Saudi Arabia to establish new FIDIC-compliant system for construction contracts

Ministers have given the relevant government departments until the end of November to complete the new FIDIC-compliant system, according to Arab News.

Dubai-based projects expert George Varma of Pinsent Masons, the law firm behind Out-Law.com, said that the news was a "positive development",  and that "KSA's introduction of standard form government contracts based on FIDIC will serve to boost confidence in what is a rapidly evolving construction market"..

"As with other countries in the Gulf, the initiative should serve to increase participation from experienced international companies in KSA's construction market on the basis that they will be conversant with the structure and risk allocation model provided for by the FIDIC Suite of Contracts. It should also expedite the contract negotiation process, which in turn ought to lead to faster and more efficient project delivery," he said.

The FIDIC 'Rainbow Suite' of New Contracts was published in 1999 by FIDIC, the international standards organisation for the construction industry. FIDIC contracts are the most widely-used internationally, including by the World Bank on its projects. The contracts are relatively well known and used in the Middle East generally, and the Abu Dhabi government adopted standard form construction contracts based on FIDIC for its own construction work in 2007.

Once adopted in the KSA, the new FIDIC-style standard form contracts will be overseen by the Ministries of Commerce, Finance and Labor, according to Arab News. The use of FIDIC as the base document for its standard form contracts has been backed by the Jeddah Chamber of Commerce and Industry (JCCI). The head of the JCCI's contracting committee, Abdullah Rudwan, told Arab News that the new system could solve 80% of the problems in the contracting sector by preserving the rights of local contractors against other parties and acting as a reference for differences arising from the implementation of contracts.

Projects expert George Varma said that the standard form of FIDIC contracts would need to be amended in order to comply with KSA and Shari'a law. For example, clauses which provide for the payment of interest would not be enforced by KSA courts, and time bar and waiver clauses were also arguably inconsistent with Shari'a principles, he said.

The dispute resolution regime to be adopted in the KSA standard form contracts is uncertain.  They may well follow the course adopted by Abu Dhabi and remove the tiered dispute resolution process and instead refer disputes to the KSA courts.  Arbitration against government bodies is not permitted under KSA law and is considered to be against public policy, unless permission is granted by the President of the Council of Ministers, which may well be the driver for such an approach, he said.

More than two million people work in the KSA construction sector, of which 10% are Saudis, according to Arab News. The value of the sector grew by 16.5% and contributed to 4.6% of the Kingdom's gross domestic product (GDP) in 2012, it said.