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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:

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.

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:

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

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:

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:

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.

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