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Your Guide to Navigating KSA Construction Claims in the current climate and the effects of the COVID-19 Pandemic

KSA construction claims are either against the contractor by the owner or against the owner by the contractor, similarly, construction claims may also be made between the contractor and the subcontractor. They are a prevalent part of the construction business, and their successful management plays a large role in whether the contractor can stay in business long-term. In this highly volatile economy, things are changing at a faster than ever pace. This is your guide to navigating KSA construction claims in the current climate.

Why Do KSA Construction Claims Happen?

Construction claims occur when goals or expectations on either the contractor’s or the owner’s end are not met. In most cases, it is due to a breach in the agreed-upon timeline, services provided, or money. KSA construction claims can happen as a result of errors, change orders, poor project planning, or a change in the scope of the project. If not managed correctly, the successful completion of the project may be at stake.

Proper KSA claim management involves 4 steps:

  • Claim prevention – This is when detailed project plans are created, including the scope, requirements, and timeline. After the contract has been enacted, you are no longer allowed to revisit this phase.
  • Claim mitigation – Reducing the chance of a claim is best achieved through a realistic and well-developed scope as well as the utilization of risk management plans.
  • Pursuing claims – To pursue a claim, the amount of time the project is delayed and/or the additional costs involved should be defined.
  • Resolving claims – If parties cannot reach an agreement on their own, then the claim may go into negotiations, arbitration, mediation, and even litigation.

The Rights of Contractual Parties

COVID-19 brought about unprecedented times. Every industry has had to pivot and adjust, including the construction industry. As a result of the pandemic, three doctrines were enacted under KSA law regarding construction claims.

  • Force majeure (Quwa Qahira) – A situation in which a construction property is delayed or unable to be completed due to unforeseen circumstances.  The key is that these unforeseen circumstances must be outside of the party’s control.
  • Emergency situation (Al Dhorouf Al Tari’a) – A situation in which hardship makes it extremely difficult to complete the job within the defined timeline (however not impossible).
  • Impossibility (Istihala) – A project is unable to be completed because it is impossible for one reason or another as a direct result of COVID-19.
  • Saudi Law stipulates that during these unprecedented times, one or both parties may have the right to extend or delay deadline, request additional costs, or suspend and terminate the contract.

When Does Force Majeure Take Effect? 

According to the KSA Supreme Court in its decision no. m/45 dated 08/05/1442H, Force Majeure can be enacted if COVID-19 makes it impossible to meet the contract’s terms. The party claiming force majeure must prove beyond a shadow of a doubt that COVID-19 is the reason the project is unable to be completed or must be suspended.

For instance, one of the most well-known byproducts of COVID-19 is the delay in the production and shipment of goods. If you cannot finish a construction project due to the inability to obtain goods in a timely manner, force majeure may be enacted in such circumstances.

When Does Emergency situation (Al Dhorouf Al Tari’a) Take Effect? 

Hardships due to COVID-19 can make it all but impossible to successfully complete a project. Potential hardships due to COVID-19 include:

  • Delay in obtaining the required materials.
  • Lowered productivity due to social distancing.
  • Difficulty accessing the construction site.
  • Employees out of work due to COVID-19.

Criteria required to meet the Emergency situation (Al Dhorouf Al Tari’a):

  • The contract must have gone into effect prior to COVID-19, meaning that neither party had an opportunity to put provisions in place.
  • COVID-19’s effect must be clear and unavoidable.
  • COVID-19 is the only cause of the breach of contract.
  • The claim has not been settled in any way.
  • The effects of the COVID-19 pandemic were not addressed by another specific KSA law or the relevant competent authority.

When Does Impossibility (Istihala) Take Effect? 

Similar to hardship, impossibility or Istihala is a situation in which it is deemed impossible to finish a construction project. In order to avoid a claim, due to impossibility, you must be able to prove that the contract cannot be honored due to the unforeseeable events of COVID-19. A couple of examples include:

  • The inability to get the needed materials to continue with or finish the construction project.
  • Lack of the needed workforce due to an outbreak of COVID-19 or voluntarily choosing not to work in order to further protect themselves and high-risk family members.

Possible Relief Options Under KSA Law

If your construction claim is deemed to meet the criteria for any of the three doctrines enacted as a result of the pandemic, then the following relief options may be available:

  • Payment – The contractor has the right to request additional payment for the project if the cost of materials, labor, and additional resources needed for the job have increased as a result of COVID-19.
  • Suspension/termination of contracts – If the other party does not agree to additional payment or an extended deadline, the contract can be suspended until normalcy is restored or terminated.
  • Contract amendments – KSA courts may also grant amendments to contracts to reduce required quantities of service when materials are difficult to come by.

The Bottom Line

It is important to note that these are guidelines set forth by the KSA Supreme Court. They do not replace current construction claim Saudi laws but are rather an extension of them due to the extenuating circumstances brought about by COVID-19. The KSA Judiciary is responsible for addressing construction claims that are not able to be resolved between the parties involved.

Hammad & Al-Mehdar are the most trusted attorneys in Saudi Arabia, offering a full suite of business and corporate legal services. We provide a local presence with powerful, international capabilities to ensure you receive unrivaled focus and expertise in all corporate matters, including construction claims. Contact us today for more information on how we can help you with your legal needs.