Leaders KSA: Will the Saudi FIDIC code succeed?
Saudi Arabian authorities will have to loosen their reins and accept more equitable contract terms in order to operate under a Saudi FIDIC code
Contractors working on mega-projects, whose payments are being delayed for months on end, face mega-risks financially too. This may result in the creation of a financial footing they can depend on: Saudi FIDIC.
The Saudi government is carrying out a review of a localised version of FIDIC, an engineering contract adopted worldwide. If passed, this will constitute a major legal reform of construction contracts in the Kingdom, according to Haroon Niazi, vice president and country manager at Hill International in Saudi Arabia.
Niazi said at Construction Week’s Leaders in Construction KSA 2015 Summit that adopting a version of the standard FIDIC contracts will alleviate concerns and provide parties confidence when negotiating on infrastructure and state-sponsored projects.
Niazi recounted a meeting with a client who was building 1,000 villas split between Jeddah and Riyadh, and requested that a contract be drawn as per “the laws of FIDIC”.
“I sat back and thought that if there is a project with a recipe for disaster, it’s this one. There is no such thing as the laws of FIDIC in Saudi,” said Niazi.
While FIDIC forms of contracts are used on multiple projects, they are usually modified or superseded by the local public works contract in the Kingdom.
“What we are seeing are semi-public organisations, such as the national Water Company and Saudi Railway Organisation, moving to use a form of the FIDIC contracts, whether the yellow, the red or the silver book,” Niazi said.
He added: “But the key is how the FIDIC contract is being used.”
FIDIC’s Red Book is extensively used on the Haramain Rail project. The Mecca Metro project uses the Silver Book, and its expansion project team uses the Yellow Book.
In their unamended form, FIDIC contracts can create clashes with existing public works laws. For instance, FIDIC gives an engineer the authority and ability to issue variation instructions. However, “Saudi law requires the employer and not the engineer to issue variation instructions”, Niazi said.
Once implemented, Saudi FIDIC will give contractors more room to negotiate, adjust their risk profile, provide engineers with added responsibilities, and stand a better chance of reclaiming losses.
Niazi admitted an update regarding the law’s launch was yet to be provided: “[We are] still not sure when the new contract will be introduced, but the market is waiting for it.”