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In the Kingdom of Saudi Arabia (“KSA”), the absence of a clearly defined and effective mechanism which ensures the protection and fulfillment of rights in administrative disputes has chased challenges. There have been a significant number of cases in which the enforcement of final administrative judgments has been delayed or abandoned. This situation has adversely affected the value and credibility of judgments issued by administrative courts.

Under the current framework, if an administrative body failed to enforce a judgment that has been issued against it, the enforcement creditor should submit an enforcement request to the emirate of the region in which enforcement is sought, who will first notify the administrative body of its obligation to enforce the judgment, and then, in case of defiance by the administrative body, instruct the National Anti-corruption Commission (Nazaha) to take the necessary measures. In some cases, the Emirate can also write to the Ministry of Finance to register the debt in their record and deduct the amount from the Ministry’s future budget. Alas, this method has proven ineffective in promoting administrative bodies’ compliance with the Courts’ rulings.

In response to this historical dilemma, the Council of Ministers have recently issued resolution No. M/15, dated 27/1/1443H, approving the Law of Enforcement before the Board of Grievances (the “Law”). The decision manifests the Saudi Government’s earnest intention to empower the enforcement of final judgments and to ensure justice for both administrative bodies and the public. The Law aims to ensure the judicial security of rights, which will, in turn, support the prosperity of the investment environment and the development of the economic sector in the Kingdom.

The Law marks a positive step forward. It should provide a clear mechanism for the enforcement of judgments against administrative bodies and set forth deterrent punishments and compulsory measures against violators.

Key Highlights of the Law:

Article 3 of the Law gives the Administrative Judicial Council (the “Council”) the authority to establish one or more administrative enforcement courts that will specialize in executing enforcement documents and hearing claims concerning enforcement. The Article also authorizes the Council to establish an administrative circuit in regions and provinces that do not constitute an administrative court, which will carry out the same duties as the courts.

The Law has omitted the requirement of appending judgments issued by administrative courts with the executive form, which is, in contrast, a strict requirement for judgments of non-administrative nature, as provided for in Article 34 of the Enforcement Law, issued by Royal Decree No. M/53, dated 13/8/1433H.

Article 5 of the Law draws a crucial distinction, in terms of appealability, between orders and judgments issued by administrative courts. The Article emphasizes that while the former is not subject to appeal, the latter could be appealed to the specialized administrative appellate courts.

Unprecedently, the Law has followed in the direction of the French judiciary by introducing the concept of astreinte, which is a financial periodic penalty imposed in case of delay in compliance or lack of compliance. The application of the concept of astreinte is manifested in Article 20 of the Law which imposes a penalty of SAR 10,000 upon administrative bodies for each day of delay of enforcement of judgments (after the lapse of the grace period, which is 5 days for urgent judgments and 30 days for non-urgent judgments). Evidently, the said penalty has been used by the legislator as a tool to coerce administrative bodies to enforce judgments.

Article 25 of the Law emphasizes that: “anyone who has an interest in bringing the enforcement claim, whether from the parties to the enforcement or third parties, can bring a claim to enforce the enforcement document.” Accordingly, unlike enforcement claims of non-administrative judgments where the claimant has to have standing to bring a claim of enforcement, any person with an interest can bring an enforcement claim of an administrative judgment regardless of whether or not they have a standing in bringing the claim.

Article 30 of the Law imposes a penalty of imprisonment for a period not exceeding seven years and a fine not exceeding SAR 700,000 or one of these penalties on public employees who intentionally use their authority to prevent the execution of enforcement documents.

Article 30 also imposes a penalty of imprisonment for a period not exceeding five years and a fine not exceeding SAR 500,000 or any of these penalties on public employees who refuse to execute enforcement documents, with the intention of obstructing its enforcement.

It is worth highlighting that although the Article 30 penalties mentioned above apply to all public employees; if the criminal claim was brought against a minister or an official with ministerial rank, the procedure provided for under the Law of Trial of Ministers, issued by Royal Decree No. 88, dated 22/9/1380H, shall apply.

The Law is expected to bring a long-awaited change in the enforcement of judgments against administrative bodies by improving and expediting the enforcement process, which will ensure the credibility of the Judgments issued by the administrative court.

As the Kingdom of Saudi Arabia continues to pave the way towards Vision 2030, the country continues to reshape its policies and legislation to align with global best practice, whilst attracting foreign direct investment.

