Many provisions of the KSA Civil Code mirror those found in other civil codes across the Gulf, which facilitates consistency and clarity in the management of construction contracts across the Gulf region. At the same time, the KSA Civil Law introduces tailored provisions that are particularly relevant to developers and contractors working in the Kingdom. This article offers an insight into these latter provisions and their practical implications, providing critical insights for industry professionals navigating this evolving legal terrain.
This is particularly important in a sector where verbal instructions and site instructions are common. For instance, a subcontractor may begin additional works upon a verbal request by the site engineer. If the formal variation order never materialises, quantum meruit may still provide a path for payment.
The inclusion of quantum meruit provisions in the KSA Civil Law also benefits employers, ensuring that payments are due only for work actually completed or services provided. It fosters a more balanced approach to compensation, particularly in cases where the original contract is either void or ambiguous. In arbitration, quantum meruit is frequently invoked where works have been performed outside of strict contractual boundaries. These new statutory provisions now offer clearer benchmarks for tribunals to assess such claims.
Under Article 470 of the KSA Civil Law, should the quantities listed in the itemised Bill of Quantities be exceeded, the contractor must "immediately notify" the employer to avoid waiving the right to recover additional costs.
The requirement for immediate notification mirrors international best practice, but will likely result in a shift of day-to-day practice for many local contractors, accustomed to a more informal approach. Furthermore, the requirement for 'immediate' notice provides a degree of uncertainty, with the issue of fulfilment of notice requirements featuring in the vast majority of construction disputes in the region.
Article 471 of the KSA Civil Law introduces unique provisions regarding variations in Muqawala contracts. It stipulates that a contractor may not demand an increase in the contract price, irrespective of changes in material prices or wages, unless due to the employer's fault or with the employer's permission. Additionally, Article 471(2) limits a contractor's entitlement to additional costs for variations. As such, contractors need to be cautious when pricing projects to account for any significant price fluctuation in materials.
These provisions are likely to feature prominently in arbitration proceedings where variation claims are raised, especially where contractors allege that increased costs arose from employer-driven changes without having obtained timely written approvals from the employer.
For example, if an employer does not make a payment when it falls due, the contractor may be entitled to stop work until the issue is resolved. Ideally, the contract will contain clearer provisions addressing the circumstances under which the contractor has the right to suspend work and the process for doing so. However, even where the contract is silent on this issue, Article 114 of the KSA Civil Law may offer comfort to contractors by permitting them to withhold performance in response to non-payment by the employer.
That said, any suspension should be approached with care. It must be exercised in good faith and must be proportionate to the breach. Contractors should also ensure that any action taken is consistent with the terms of the contract and with general principles of contract law, including the obligation to mitigate losses wherever possible.
Article 466 provides specific provisions for termination due to contractor breach. If a contractor fails to perform the work according to the contract terms, the employer has the right to issue a notice requiring the contractor to correct the breach within a reasonable period. If the breach is not remedied within the specified timeframe, the employer may terminate the contract or appoint another contractor to complete the work at the original contractor’s expense.
Additionally, Article 476 allows either party to request termination if external factors make the work impossible to complete.
This mechanism will provide considerable comfort to developers, especially those delivering complex or high-value projects under the Kingdom’s Vision 2030 programme. Many of these giga projects involve newly formed joint ventures or local contractors who may have limited experience operating at such scale. In this context, clear contractual remedies and protection such as those provided under Article 466 are essential to managing performance risk. They offer developers a structured and enforceable route to remove underperforming contractors while preserving project timelines and budgets.
In circumstances where termination is necessary, the KSA Civil Law also provides guidance on compensation. If a contractor is unable to complete the work through no fault of its own, it is entitled to compensation for the completed work and expenses incurred up to that point, helping ensure that contractors are not left financially vulnerable when external factors disrupt their ability to complete the project. As such, if a contractor or subcontractor is terminated, it is important to promptly carry out a site survey to assess the progress made at the time of termination. Doing so ensures that there is a clear and well-documented record of the work completed, which will assist in resolving any disputes over the final account and mitigate the risk of prolonged payment disagreements.
Where termination leads to arbitration, these statutory provisions offer a valuable framework for tribunals assessing both wrongful termination claims and claims for outstanding payment or loss of profit.
The KSA civil law and construction contracts
Articles 461 to 478 of the Civil Code of the KSA Civil Law address Muqawala contracts (contracts for works), which are the backbone of construction projects. The KSA Civil Law establishes a foundational framework for construction professionals by outlining their rights and obligations, as well as the mechanisms governing contract formation and execution. Importantly, it provides both employers and contractors with guidance on how to manage project obligations and resolve disputes. It can be expected that the introduction of these clear statutory rules will now influence how construction disputes are framed and resolved in arbitration, particularly in claims for non-performance or breach.Quantum meruit: getting paid for work done
Disputes in construction projects often stem from incomplete works, informal agreements or disputed variations. The KSA Civil Law recognises the principle of quantum meruit, a Latin phrase meaning "what one has earned", ensuring fairness in situations where a party provides services or performs work without a formalised contract, or when a contract is voided.This is particularly important in a sector where verbal instructions and site instructions are common. For instance, a subcontractor may begin additional works upon a verbal request by the site engineer. If the formal variation order never materialises, quantum meruit may still provide a path for payment.
