across the whole job. Our own workmanship warranty runs a year, which is the same clock.

The DLP covers defects in what the contractor built: a tap that drips, grout that fails, a door leaf that drops, a chilled water line that sweats into a ceiling. It does not cover wear, misuse, work a different contractor did after we left, or a fault in the base build that was already sitting there. That last category causes most of the disputes, which is why a written condition survey with photographs before the strip-out earns its place in the file.

Structural liability is a separate regime. UAE law imposes a ten-year decennial liability on the contractor and the designer for structural collapse or defects that threaten the stability of the building. It has nothing to do with your fit-out warranty, and if you believe you are inside it, the right call is a construction lawyer rather than a contractor.

Variation orders, provisional sums and the budget that moves

Scope can change after signing, and it usually does. The mechanism is the variation order: a written instruction with a price and a time impact, signed before the work happens. Verbal variations are the single most common source of the argument that turns into a court file, and "the foreman said it was fine" is not a document.

On a project with a finished design, variations typically land at 5 to 15% of the base contract. Where the design was still moving at the point of signing, they run far higher, and I have seen an owner add a third to their own budget through choices they made after the strip-out was already open. That is the cost of starting site works before the drawings were done, and no payment schedule protects you from it.

A provisional sum is a placeholder for work that has not been designed yet, for example a kitchen carried at AED 60,000 or a lighting package at AED 35,000. It is not a price. When the design lands, the provisional sum is removed and the real quotation replaces it, and the difference flows through as a variation in either direction. Ask which lines in your quotation are provisional before you sign, because a quotation built mostly on provisional sums is a budget with the lid off.

Our own contracts fix the quotation, and we do not come back for more once work starts. Variations still exist, because clients change their minds, but they are priced and signed before anyone lifts a tool, and the sequence is set out in how we work.

Late handover: liquidated damages and extension of time

Liquidated damages are the pre-agreed compensation for a missed handover date, and they save you from having to prove your actual loss. Dubai fit-out contracts typically carry 0.5 to 1% of the contract value per week of delay, capped at 5 to 10% of the contract. On AED 420,000 that is roughly AED 2,100 to AED 4,200 a week, with a ceiling somewhere between AED 21,000 and AED 42,000.

The clause only works if the completion date is defined and the extension grounds are written down. Common grounds for an extension of time in Dubai include authority approval delays outside the contractor's control, late delivery of owner-supplied materials, restricted building access imposed by the management company, and pending client decisions. The last one is by far the most frequent. A stone selection left open for three weeks moves the handover date by three weeks, and it moves it legitimately.

Our contracts carry a percentage for each week of delay, and it is a term we put in writing rather than a line in a brochure. A contractor who refuses to accept any delay clause at all is telling you something useful about how their programme normally runs.

Protecting the money you pay first

An advance payment guarantee is a bank guarantee for the value of the advance, reduced as interim payments are certified. On commercial contracts and on larger villa projects it is a reasonable ask. On a residential apartment fit-out, most Dubai contractors will not provide one, and chasing it can burn three weeks for nothing. Asking costs you a phone call, and the answer tells you about the contractor's banking relationship either way.

Practical protection matters more than paperwork on jobs of this size:

• Cap the advance at 15 to 20%. Anything above 30% is funding a different project.
• Pay into the company account that matches the trade licence. Not cash, not a personal account, not a third party.
• Tie the advance to something visible: the permit application lodged, the site handover signed, the protection installed.
• For material deposits, ask for the supplier invoice and, on stone and joinery, the factory order confirmation with a delivery date on it.
• Keep the community fit-out deposit in your own name where the management company allows it. It is refundable and it is your money.

Management companies commonly hold a refundable fit-out deposit, reported in the AED 5,000 to 20,000 range for apartments and higher for villas and retail units, released after they inspect the common areas. Permit and NOC costs on a villa commonly total AED 8,000 to 30,000 depending on the authority and the scope. Treat both as market bands rather than a fixed tariff, because communities set their own rules and revise them.

