FIDIC is one of the most common forms of construction contract used in the Kingdom of Saudi Arabia (KSA), with the 1999 editions of the suite now being adopted for use in many of the Vision 2030 major infrastructure projects.
This continues a long-standing preference for FIDIC contracts in the Kingdom with the ‘Public Works Contract’ approved for use by Saudi government authorities since 1988 being largely based on FIDIC conditions of contract 3rd edition published in 1977.
Although the vast majority of FIDIC contracts being used are amended versions of the forms, some are amended more than others. This can involve either bespoke amended general conditions or amendments sitting on top of the FIDIC standard general conditions, alongside requirements under Saudi law.
Most FIDIC contracts used in the Kingdom are based on the 1999 suite rather than the latest, 2017, suite, with this edition having been used by government departments and quasi-governmental companies on projects including the Haramain High Speed Rail Project; contracts entered into by the Public Investment Fund (PIF) and the Ministry of Transport; and the Mecca Metro and the Riyadh Metro projects.
More recently, the 1999 FIDIC contract has been used in the NEOM reimagined industrial city project, including the Line, Trojena and Oxagon elements as well as the New Murraba and Qiddiya projects in Riyadh.
Commonly-seen amendments made to FIDIC forms used in the Kingdom include:
Most, but not all, Saudi FIDIC-based contracts we have seen in recent years have dispute resolution clauses which remove the dispute adjudication board (DAB) drafting and provide for a final dispute resolution stage of arbitration under rules of the Saudi Center for Commercial Arbitration (SCCA) in Riyadh.
In addition to a ‘standard’ defects notification period as per the unamended FIDIC contract, most FIDIC-based contracts in the Kingdom include a provision which attempts to replicate the decennial liability requirements of article 29 of the Saudi Building Code Implementing Regulations.
This means that the designer or engineer supervising the execution of the works and the contractor become jointly liable for a period of 10 years from the completion of the works, compensating the owner for the total or partial demolition of their constructed buildings or facilities and any hidden defect that threatens the durability of the building and its safety.
There is also often a bespoke provision requiring the contractor to be responsible for ‘latent’ defects for a period, which in some cases is even longer than the 10-year liability period under the Building Code Implementing Regulations. Latent defects are not always defined, but where they are, the term usually means any defects which could not have been discovered during the standard defects notification period. This is onerous on contractors given that decennial liability under law attaches in respect of serious defects only, whereas contractual latent defects can apply to any defects, depending on how the clause is drafted.
Saudi FIDIC contracts often remove the standard wording in sub-clause 14.8 (Delayed Payment) entitling the contractor to receive “financing charges”, otherwise known as late payment interest, in respect of failures by the employer to make timely payments. This is because of the prohibition of ‘riba’ under Sharia law, which has survived the introduction of the Saudi Civil Transactions Law (CTL) and would likely make any such provision unenforceable in the Kingdom.
While any language regarding financing charges is likely to be removed so as not to affect the enforceability of any later issued award, parties still attempt to find ways to include provisions requiring the employer to pay compensation for loss caused by delayed payments, and as our colleagues Nesreen Osman and Mark Raymont have previously commented on this could be permissible under the CTL’s provisions.
Most, but not all, contracts now contain requirements reflecting the Local Content Law, as administered by the Local Content and Government Procurement Authority. These requirements are generally of two types: a ‘local content’ score to be achieved by the contractor based on total value of local labour, goods, services, material, equipment, assets and technology used; or a ‘national product procurement requirement’, with price preference to be given to Saudi products.
These requirements tend not to be strict obligations, with opportunities for contractors to avoid contractual liability if evidence can be provided on why compliance was not possible.
The introduction of the Civil Transactions Law (CTL) in December 2023 was a ground-breaking moment in the Saudi legal landscape, being the first time that the pre-existing Sharia principles have been distilled into legal code similar to those of other jurisdictions in the Middle East region. It has a large number of provisions which govern commercial contracts, including construction contracts, and it is crucial that contracting parties keep the CTL provisions firmly in mind when negotiating the terms of their agreements.
In the following paragraphs we set out just some of the ways that the CTL will interact with FIDIC construction contracts being used in the Kingdom.
