In the Name of Allāh,

the Entirely Merciful, the Especially Merciful

Praise is due to Allāh, Lord of the worlds, may the blessings and peace be upon our master Muḥammad, the last of prophets, on his family, and all his companions.

Resolution No. 129 (3/14) Manufacturing and Construction Contracts:

Essence, Characterization, and Forms

The Council of the International Islamic Fiqh Academy of the Organization of the Islamic Conference, holding its 14th session in Doha, State of Qatar,on 7–13 Dhū al-Qi’dah 1423h (11–16 January 2003),

Having examined the research papers submitted to the Academy concerning

Manufacturing and Construction Contracts: Essence, Characterization and Forms, Having listened to the discussions on the subject,

Having considered the legal proofs, principles, and ultimate objectives of Shariah and the need to preserve public interests in contracts and transactions, Having recognized the importance of manufacturing contracts and their important role in boosting industry and opening up broad opportunities for

Islamic financing, and promoting Islamic economies,

Resolves

1. A manufacturing contract is a contract according to which one party undertakes to manufacture something or perform a task against a specific amount that the other party undertakes to pay. It is a permissible con- tract whether the manufacturer is to provide both the work and the raw material – and in this case, the contract is called by Fuqahā, an Istiṣnā contract – or the manufacturer is to provide the work only, which is the case of Ijāra contract according to Fuqahā.
2. When the manufacturer provides raw material and work, the contract becomes subject to the Academy resolution 65 (3/7) on Istiṣnā.
3. When the manufacturer provides work only, the reward should be pre-determined.

4. Agreement on the determination of the price is permissible to be in any of the following ways:

   1. Agreement to a total price based on the tender documents, designs and specifications that have been precisely

1. Agreement on the price per a specific standard unit with agreed-upon drawings and designs to be applied the quantity.
2. Agreement to determine the price based on the actual cost plus a definite percentage as profit. In this case, the manufacturer/contractor should present detailed accounts and lists that clearly tabulate his actual cost according to specifications so that these can be used for calculating the contract’s value of cost-plus.

5. A manufacturing contract may include a penalty clause to enforce ful- fillment of what has been agreed upon, except in case of force majeure. In this connection, Academy resolution 109 (3/12) on Penalty Clause should be applied.
6. It is permissible in manufacturing contracts to postpone payment of the contract price or make it payable in installments at pre-determined ma- turities or in accordance with dates’ performance phases.
7. It is permissible to agree on amendments and additions to the
8. If the manufacturer made amendments or additions with the owner’s permission, but without mutual agreement on additional payment, the manufacturer is entitled to compensation based on similar
9. If the manufacturer made amendments or additions without the owner’s permission, the former is entitled to no additional payment or compen- sation for such amendments or additions.
10. The manufacturer should be liable for indemnity in cases of infringement, negligence, or breach of contract on his part and for defects and mistakes he However, the manufacturer should not be held liable for what the owner has caused or what has come as a consequence result of force majeure.
11. If the owner made a condition that the manufacturer should do the work personally, the latter should not assign the work to a sub-contractor.
12. If the owner did not make a condition that the work should be done by the manufacturer personally, the latter may assign the work to a sub-con- tractor unless the work itself is meant to be done by the manufactur- er, due to particular merits that normally differ from one craftsman to
13. The manufacturer is accountable for the work of his sub-contractors, and his responsibility towards the owner remains valid as per the contract’s

14. It is not acceptable to stipulate in manufacturing contracts a condition that relieves the manufacturer from
15. It is permissible to stipulate liability for a specific
16. It is not acceptable to stipulate in manufacturing contracts a relief of liability for defects during the guarantee period stated in the contract.

Recommendation

To conduct special studies on some other forms of manufacturing contracts such as BOT contracts (Build, Operate, and Transfer).

Indeed, Allāh is All-Knowing.