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Saudi cuts builder contract advance payment by 15%

Construction firms working in Saudi Arabia were previously entitled to a 20% advance payment on contract value for certain government-issued deals

Saudi is grappling with the global slowdown in oil prices. [Representational image]
Saudi is grappling with the global slowdown in oil prices. [Representational image]

Saudi Arabia's finance ministry has amended the advance payment made to construction firms working on government projects.

Companies building government projects will now receive 5% of the contract value as advance payment, instead of the 20% payment made earlier.

Finance minister Ibrahim Alassaf issued a circular stating advance payments should not exceed $13.3m (SAR50m), Reuters reported, citing Al Hayat newspaper.

Construction companies in Saudi are entitled to an advance payment for certain contracts issued by the government. 

The move is expected to fund on-site operation, allow for early sub-contractor payments, and the purchase of equipment and materials from suppliers. 

The amount is amortised and deducted from the contract's value at a later stage. 

Saudi's latest move is of the many changes recommended and implemented by the country's finance ministry. 

In October 2015, it was reported that the ministry had stalled state payment and investment for the fourth quarter of the year. 

According to Arabian Business, two sources reportedly said the ministry “told government departments not to contract any new projects and to freeze appointments and promotions in the fourth quarter".

This was followed by a heavily overhauled 2016 budget, which features subsidy cuts, taxation, and reduced state investment as the Kingdom grapples with the global oil price slowdown. 

At the budgetary announcement, Saudi's finance ministry said it will review government projects to ensure they are necessary, affordable, and efficient. 

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May 31, 2020