In recent years a series of legislations have taken effect, and the codifying of Sharia Law now makes it agile for international entities to pursue legal recourse in Saudi courts.

One of the most important regulations to be applied was the Enforcement Law in 2013 through Royal Decree Number M53. This law guarantees that local and international decisions concerning commercial disputes can be enforced within the Saudi legal system.

The new law provides a different means of litigating and arbitrating cases of commercial disputes in a far different manner to the 1989 Rules of Civil Procedure, which previously determined cases through hearing before a Board of Grievances.

The Perspective of The Enforcement Law 

Sharia law allows parties in a dispute to solve their issues out of court and agree on a settlement. If one party fails to reach its end of the settlement agreement, it becomes necessary to seek legal recourse through enforcing a judgment. Another way is by any other legal right executable through an application to an appropriate Saudi court to obtain an execution order.

How the issue goes in front of a judge is dependent on a claim. The claimant must produce written evidence in front of the court that states they have attempted to obtain a voluntary settlement from the other party in the matter. This is where the Enforcement Law comes into play.

Under Articles 7 and 9, the Enforcement Judge is empowered to decide on a broad scope of enforcement disputes, regardless of the value. It will be per provisions that govern summary proceedings. The judge has the power to involve either the police or other law enforcement agencies, and is also capable of;

• Imposing or lifting travel bans
• Ordering imprisonment or release
• Issuing decrees on the disclosure of assets
• Notifying licensed credit agencies
• Reviewing insolvency claims
• Freezing bank accounts

However, parties to a claim should note that the Enforcement Judge is bound under Article 2 to follow the principles established under Sharia Law only if the Enforcement Law has not stated otherwise.

In addition, the debtor is notified of the enforcement judgment and must comply within five days. Article 46 applies if the debtor fails to comply and can face the aforementioned penalties.

Instituting Proceedings Under the Enforcement Law

For a party to obtain an execution order from the Execution Court, the application must comply with Article 34 outlining the Execution Regulations. The application is dependent on these main conditions and procedures.

1. The application made must be concerning an execution document, which can be a type stated in Article 9 of the law. These documents include;

• Orders, decisions, and judgments made by Saudi courts
• Awards made by arbitrators and approved for execution in line with Saudi Arbitration Law
• Reconciliation minutes issued by departments or those authorized by Saudi courts
• Commercial documentation that includes promissory notes, bills of exchange, and checks
• Other documents verifiably issued by the debtor as a constitution and a declaration of the debtors’ validity are acceptable to the judge. They will view them as execution documents unless an objection is raised. In case of a protestation, the judge requires the debtor to append their signature on a document declaring the reasons for their objection.

2. The execution documents before the court must list a specific amount that’s due and payable. The document must be in line with Sharia Law and comply with the requirements stated in Execution Regulations, Article 9.
3. Suppose a debtor objects to a commercial paper such as a promissory note or a check, the required written objection document must be provided to the court in tandem with the concerned commercial paper.
4. When the applicant presents their case to the Execution Court, they should also submit an original copy of any power of attorney.
5. The execution judge must be competent enough to understand the application and should also be within the jurisdiction in which the claimant applies to determine the matter.
6. In case of an appeal, a judgment stays. The exception is if the decision is by summary execution.

For a company seeking to obtain or recover payments assured to it via a check or other similar commercial paper, or where there are acknowledged settlement or debt agreements, it would be viable to

enforce them via the execution court. This process is quicker than obtaining a judgment via a commercial court.

To discuss the enforcement law further or to explore further insights which may impact your legal position, contact us.

The construction and contracting industry in Saudi Arabia is booming, and presents a significant growth opportunity, particularly with notable large-scale projects such as the Riyadh Metro, The Qiddiya Project, Neom and The Red Sea Project to name a few.

With the scale of opportunity present, the need for legal protection becomes greater, therefore we explore the construction contracting landscape, along with the pros and cons.

There is currently no specific construction law in Saudi Arabia, which enables related parties in the private sector to agree on the method to use for pricing, along with terms.  The key element to ensure is that agreements should be Sharia law compliant in order to ensure the terms are enforceable.

Construction contracts outline the contractor’s and project owner’s roles and obligations. The agreements come in various forms, and based on the type, one party may gain more than the other, that is, each contract has its benefits and drawbacks.

