Contract type, payment terms key for contractors eyeing Saudi
Unpaid contractors have no right to suspend under Saudi law, Nabeel Ikram, partner at Hogan Lovells, tells Construction Week
The type of construction contract, alongside the cycle and terms of payment, are two key considerations that contractors eyeing projects in Saudi Arabia should carefully consider, a legal expert has told Construction Week.
“You have to look at what form of contract is being used – it will suit both parties if they have one that they are both comfortable with,” said Nabeel Ikram, partner at Hogan Lovells’s litigation practice in Dubai, when asked what contractors seeking work in the kingdom must consider before they choose to engage.
“You really have to look at the payment cycle terms too and what rights you are afforded,” he explained.
“Under Saudi law, you haven’t actually got a right to suspend [work] if you haven’t been paid. In other parts of the Middle East, you can suspend [but] that is not the case in Saudi. That makes [the process] that much more difficult.”
His comments come amid reports that more than 5,000 construction projects worth $819bn (SAR3tn) are under way in the kingdom, the Gulf’s largest and most populous country, according to the organisers of The Big 5 Saudi.
Ikram also touched on advanced payments, a form of insurance to cover losses should a contractor fail to perform as per the specifications outlined in a contract.
“Be willing to give more advanced payment guarantees. These might get pulled, but obviously there needs to be an element of trust. You need to look at arbitration with an eye to enforcement too, such as what you want the seat of arbitration [to be],” he continued.
“Although [Saudi] does have a new arbitration law [and] centre in place, it is not tried and trusted yet – that obviously does take time. So, are you in a position to persuade the other party that another seat should apply?”
The kingdom’s new arbitration law, which took effect in September 2012, includes several "arbitration-friendly principles" and is inspired by United Nations Commission on International Trade Law's Model Law.