The inclusion of quantum meruit provisions in the KSA Civil Law also benefits employers, ensuring that payments are due only for work actually completed or services provided. It fosters a more balanced approach to compensation, particularly in cases where the original contract is either void or ambiguous. In arbitration, quantum meruit is frequently invoked where works have been performed outside of strict contractual boundaries. These new statutory provisions now offer clearer benchmarks for tribunals to assess such claims.
Managing variations: timely notice is key
Variations are a fact of life in construction, arising due to changes in design, unforeseen circumstances, or modifications requested by the employer.Under Article 470 of the KSA Civil Law, should the quantities listed in the itemised Bill of Quantities be exceeded, the contractor must "immediately notify" the employer to avoid waiving the right to recover additional costs.
The requirement for immediate notification mirrors international best practice, but will likely result in a shift of day-to-day practice for many local contractors, accustomed to a more informal approach. Furthermore, the requirement for 'immediate' notice provides a degree of uncertainty, with the issue of fulfilment of notice requirements featuring in the vast majority of construction disputes in the region.
Article 471 of the KSA Civil Law introduces unique provisions regarding variations in Muqawala contracts. It stipulates that a contractor may not demand an increase in the contract price, irrespective of changes in material prices or wages, unless due to the employer's fault or with the employer's permission. Additionally, Article 471(2) limits a contractor's entitlement to additional costs for variations. As such, contractors need to be cautious when pricing projects to account for any significant price fluctuation in materials.
These provisions are likely to feature prominently in arbitration proceedings where variation claims are raised, especially where contractors allege that increased costs arose from employer-driven changes without having obtained timely written approvals from the employer.
Suspension of work
While the KSA Civil Law does not explicitly provide for suspension of work, Article 114 allows a party to withhold performance if the other party fails to perform its obligations. This is an important tool for contractors, particularly in the case of non-payment.For example, if an employer does not make a payment when it falls due, the contractor may be entitled to stop work until the issue is resolved. Ideally, the contract will contain clearer provisions addressing the circumstances under which the contractor has the right to suspend work and the process for doing so. However, even where the contract is silent on this issue, Article 114 of the KSA Civil Law may offer comfort to contractors by permitting them to withhold performance in response to non-payment by the employer.
That said, any suspension should be approached with care. It must be exercised in good faith and must be proportionate to the breach. Contractors should also ensure that any action taken is consistent with the terms of the contract and with general principles of contract law, including the obligation to mitigate losses wherever possible.
Termination of contracts
Termination of a construction contract is a complex process that must be approached with a great deal of care because the legal consequences of wrongful termination can be substantial. Under the KSA Civil Law, several methods are available for terminating a contract, including mutual agreement, completion of the agreed work, or a court order.Article 466 provides specific provisions for termination due to contractor breach. If a contractor fails to perform the work according to the contract terms, the employer has the right to issue a notice requiring the contractor to correct the breach within a reasonable period. If the breach is not remedied within the specified timeframe, the employer may terminate the contract or appoint another contractor to complete the work at the original contractor’s expense.
Additionally, Article 476 allows either party to request termination if external factors make the work impossible to complete.
This mechanism will provide considerable comfort to developers, especially those delivering complex or high-value projects under the Kingdom’s Vision 2030 programme. Many of these giga projects involve newly formed joint ventures or local contractors who may have limited experience operating at such scale. In this context, clear contractual remedies and protection such as those provided under Article 466 are essential to managing performance risk. They offer developers a structured and enforceable route to remove underperforming contractors while preserving project timelines and budgets.
In circumstances where termination is necessary, the KSA Civil Law also provides guidance on compensation. If a contractor is unable to complete the work through no fault of its own, it is entitled to compensation for the completed work and expenses incurred up to that point, helping ensure that contractors are not left financially vulnerable when external factors disrupt their ability to complete the project. As such, if a contractor or subcontractor is terminated, it is important to promptly carry out a site survey to assess the progress made at the time of termination. Doing so ensures that there is a clear and well-documented record of the work completed, which will assist in resolving any disputes over the final account and mitigate the risk of prolonged payment disagreements.
Where termination leads to arbitration, these statutory provisions offer a valuable framework for tribunals assessing both wrongful termination claims and claims for outstanding payment or loss of profit.
Conclusion
The KSA Civil Law offers a comprehensive and robust legal framework that governs construction contracts within Saudi Arabia. The provisions covering quantum meruit, variations, suspension, and termination are designed to provide fairness, clarity, and protection for both employers and contractors. By aligning the law with regional legal expectations, the KSA Civil Law aims to foster a more consistent and predictable environment for construction professionals operating in the Kingdom.
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