Construction and engineering disputes play a major role in Saudi arbitration. In 2025, these cases made up 47% of those registered with the Saudi Center for Commercial Arbitration (“SCCA”), making it the top sector.[1] This is because large projects often involve many parties, interrelated contracts, detailed technical records, and strict schedules. Arbitration works well for these disputes since parties can choose decision-makers with the right experience and benefit from flexible procedures that suit complex, document-heavy cases.[2]
The Civil Transactions Law (“CTL”), which took effect in December 2023 under Royal Decree No. M/191, has clarified the legal rules for these disputes.[3] Articles 461 to 478 focus on service contracts, including construction contracts known as muqawala. Alongside the Law’s general contract rules, these provisions provide a clearer statutory framework for changes, payment, delay, defects, price adjustments, termination and compensation. Some operate as default rules where the contract does not provide otherwise, while mandatory provisions apply regardless of the parties’ agreement.
This note examines what the Civil Transactions Law means in practice for construction arbitration in Saudi Arabia. It also considers how its substantive rules operate alongside the Saudi Arbitration Law, the SCCA Rules and the framework for recognising and enforcing arbitral awards.
Why the Civil Transactions Law Matters for Saudi Construction Disputes
Before the Civil Transactions Law, Saudi civil and commercial disputes often required direct engagement with uncodified Sharia principles and potentially differing jurisprudential views. The reform sought greater consistency and predictability.[4] It also provides parties and tribunals with a clearer statutory framework for presenting, assessing and deciding construction claims.
The Civil Transactions Law introduces a more structured statutory framework without displacing the Sharia foundations of Saudi law. Article 1 applies the Law’s provisions and general rules first, then directs decision-makers to the Sharia principles most consistent with the Law where no rule applies. At the same time, any specific legislation governing the matter continues to apply.[5] This distinction is especially relevant to public projects, regulated industries, and issues that engage Saudi public policy.
For arbitration, the codification helps reduce uncertainty in recurring areas such as contractual interpretation, compensation, liquidated damages, impossibility and termination. It also brings the focus back to the contract itself, the statutory framework and the evidence generated during the project.
The Legal Framework for Construction Arbitration in Saudi Arabia
A Saudi construction arbitration may engage several overlapping legal frameworks:
- Where Saudi law governs the contract, the Civil Transactions Law will generally provide the applicable substantive rules.
- The Arbitration Law enacted by Saudi Arabia in 2012 (“Saudi Arbitration Law”) generally governs arbitrations seated in Saudi Arabia, covering such matters as the powers of the tribunal, assistance from the court, annulment and enforcement. The law is still in effect, even though a draft version of a new law was issued in 2025.[6]
The arbitration agreement must be in writing and may be incorporated by clear reference. Government bodies cannot agree to arbitration without the Prime Minister’s approval unless a special provision allows it.[7] Parties related to public projects should therefore verify capacity, approvals and the employer’s legal status before a dispute arises.
Public projects may also engage procurement and administrative rules that supplement or displace the Civil Transactions Law. Saudi public works contracts increasingly draw on FIDIC concepts, and the current government form took effect in May 2024. FIDIC mechanisms can operate under Saudi law, but special conditions, delegated authority and remedies must be checked against mandatory provisions.[8]
Key Construction Claims under the Civil Transactions Law
Good Faith, Contract Performance and Interpretation
Article 95 provides that the contract must be performed in accordance with its terms and in good faith. This obligation also extends to obligations arising from law, custom and the nature of the transaction. Article 104 provides that clear contractual wording should be given its ordinary meaning and should not be displaced under the guise of interpretation. Where interpretation is necessary, the decision-maker must seek the parties’ common intention, taking into account custom, the circumstances and nature of the contract, the parties’ previous dealings and relationship, and the need to interpret the contractual provisions consistently with one another.[9]
These principles are particularly relevant to notice provisions, document hierarchy, engineers’ instructions, interface responsibilities and established site practices. Good faith does not generally permit a decision-maker to disregard a clearly drafted condition precedent or agreed allocation of risk. Where interpretation is required, however, the provision should be read in the context of the contract as a whole, taking into account relevant custom, the circumstances and nature of the contract, the parties’ previous dealings and their relationship.
Contractor and Employer Obligations, Delivery and Payment
In the official translation of the Law, the terms “contractor” and “client” are used. “Client” usually means the employer.
Articles 463 to 465 of the CTL regulate materials, equipment and timing. Contractor-supplied materials must meet the agreed requirements and specifications or, absent agreement, be sufficient for their intended purpose according to custom. The contractor must exercise reasonable care over client-supplied materials, observe applicable technical standards and return any unused materials. Unless otherwise agreed, the contractor bears the cost of the necessary tools and equipment and must complete the work within the agreed period or, if none is specified, within the period reasonably required by the nature of the work according to custom.[10]
Once the contractor has completed the work and made it available to the client, the client must take delivery. If the client fails to do so without a legitimate reason despite having been notified, and the work is subsequently destroyed or damaged while in the contractor’s possession for reasons not attributable to the contractor’s transgression or negligence, the contractor will not be liable for compensation. Unless otherwise agreed, the fee is payable when the client takes delivery of the agreed work. Where the work consists of multiple phases or the fee is calculated per unit, the contractor is entitled to payment for completed work following its inspection and acceptance, provided that the completed work is distinguishable or significant to the work as a whole.[11]
If, during the course of the work, the contractor fails to comply with the terms of the contract, the employer may give notice requiring compliance and correction within a reasonable period specified by the employer. If the contractor does not correct the breach within that period, the employer may appoint another contractor to complete or correct the work at the original contractor’s expense, in accordance with Article 167, or request termination of the contract. The employer may request termination immediately where the defect cannot be remedied, or where the contractor’s delay in commencing or completing the work is such that completion within the agreed period is no longer reasonably expected.[12] These statutory remedies should be considered alongside any additional notice, cure or termination procedures contained in the contract.