The FIDIC ‘rainbow suite’ forms do not contain express obligations on the parties to act in accordance with ‘good faith’ or similar concepts, in contrast to other commonly used forms like the New Engineering Contract (NEC) forms, the current editions of the Institute of Chemical Engineers (IchemE) forms of contract and the Joint Contracts Tribunal (JCT) 2024 editions.
Despite this, article 95 of the CTL codifies the Sharia principle of good faith, itself deriving from the Sharia principle of ‘ihsan’, providing that a contract must be carried out “in accordance with its terms and in a manner consistent with good faith practices”.
Article 29 of the CTL also states that “a person may not exercise his right in an abusive manner” and lists examples of when this may be the case: including if a right is exercised only to cause harm to others; if the benefit generated from exercising the right is substantially disproportionate to the harm it causes to others; or if the right is exercised for an unlawful purpose or in an unlawful manner.
The FIDIC ‘rainbow suite’ contracts make provision for liquidated damages to be applied to specified programme delays and (with the exception of the construct-only ‘Red Book’, which is designed for works primarily designed by the employer) specific failures by the works to achieve performance guarantees.
Under article 178 of the CTL, contracting parties are permitted to pre-agree damages for specified breaches of the contract, except where the subject of the relevant contractual obligation is to make payment of certain sums of money, with late payment interest being a prime example.
Under article 179, however, liquidated damages will not be payable where the obligor proves that there were no actual damages incurred. Moreover, the Saudi courts have the power to reduce the amount of liquidated damages if the obligor proves that these were “excessive” or that the obligation to which they relate was only partially performed.
The courts can also increase the amount to match the actual damage incurred if the creditor establishes that an act of fraud or gross negligence by the obligor caused the damage to exceed the liquidated damages.
Article 179 of the CTL is a mandatory provision, and thus contractual parties cannot agree otherwise or opt out of it.
Article 173 of the CTL allows contracting parties to limit liability for their failures and delays in performing the contract, but this is not permissible in cases of fraud or gross negligence.
This is consistent with the clauses providing for a limit on the contractor’s overall liability under the contract contained in the FIDIC rainbow suite 2nd edition, where the cap on liability does not include for instances of “fraud, gross negligence, deliberate default or reckless misconduct”. The 1st editions contain the same wording, but do not refer to “gross negligence”.
However, under article 173 of the CTL, no agreement can be made to exempt a party from liability for a “harmful act”. This may mean that the scope for which liability cannot be limited under the CTL is wider than the wording contained within the FIDIC contracts, as it encompasses ‘ordinary’ negligence and other tortious acts or omissions in contrast to “gross negligence” in the FIDIC 2nd editions and “deliberate default” and “reckless misconduct” in the 2nd and 1st editions.
The FIDIC ‘rainbow suite’ has various protections for contracting parties whose performance is impacted by changes in circumstances, including the force majeure clause in the 1st editions and clause 18 (Exceptional Events) in the 2nd editions.
The employer’s risks clause, covered by subclauses 17.3 and 17.4 in the 1st editions and sub-clause 17.2 in the 2nd editions, deals with responsibility for the cost of repair or replacement of loss and damage to the works caused by a closed list of events, many of which overlap with those covered in the definitions of ‘force majeure’ and ‘exceptional event’.
Force majeure and exceptional event relief under FIDIC is limited to:
Importantly, all three entitlements are conditional on the affected party complying with contractual notification requirements.
Article 97 of the CTL codifies provisions relating to “extraordinary unforeseen circumstances”, which is potentially broader in application than the FIDIC provisions, allowing the Saudi courts to reduce a burdensome obligation in the absence of agreement between the parties.
The CTL allows for an obligor to seek to renegotiate in circumstances where extraordinary events arise, which could not have been foreseen at the time of entering the contract and which cause the performance of a contractual obligation to become unduly onerous for the obligor such as to threaten them with exorbitant loss. In the meantime, the obligor must continue performing its obligations. If the parties cannot renegotiate the obligation, the court has the power to restore the obligation to what it considers to be a reasonable level.
The ‘muqawala’ section of the CTL, covered in articles 461-478, also contains a clause which allows a court to adjust contractual obligations – including by extending the time for performance, changing the contract price upwards or downwards and even terminating the contract, where the balance of contractual obligations has been altered by extraordinary unforeseen circumstances.