Public policy

What forms of security and contractual protections do funders typically require to protect their investments?


Security

Funders typically require security to protect their investments in the form of:

  • Bank guarantees.
  • Promissory notes.
  • Parent company guarantees.
  • Share pledges.

These securities are held by the bank until all obligations under the contract have been completed by the contractor.

Contractual

Typically, contractual protections will include penalty clauses for delays and defaults.

What standard forms of contracts are used for both local and international projects? Which organizations publish them?

For public works projects carried out by both local and international contractors, the Saudi Arabian government uses its own standard contract at all times. The standard form contracts are generally available at government offices and on the Internet (www.saudiembassy.net). For example, the Saudi Arabian embassy in Washington DC maintains a website on which standard forms are available for public works contracts as well as design and supervision contracts for engineering consultants (www.saudiembassy.net). However, these standard form contracts are for guidance only as the Arabic translation is the governing document.

The standard forms of contracts used by private sector entities for local projects tend to be the same for both local and international contractors. While private sector entities can write their contracts in any language they choose, if a dispute arises, the Arabic translation of the document will be the only version that will be considered by a Saudi Arabian court

Do the parties usually agree a cap on liability? If yes, how is this usually fixed? What liabilities, if any, are typically not capped?

Under Articles 48 and 49 of the Government Tenders and Procurement Law contractors are liable for penalties where the contractor has either delayed or defaulted in carrying out the project (see Question 7). The Procurement Law does not cap liability in any respect for the follow­ing matters:

  • Death
  • Personal injury
  • Property damage

For private sector clients engaged in projects with contractors, caps on liability are subject to negotiation between the parties. Generally, liability is capped at an amount equal to between 100% and 200% of the value of the contract. However, most contracts do not cap liability for:

  • Death
  • Personal injury.
  • Property damage.
  • Infringement of intellectual property rights.

Clauses in private sector construction contracts may contain provisions for liquidated damages. However, such liquidated damages are ultimately subject to the Shari’a (see Question 8). That is, any amount of money sought to compensate a party with liquidated damages must accurately reflect the actual damages suffered by the damaged party.