Building law and regulation in Saudi Arabia during Covid-19

Updated 23.04.2020

The Kingdom of Saudi Arabia Government has been agile and responsive on many fronts to reduce the impact of precautionary actions taken in relation to the COVID 19 pandemic. All responses are subject to change following the date of publishing.

Whilst there is no construction only COVID-19 regulation yet, a 24-hour curfew is currently in place in most parts of the country restricting the movement of people other than those working in “key sectors”. 2 Whilst the construction industry is not listed as a “key sector”, it is understood that permits are being issued on a case by case basis to allow certain essential projects to continue to operate.

Additionally, the KSA Contractors’ Authority has recently published a “Handbook for Health Conditions for Companies Working in the Construction Sector During the Corona Pandemic” 3 (the Handbook). The Handbook deals with various issues and is relevant to construction sites which are still in operation, including:

1. Conditions related to employee accommodation such as: (1) imposing the use of face masks and hand sanitisers at all times, (2) maintaining the necessary level of cleaning products, and (3) self-isolation measures, including a requirement to have on the ground specialists available to take care of those self-isolating.
2. Conditions related to employee transportation such as (1) maintaining a 1.8 metre distance at all times, (2) supplying face masks, (3) ensuring all employees’ temperatures are checked, and (4) requesting employees to disclose any COVID-19 related symptoms.
3. Conditions related to the worksite such as (1) supplying hand sanitisers with 70-90% alcohol content and (2) monitoring the number of employees working on site at any one time.
4. Conditions related to the education of employees about COVID-19 including (1) handwashing and (2) avoiding face touching.

Further, Ministerial Resolution 13/8/1441H corresponding to 6 April 2020 was issued which amends the Labour Law[3] so that, as an alternative to termination, an employer can for a period of six months:

1. reduce its employees’ salaries in line with a reduction in working hours;
2. request employees to use annual leave; and
3. request employees to go on an exceptional leave (i.e. unpaid leave) in accordance with Article 116 of the Labour Law.

The KSA government has outlined various initiatives to support businesses, including the construction sector, and in doing so has allocated 70 Billion KSA Riyals to provide the following relief (amongst other steps):

1. postponing government fees applicable to private sector employees for three months, subject to extension;
2. introducing the concept of ‘borrowing employees’ through Ajeer to assist companies and sectors impacted by COVID-19;
3. allowing a 90-day deferral in respect of trade licence fees due to expire within specified periods; and
4. payment towards a percentage of its KSA workforces’ salary for a specified period subject to meeting certain conditions.   

Assessing whether COVID 19 constitutes a force majeure will depend on the wording of the relevant force majeure contract clause, as well as the circumstances of each project.

If there is a reference to "pandemic" or "epidemic" in the force majeure clause, the affected party may be excused performance of its obligations upon giving notice to the other party for so long as the force majeure event prevents or delays performance. Generally, the remedy available is an extension of time and, in some limited circumstances, additional costs.

One of the standard form contracts commonly used in KSA is the FIDIC 1999 Red Book edition. Under the FIDIC Red Book 1999, a contractor may be entitled to additional costs and / or an extension of time if it can demonstrate that any delay was a result of:

1. unforeseeable shortages in the availability of personnel or goods caused by an epidemic or governmental action;
2. any operations of the forces of nature which is unforeseeable or against which an experienced contractor could not reasonably have been expected to have taken adequate preventative precautions; or
3. a force majeure event.

The FIDIC Red Book 1999 defines force majeure as an exceptional event over which a party has no control, could not reasonably have foreseen or reasonably avoided, and is not the fault of the other party. 

The impact of COVID-19, and an assessment of whether it will constitute a force majeure event, will vary depending on the circumstances of each project, including the wording of the relevant clause and the governing law. A party seeking relief will therefore most likely be required to demonstrate how each event arising from COVID-19 is directly impacting performance, as well as the measures taken to avoid additional costs and/or delay.

In the absence of a force majeure clause, a party can in certain circumstances rely on KSA law.  KSA’s legal system is based on principles of Islamic Sharia. Unlike other civil law jurisdictions, there is no civil code in place. Accordingly, parties are generally free to contract with each other provided that they do so in accordance with Sharia principles.

Scholars recognise both events of “force majeure” and “emergency (or urgent) situations”, and have defined them as events that are (1) likely to impact contractual obligations, (2) sudden and beyond the control of the parties, and (3) cannot reasonably be expected or stopped.

However, there is a difference in that a force majeure event is generally defined as one that results in the contract becoming impossible, and in those circumstances the remedy likely to be offered by a court is termination.

Alternatively, an “emergency” or “urgent” situation is likely to occur where the contract becomes more burdensome, but not necessarily impossible. In those circumstances a court might reduce the onerous obligation to a reasonable level or award compensation.

However, the interpretation of the above principles by a court can vary from case to case. Therefore, depending on the precise facts and circumstances, a court can make various orders including but not limited to:

1. termination;
2. adapting the contract to restore its equilibrium; or
3. calling for a grace period in favour of the aggrieved party to fulfil its contractual obligations.

Again, the wording of the construction contract will be relevant.

The FIDIC Red Book 1999 edition describes two grounds which would need to be satisfied for the parties to be released from performance, namely an event or circumstance outside the control of both parties which:

1. makes it impossible or unlawful for a party to fulfil its contractual obligations; or
2. under the applicable law, entitles parties to be released from further performance.

Whether the impacts of COVID 19 would result in either of the above provisions being met will again depend on the circumstances of the particular case.

If the contract does not expressly provide for a force majeure clause or a right to terminate, then as explained in the section above, the KSA courts may offer termination as a remedy, if performance becomes impossible.

Although most measures undertaken are precautionary actions issued temporarily at this critical time; there have been some amendments that amount to change in law, for example, the introduction of the country wide curfew, as well as  the additional clause in the KSA labour law, as stated above.

Most standard form contracts define “Laws” fairly broadly and are likely to include these steps. For example, in the standard FIDIC 1999 Red Book, “Laws” are defined as “all national (or state) legislation, statutes, ordinances and other laws, and regulations and by-laws of any legally constituted public authority.”.

In respect of government projects, Article 131(3) of Ministerial Resolution No. 3479 of 11/08/1441H corresponding to 5 April 2020 allows a government body to terminate a government contract where performance of the works becomes impossible due to force majeure, taking into account any notice provisions in the contract.