One pattern worth naming. When a quotation lands 30% below everyone else's, the payment schedule is usually where it shows: a large advance, vague middle stages with no verifiable trigger, and a final payment too small to matter. The discount is real, and you pay it back in variations.

What to check before you sign

Licence and cover come first, because a contractor without them cannot pull a permit and cannot indemnify you when something goes wrong:

• Trade licence from the Department of Economy and Tourism for mainland companies, or from the relevant free-zone authority, with fit-out or building contracting among the listed activities. A design-only licence does not permit site works.
• Registration with the authority that owns your building. Dubai Municipality covers most of the mainland including Business Bay and Downtown, DDA covers TECOM free zones such as d3, Media City and Internet City, and Trakhees covers Palm Jumeirah and other Nakheel areas.
• Current insurance certificates: contractors all risks, third-party liability and workmen's compensation. Copies, not assurances.

Then the contract itself. Read for these before you read the price:

• A bill of quantities with quantities and named brands, rather than one lump sum on a single page.
• Payment stages tied to verifiable milestones, each one written so a third party could confirm it.
• The retention percentage, both release triggers and a date attached to each.
• DLP length, plus a written list of what it excludes.
• A delay clause with a weekly rate, a cap, and the grounds for an extension of time.
• The variation procedure, with rates for common items agreed before the first one appears.
• Who applies for the permit and the community NOC, and who pays for them.
• Whether the quoted figure includes the 5% VAT line or adds it on top.

The approval cycle sets your real start date, so read the schedule against it. Getting drawings, the community NOC and the authority permit together typically takes six to ten weeks, although the Dubai Municipality permit itself is issued in five to ten working days once the file is complete. A payment schedule with mobilisation due on signature and first-fix due four weeks later has quietly assumed an approval timeline that does not exist.

If you are still comparing firms rather than contracts, the vetting questions sit in our guide on choosing a design and fit-out company. Once you are down to a shortlist, ask each one for a stage-by-stage schedule on the same scope, and compare those instead of the bottom-line figures.

FAQ

What is a typical payment breakdown for a fit-out project in Dubai?

Four or five stages: 10 to 20% on mobilisation, around 20% at strip-out and first-fix MEP, around 20% when joinery and stone are delivered, 20 to 25% at finishes and second fix, and 10 to 20% against handover. Retention of 5 to 10% is deducted from those payments rather than added as an extra stage. Exact percentages vary by contractor and by how much of the value sits in imported materials.

What is retention money and when do I get it back?

Retention is a percentage of each payment that you hold back as security, normally 5 to 10% of the contract value in the UAE. Half is usually released on the taking-over certificate once the snag list is closed, and the other half at the end of the defects liability period against a defects liability certificate. On an AED 420,000 contract at 5%, that is AED 10,500 at handover and AED 10,500 twelve months later.

How long is the defects liability period and what does it cover?

Twelve months from the taking-over certificate is standard on Dubai fit-out contracts, extending to 24 months on some premium packages. It covers defects in the work the contractor carried out, such as failed grout, leaking joints or doors that drop. It does not cover wear, misuse, work done by others afterwards, or pre-existing faults in the base build, which is why a photographed condition survey before the strip-out is worth the hour it takes.

Can I change the scope after signing the contract?

Yes, through a variation order signed before the work happens, with the price and the time impact stated. Variations typically add 5 to 15% to a project with a completed design and considerably more when drawings were still moving at signature. Verbal instructions on site are the most common cause of billing disputes, so keep every change on paper even when it feels small.

What if the contractor misses the handover deadline?

If the contract carries a liquidated damages clause, you claim at the agreed rate, commonly 0.5 to 1% of the contract value per week with a cap of 5 to 10%. The claim only holds if the completion date was defined and the delay is not covered by an approved extension of time, and client-side decisions are the most frequent reason an extension gets granted. Without an LD clause you have to prove your actual loss, which is a legal exercise rather than a contractual one.