10 Questions You Must Ask Before Signing a Construction Contract in Saudi Arabia
Practical insights for owners, developers, and legal departments before duration, variations, and payment certificates escalate into a dispute.
Signing a construction contract takes mere minutes, yet its ramifications can endure for years.
In construction projects, the robustness of a contract is never demonstrated at the time of execution; rather, it manifests during delays, variations in the scope of work, contractor defaults, withdrawal of works (termination for convenience/cause), and when the dispute reaches an expert or the Court.
Published construction disputes before Commercial Courts reveal that a substantial portion of losses did not arise from the absence of a contract, but rather from the existence of a contract that failed to resolve pivotal questions from the outset.
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Question 1: When Does the Execution Period Effectively Commence?
Specifying the execution period is insufficient unless its commencement date is unequivocal. Does it begin upon contract execution? Site handover? Approval of drawings? Or the issuance of the Notice to Proceed (NTP)?
In a dispute concerning a project valued at over SAR 35 million, the controversy centered on determining the actual commencement date of the contract period, and whether the delay was attributable to the contractor or the employer. The point that must be resolved prior to signing is ensuring that the commencement and expiration dates of the period are determinable from the contract itself, without resorting to subsequent interpretation or correspondences.
Question 2: Is the Scope of Work Closed or Open to Claims?
Many disputes initiate from a single phrase: “This work is out of scope.” Therefore, it is insufficient to describe the project in generic terms; obligations must be expressly tied to drawings, specifications, bills of quantities (BOQ), and the order of precedence of documents in the event of a conflict.
In several commercial cases, claims revolved around variation works that lacked written approvals or clear pricing at the time the alteration was made. This risk is not theoretical; it can materialize into substantial financial claims during execution.
Question 3: How are Variation Orders Approved?
Variations in large-scale projects are not an exception; they are part of the project cycle. Designs, materials, execution scopes, or supply requirements may alter.
In a subcontracting dispute linked to a project exceeding SAR 275 million, variation orders, re-measurements, and extensions of time (EOT) constituted a major component of the dispute prior to reaching a settlement. The mechanism for requesting, approving, pricing variations, and assessing their impact on duration and cost must never be left to subsequent correspondences.
Question 4: Are Payments Tied to Actual Progress?
Payment schedules are not merely financial timelines; they are risk management instruments. In one case, the contractor received the largest portion of the contract value, whereas the expert report concluded that the value of the executed works was far less than the amounts paid.
Therefore, each interim payment certificate (IPC) must be linked to a measurable milestone approved by an independent supervisory authority (The Engineer). The practical rule: Never disburse payments against progress percentages that are difficult to substantiate later.
Question 5: Who Documents Quality and Non-Conformances During Execution?
An independent consultant is not a formality. The consultant documents non-conformances (Non-Conformance Reports – NCRs), approves works, reviews payment certificates, and preserves the technical evidentiary record of the project.
Specialized studies on Saudi construction projects place poor coordination, supervision, and project management among the primary drivers of default and delay, alongside contractor and employer faults. Upon a dispute, the question becomes: What was documented?—not what actually occurred.
Question 6: What Happens in the Event of Delays or Extensions?
The mere existence of a liquidated damages clause (delay penalty) does not guarantee winning a claim. In one case, an employer claimed liquidated damages and execution cost-differentials after withdrawing the works; however, the Court dismissed the claim after examining the additional grace periods, subsequent procedures, and the overall context of project execution.
Therefore, the contract must clearly define the impact of extensions, suspensions, warning notices, and the withdrawal of works on the rights of both parties.
Question 7: If Works are Withdrawn, How are the Cost Differentials of the Completion Contractor Calculated?
Some employers assume that withdrawing works automatically saddles the initial contractor with all subsequent costs. Reality is far more complex.
In a dispute where claims exceeded SAR 15 million, the expert report concluded that certain amounts disbursed after the withdrawal fell fundamentally within the obligations of the completion contractor or involved double-counting; consequently, the claim was dismissed. The right to withdraw works is critical, but the more vital aspect is how the withdrawal is managed and how post-withdrawal status is documented.
Question 8: Who Bears the Liability for Subcontractors and Suppliers?
In medium and large-scale projects, the main contractor does not execute all works independently. Suppliers, manufacturers, subcontractors, letters of credit (LCs), and multiple procurement streams are involved.
Certain disputes have revealed that the core disagreement was not over execution itself, but over materials and suppliers, and who bears their cost or delays. Hence, the contract must explicitly hold the main contractor fully liable to the employer for the performance and defaults of all subcontractors and suppliers.
Question 9: Are Project Records Admissible Evidence Upon a Dispute?
The majority of construction disputes are not settled by the contract instrument alone. They are adjudicated based on minutes of meetings (MoM), notices of default, variation orders, progress reports, payment certificates, and technical correspondences.
In numerous commercial cases, the court-appointed expert’s report relied primarily on these records to determine liability, execution percentages, and outstanding amounts due. A good contract is not merely one that appears organized at execution, but one whose corresponding records withstand scrutiny before an expert during a dispute.
Question 10: How are Final Accounts, Guarantees, and Releases Closed?
Many disputes initiate at the conclusion of a project rather than during its execution. Taking-over certificates (Initial Handover), the release of retention monies/performance guarantees, outstanding claims, variation works, closeout documentation, and final discharges are all points that must be structured in advance.
In a major construction dispute, the litigation culminated in a comprehensive settlement agreement (صلح) addressing outstanding payments, guarantees, final handover, and mutual releases from past, present, and future claims. This underscores that project closeout is a legal and financial phase of equal importance to the execution phase itself.
Conclusion
A construction contract is never tested at execution. It is tested during delays, scope changes, contractor defaults, withdrawal of works, expert evaluations, and when each party claims its rights before the judiciary. Therefore, the paramount question prior to signing is not the contract value or the execution period, but rather: Does this contract manage risk if a dispute arises?
At Al-Salama Law Firm & Legal Consultations, we possess the specialized expertise to draft and review construction contracts, vet payment clauses, guarantees, handovers, and resolve disputes, ensuring your contract acts as an instrument of protection rather than a source of liability.
Book your consultation with us now.