Lump-Sum Contracts

A lump-sum contract is the same as a lump-sum agreement or fixed price contract. It is one of the most basic and widespread in Saudi Arabia. The contractor undertakes to perform the job for a set fee, and the project owner agrees to pay the entire cost to the contractor.

The cost of the realization, acquisition of materials, and the marking by miscellaneous expenses and benefits are all in the price.

Pros

• Since the contracts are set in stone, completing them under budget means better profits.
• With anticipated costs, the owner bears minimal risk
• Lump-sum contracts are simple. The contractors don’t have to submit multiple bids and calculate the total price instead.

Cons

• The fixed price model is a risk to the contractor when the projects are vast. There is no room for errors, and any missteps with suppliers and subcontractors may lead to losses.
• Miscalculations can happen when the lump sum contract fails to account for all the variables. Unforeseen changes can reduce margins.

Time and Materials

In a time and materials agreement, the owner agrees to reimburse the contractor per hour in addition to the materials. The contract is most useful where the project’s scope isn’t well defined.

Pros 

• The contractor benefits because they do not have to estimate the cost of project completion as with a lump sum contract, and the owner benefits as they only pay for the actual time worked.
• The contract allows simple negotiations to cover the unforeseen expenses along the way.
• The hourly rate is straightforward

Cons 

• On the other hand, the contractor can be slow because they are paid for their time.
• It is no small task to log in the material costs every time and using the wrong amounts may reduce the profit margin for the contractor.

Cost-Plus Contracts

Also known as a cost-reimbursement contract, the cost-plus method involves paying the contractor for all costs incurred during the contract’s duration. The arrangement sets aside a particular amount as profit, usually a percentage of the project’s overall cost.

A cost-based pricing method is often a moving target and can go out of control. To prevent runaway costs, cost-plus pricing often combines with a guaranteed maximum price (GMP) to set the upper limit for fees and expenses. Anything above it goes to the contractor.

In a nutshell, the cost-plus contract covers the direct costs such as labor and materials, indirect costs, including traveling and communication, and the profit.

Pros

• Cost-plus contracts are flexible. Owners can make design alterations along the way, and the contractors know in advance what they stand to make after the alterations.
• Unlike lump-sum contracts, miscalculations are not detrimental, given the flexible nature of the arrangement.

Cons

• Cost-plus contracts require the justification of costs, and this sometimes is difficult. Owners may be unwilling to reimburse some indirect costs such as administrative expenses.

Unit Price

A unit price contract requires the contractor to establish price per unit of work divided into portions. The method is standard in public work. Also known as measurement contracts, the arrangement allows the contractor to forward the cost of every unit of work instead of an estimate for the whole project. Unit price contracts are practical when the task is tedious, and the material costs are not projectable.

Pros

• A simplified invoice is the contract’s strength, allowing for more transparency and fewer disputes.
• Ideal for well-defined and repetitive projects
• The profit margin stays the same even when there are changes to the scope of the work.

Cons

• The owner may insist on comparing the prices, which can cause delays.
• It may not be handy with private projects unless as part of other methods such as lump sum for particular work components.
• Estimating the final value of the contract is not a walk in the park. The amounts of units needed for project completion is not easy to know.

Construction Contracts Best Practices

While there are different types of construction projects, the contracts follow the same rules and have pretty much the same elements. Here are the best practices when writing construction contracts:

• Incentives are helpful when the scope is not very clear, and the budget or costs of the project are not yet determined.
• The parties need to agree on defining costs, especially in the cost-plus contract. Will redoing the rejected work be part of the overall costs included in the total bill? What about the contractor’s equipment? What rate will be applied?
• How and when will there be communication between the client and the owner? Both parties should know when and how to contact the other before making decisions.
• Parties should agree on how to apportion any savings from the project. Will all the savings in the cost-plus method go to the contractor?
• Since every project may have unforeseen circumstances, it is vital to accommodate contingencies. It is much easier for the project when there is a roadmap in place if something unplanned happens or there is an unexpected expense.
• State the expectations clearly, such as the method of reporting the expenses.

Knowledge of the different types of contracts, their advantages, and their disadvantages is crucial, and it helps to know which one to choose to align with a particular project.

Contact us to discuss your constructions contract needs.