Construction Contract Disputes in Saudi Arabia: Delays, Variations, Defects and Termination

Price: unit rates and lump sums

• Unit-rate contracts need clear measurement and pricing terms.
• Lump-sum contracts need a clear scope and price.

Under the contracting rules, if general exceptional circumstances destroy the contract's balance, the court or tribunal may extend the time for performance, adjust the price, or terminate the contract.

Exceptional circumstances

The exceptional-circumstances rules apply where unforeseeable exceptional circumstances make performance so burdensome that the obligor faces an exorbitant loss:

• the affected party may ask for the contract to be renegotiated;
• asking for renegotiation does not entitle it to stop performing;
• if no agreement is reached, the court may reduce the burdensome obligation to a reasonable level.

The event must be general, not specific to one project or one contractor. Rising costs on a single site will rarely qualify on their own.

Variations and extra work

Most variation disputes are about proof. The questions are who instructed the extra work, whether it was outside the original scope, and what it should cost.

Practical rules:

• get instructions in writing, even as a short email or WhatsApp message from the owner's engineer;
• record quantities and time spent as the work is done;
• submit a priced variation request promptly, before or during the work;
• keep a variation log that both sides can see.

Defects and correction

• Materials must meet the specification, or, if none is set, be adequate for their purpose.
• The employer may require the contractor to correct defective work within a reasonable time. If the contractor does not, a third party may do the work at the contractor's expense.
• The employer must take over completed work immediately. Responsibility then transfers, subject to latent defects.

Delay and liquidated damages

Most construction contracts set delay damages at a fixed rate per day or week. Under the Civil Transactions Law:

• agreed compensation is not payable if the debtor proves that the creditor suffered no harm;
• the court may reduce agreed compensation if it is exaggerated, or if the obligation was partly performed;
• the court may increase it where the debtor's fraud or gross negligence caused harm exceeding the agreed amount.

Example: A contractor building a warehouse in Jubail Industrial City finishes 60 days late. The contract sets delay damages of SAR 10,000 per day, so the owner deducts SAR 600,000. The contractor shows that 40 of those days were caused by late approval of shop drawings. It also argues that the owner's actual harm is far below the deduction. Both arguments relate to the agreed-compensation rules and the delay analysis.

Termination

• If a breach cannot be rectified, or cannot be rectified within the agreed period, the employer may demand immediate termination.
• Generally, a party may notify the other and ask the court to rescind the contract for non-performance. The court may refuse if the breach is minor.
• If the contract contains an express clause allowing rescission without a court order, that clause can apply.
• A contractor that cannot finish for a reason it did not cause can recover the value of the completed work and its expenses, capped at the employer's benefit from that work.

Arbitration and time limits

Many construction contracts contain arbitration clauses. If there is a valid arbitration clause and the defendant relies on it, the court will not hear the dispute.

Filing time limits depend on the claim and the applicable law. An acknowledgment of the right or an excuse accepted by the court may matter, but do not rely on an exception. Check the deadline and act promptly.

For owners

Issue instructions in writing, respond to submittals on time, and raise defects with specific descriptions and photos. Delay damages and back-charges are much easier to defend when the record shows the contractor was notified and given a chance to correct.