The Saudi Civil Code: Shaping the future of construction disputes

The Civil Transactions Law (‘CTL’) quietly came into force in December 2023 with little fanfare, but its real impact is yet to hit construction disputes, the ambition of which is unrivalled.

NEOM, Qiddiyah, King Salman International Airport, and Diriyah (amongst many others) have all moved from concept to construction. Billion-dollar claims will follow and the CTL is transforming how contractors and developers might argue over delay, variations, and money.

What the CTL actually changes

The CTL introduces three key statutory principles that directly clash with the traditional FIDIC contract:

Good faith (Article 95): Parties must act in good faith. That has largely always been the case but it now appears to have teeth.  If a contractor misses a 28-day notice deadline but the employer already knew about the delay, a tribunal may find it unfair, unreasonable or disproportionate to allow an employer to rely on that technical breach to avoid an otherwise legitimate claim.

Exceptional circumstances (Articles 97 and 471): Even in the absence of a contractually compliant notice, contractors may seek relief if extraordinary events make performance excessively burdensome. This goes beyond FIDIC's (International federation of consulting engineers)  force majeure clause and tribunals will have a discretion to adjust fees, extend time, or even terminate with compensation.

Notice obligations (Article 470): Contractors must immediately notify employers of circumstances or events which may give rise to a claim under the construction contract. This statutory duty is in sync with FIDIC's default variation clauses, creating a dual-track notice system where failure under either FIDIC or the CTL can compound risk.

How change will shape disputes 

Inevitably, the language of the CTL will be tested by lawyers but in the end we are likely to see a rise in KSA (Kingdom of Saudi Arabia) seated tribunals declining to treat FIDIC's time-bar contractual provisions as a complete defence. Instead, they'll weigh:

• Whether the employer had actual knowledge of the issue (site logs, meeting minutes, engineer reports)
• Whether enforcing a contractual time-bar would be unfair, unreasonable, disproportionate or even an abuse of rights
• Whether the contractor complied with both its FIDIC obligations and the CTL notice requirements

The upshot is that arbitrators will likely favour an award for partial relief (rather than dismissing claims entirely), even when notice is late or incomplete, but will demand better record keeping. In a world where the tools required to maintain records are both available and affordable, there are likely to be fewer places to hide for those that do not adapt.

In the KSA courts, we are likely to see decisions that robustly enforce the CTL's mandatory provisions, even if the contract is silent or ambiguous. For example:

• A court can reduce liquidated damages if the rate is unreasonably high, punitive or the contractual obligation was partially fulfilled (Article 179)
• Hardship claims (think Covid-19, inflation in material costs/fuel etc.) may dictate contract renegotiation and encourage parties to adopt a more pragmatic solution, regardless of what the FIDIC contract says about risk allocation

On first blush, these changes appear to favour a contractor facing genuine hardship, delay, disruption or general overspend whilst also rendering disputes more unpredictable for developers. 

The reality is that much of the foreshadowed risk and uncertainty can be softened via a fair and reasonable allocation of risk at the start. That is, after all, what most standard format contracts (unamended) strive to achieve.  For those involved in dispute resolution day-to-day, they will know that a court or tribunal is likely to adopt a much more pragmatic approach when considering a balanced contract.

New challenges 

Whilst the CTL seeks to bring clarity, the change brings about new challenges.

Statutory language: What amounts to ‘actual knowledge’ or ‘hardship’? or what is ‘unfair’?  These issues are historically almost always fact sensitive.

Dual-notice compliance: Contractors must now track both FIDIC's 28-day clock and the CTL's ‘immediate’ notice requirement. Missing either may be fatal to a claim.

Evidence overload: To rely on good faith exceptions, or to show actual loss, contractors will need to produce robust contemporaneous evidence including daily logs, BIM data, engineer instructions, and meeting minutes. Poor record-keeping – a plague of the region for so long - could now be punished more severely than before.

Developer uncertainty: Developers can no longer budget based on a strict interpretation of its FIDIC contract. They face the risk of a tribunal/ court rewriting penalty clauses or imposing a need to renegotiate terms mid-project, complicating financing and investor reporting.

Insurance coverage: Professional indemnity and CAR policies may not cover losses arising from statutory renegotiation or hardship adjustments. Insurers may argue that these are commercial risks and not insurable events. Parties will need to work with brokers to ensure they have appropriate cover.

Cautions and considerations

Whilst the law is evolving, the message for both contractors and employers remains the same, only now a failure to adapt may be fatal and costly:

Record everything: Both contractors and employers should maintain records including parallel notice systems to track compliance with both FIDIC and the CTL. Where possible, reference both contractual and statutory provisions when submitting a contractual notice.

Harmonise your claims: Claims should be framed in both contractual and statutory terms. Relying solely on FIDIC clauses, with no explicit reference to the relevant CTL provisions, could be fatal.

Partial wins: Even strong claims may be reduced in the absence of a properly substantiated claim demonstrating both actual cost and causation. Price your risk accordingly in tenders.

FIDIC amendments: Standard FIDIC time-bar language, and terms regarding employer knowledge, may be unenforceable if they conflict with the CTL good faith principles. Consider amending these clauses.

Brace for renegotiation: Do not sign and forget.  Market analysis should identify potential hardship adjustments which may be required, and this analysis can be factored into financial models. Lenders may demand this contingency be built into facility agreements.

A more level playing field but at a cost for all

Future KSA construction disputes will likely be less about procedural technicalities and more about substantive fairness. Contractors will almost certainly succeed on more claims, but to do so they will need to spend more on maintaining records. Developers will face greater uncertainty but will benefit from more reasonable outcomes based on actual records. 

For construction disputes, we anticipate an uptick in partial awards.  Parties that adapt their contract administration and dispute strategies now will save cost later. Those that do not may learn the hard (and expensive) way that KSA law is no longer a passive backdrop but an active participant in every dispute.