4 Hot-Button Issues in Saudi Arabia all Project Owners and Contractors Should Know
FTI Consulting’s Construction Solutions team and V&E’s International Construction team outline four critical construction issues, which all owners and contractors with projects in Saudi Arabia should know.
Certain contractors struggle to meet contractual notice provisions. In Saudi Arabia, there are several principles in Shari’ah law, which could allow a claim to proceed, even if the contractual notice has not been met, including among others, prevention, unfairness, good faith, and the principle that generally, rights are not lost due to the passage of time.
Construction projects generally experience delays, contracts contemplate it and generally contain clauses that identify the party that is responsible for them. In most contracts, delay events would typically fall into three categories 1) employer / excusable events, 2) neutral events and 3) contractor / culpable events. When assessing delays, analysts need to establish who is responsible as well as the effect on the completion date. Records are key to demonstrating what caused delay and contracts will typically include a mechanism for extending time for excusable and neutral events, which will negate any liability for liquidated and ascertained damages. Excusable delays may often lead to a contractor being entitled to payment of costs associated with the delay. Delays will happen to all sorts of activities but it is important to focus on those that are on the critical path, as these affect completion of the project. There is a variety of well-known methods available to assist in the determination of the effects of delaying events and the type of analysis will depend on whether the analysis is to be prospective or retrospective, the records that have been kept and the availability of the programmes amongst other things. Understanding which method to use in the circumstances is therefore key.
Contract administration and in particular record keeping is becoming more crucial than ever in particular when a project is complex and of high value. The production of accurate records is fundamental to the successful preparation and / or defence of claims for time and money. With contract conditions across the Middle East becoming increasingly rigorous on the level of detail to be included in monthly reports, and non-compliance having onerous consequences, including the potential loss of entitlement for extra time and / or costs, it is paramount that records are prepared, kept and maintained. Successful time claims require analysts to recreate events that caused delay and apply the event to the construction programme. With events having usually occurred in the past, records are key to demonstrating what was happening at the time. The absence of records generally leads to more assumptions and increases the likelihood of claims failing and / or escalating into a dispute. The same principles regarding contemporaneous records also apply to claims for additional payment.
In Saudi Arabia, generally, an employer may not exercise a termination right unless expressly provided for under the contract. That said, pursuant to Shari’ah law, the termination may be deemed to be for a legitimate reason, such as fraud. The corollary under Shari’ah law is that, if the employer terminates the contract without a legitimate reason, the contractor will be entitled to damages. There are also certain statutory rights of termination, including under the Procurement Law 2006, which allows public authorities to terminate (whilst retaining a right to claim damages), for example, when there is: bribery, unrectified delay, unapproved subcontracting, bankruptcy, or death.
To learn more about FTI Consulting, please visit our website here. For more information, please contact FTI contacts David Murphy, Mohamed Kabbara, or Simon Chandler.
To learn more about V&E’s International Construction Disputes practice, please visit their website here. For more information, please contact Vinson & Elkins lawyers Amir Ghaffari, Joseph Chedrawe, Nick Henchie, Looaye Al-Akkas, Emily Beirne, or Amr Omram.
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FTI Consulting is an independent global business advisory firm dedicated to helping organisations manage change, mitigate risk and resolve disputes: financial, legal, operational, political & regulatory, reputational and transactional. FTI Consulting professionals, located in all major business centres throughout the world, work closely with clients to anticipate, illuminate and overcome complex business challenges and opportunities. The views expressed in this article are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals.