Subcontractor and Contractor Payment Claims in Saudi Arabia

The legal framework: the contracting (muqawala) contract

Construction and contracting work in Saudi Arabia is subject to the contracting provisions of the Civil Transactions Law. Key provisions include:

• Unit-rate contracts: The law covers work priced by unit rates.
• Lump-sum contracts: The law covers lump-sum pricing. Under the contracting rules, if general exceptional circumstances destroy the contract's balance, the court may extend the time for performance, adjust the price or terminate.
• Subcontracting: The Civil Transactions Law addresses the contractor's right to subcontract and the limited circumstances in which the employer may be liable to subcontractors.

Your subcontract is the starting point. Its payment terms, measurement method and dispute clause decide most of the case.

When the main contractor does not pay

If the other party fails to perform its obligations, you can notify it and then ask the court for performance or rescission of the contract, with compensation where appropriate. The court may refuse rescission if the breach is minor compared with the whole obligation.

If your subcontract has an express termination clause, the parties may have agreed that the contract can be rescinded for breach without a court order. Read that clause carefully before you stop work.

"Pay when paid" clauses

Many subcontracts tie payment to the main contractor being paid by the owner. How such a clause applies depends on its exact wording and the facts. For example, it matters whether the owner has certified your work, whether the delay is caused by the main contractor itself, and how long has passed.

Do not accept "the client hasn't paid us" as an open-ended answer. Ask for the status of the owner's certification of your work in writing.

Evidence that wins payment claims

• the signed subcontract or purchase order, including all amendments;
• approved measurement sheets, progress reports or payment certificates;
• invoices and the delivery or acknowledgment of each one;
• variation instructions, especially written instructions for extra work;
• emails and WhatsApp messages confirming quantities, approvals or amounts due;
• a statement of account reconciled with the main contractor, if one was ever signed.

A statement of account signed by the main contractor is often the strongest single document. It can also count as an acknowledgment of the debt.

Example: A Jubail civil subcontractor completes excavation works under a unit-rate subcontract. The main contractor's engineer signs monthly measurement sheets totalling SAR 1,240,000, but only SAR 800,000 is paid. The subcontractor sends a written demand with the signed measurement sheets and the invoices attached. When there is no response, it files a claim for the SAR 440,000 balance, based on the signed measurements.

Time limits

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.

Different Civil Transactions Law limitation periods may apply depending on the type of claim.

Routes to recovery

1. Written demand with a reconciled statement of account and supporting documents.
2. Negotiated settlement, recorded in a signed document.
3. Court claim or arbitration, depending on the dispute clause. If the subcontract has a valid arbitration clause and the defendant relies on it, the court will not hear the dispute.
4. Direct enforcement, if you hold an executive instrument such as a cheque or a registered promissory note. See Bounced Cheques and Promissory Notes.

For main contractors

Keep certification records and the owner's payment status organized and up to date. If a subcontractor's work is defective, raise it in writing with specifics before payment is due. Under the contracting rules, the employer can require correction within a reasonable time, failing which a third party may complete the work at the contractor's expense. See Construction Contract Disputes.