Variations, Remeasurement and Notice
Article 470 applies to measurement and unit-rate contracts. If actual quantities will significantly exceed estimates, the contractor must promptly notify the employer and specify the anticipated price increase. Failure to do so may forfeit the right to recover additional costs. If the increase is substantial, the employer may withdraw from the contract but must pay for work already completed.[13]
For lump-sum work, an amendment or addition supports an increased fee only if it results from the employer’s fault or if the employer authorised it and the parties agreed to the increase. Informal or “constructive” variation claims should be assessed by reference to Article 471, the contractual variation procedure, and evidence that the employer permitted the change and agreed to the fee increase.[14]
Lump-Sum Pricing, Escalation and Exceptional Circumstances
A lump-sum contractor may not demand more merely because materials, labour or other inputs became costlier.[15]
Article 471(3) creates a narrow exception. Where general and unforeseeable exceptional circumstances upset the contractual balance and undermine the basis on which the price was agreed, the court may extend the time for performance, adjust the fee or terminate the contract. A tribunal applying Saudi law should therefore consider the substantive effect of this provision within the limits of its mandate. Article 97 provides a related hardship mechanism where an unforeseeable exceptional event makes performance excessively onerous and threatens serious loss. The debtor may, without undue delay, invite the other party to renegotiate, but the request does not suspend performance. If the parties do not reach agreement within a reasonable period, the court may reduce the onerous obligation.[16]
A party relying on this exception would need to show that the circumstances were exceptional, general and unforeseeable, and that they caused the contractual balance to collapse by undermining the basis on which the contract was priced. It should also explain how the relief sought would restore that balance. Depending on the circumstances, relevant evidence may include tender documents, pricing assumptions, supplier quotations, market indices, procurement records and programme analysis.
Delay, Disruption, Defects and Damages
The Law provides for compensation for non-performance and delay, including actual loss and lost profit where these are a natural consequence of the breach and could not reasonably have been avoided. In contractual claims, recoverable loss may also be limited to harm that was ordinarily foreseeable when the contract was concluded. A debtor will generally not be liable for compensation where it proves that the non-performance or delay resulted from a cause beyond its control, subject to any contrary contractual allocation of risk.[17] A delay claimant should therefore identify the legal and contractual basis of its claim and provide evidence of the delay’s effect, its cause, the resulting loss and any reasonable steps taken to limit that loss.
Delay claims focus on late completion or missed milestones. Prolongation claims concern the additional costs of remaining on the project for longer, while disruption claims address lost productivity or changes to the planned sequence of work. Because the Law does not set out a specific approach to concurrent delay, the outcome will generally depend on the contract, the evidence of causation and the methodology adopted by the experts (see Aceris Law’s note on delay claims in international arbitration).
Articles 178 and 179 recognise agreed compensation, comparable to liquidated damages, except for cash obligations. It is unavailable if no harm occurred and may be reduced if excessive or the obligation was partly performed. It may be increased where fraud or gross negligence caused greater harm. Article 180 otherwise limits compensation to foreseeable harm[18] (see also Aceris Law’s analysis of liquidated damages and penalty clauses in international arbitration).
Saudi case law distinguishes compensatory construction damages from increases imposed solely for late payment of cash debts. Courts have accepted justified time-related costs and liquidated damages, while treating an unreasoned late-payment percentage as prohibited interest and partially annulling that part of an award.[19] Each monetary claim must be supported by legal and evidentiary justification.
Force Majeure, Impossibility and Hardship
Force majeure, impossibility and hardship are related but distinct concepts. Where performance becomes impossible for a reason beyond the debtor’s control, the obligation may be extinguished and the contract may terminate, in whole or in part. The contract may also define the consequences of a force majeure event.[20]
Hardship applies when performance is still possible but becomes exceptionally onerous or disrupts the contractual balance. Clauses should address notice, mitigation, temporary and prolonged events, available time and cost relief, and termination. A party relying on government action, conflict, extreme weather, or supply disruption must show the legal test is met and explain the impact on the project.
Subcontracting, Termination and Time Limits
A contractor may generally subcontract the work unless this is restricted by law, the contract or the nature of the works. The main contractor remains responsible to the employer, and the subcontractor will not ordinarily have a direct claim against the employer without a valid assignment or other legal basis.[21] In practice, this makes back-to-back terms, compatible arbitration clauses and clearly defined pass-through arrangements particularly important.
The contract ordinarily ends when the work is completed. Either party may also request termination where an unforeseen circumstance relating to performance arises, although the party seeking termination must compensate the other for any resulting damage. If the contractor cannot complete the work for a cause not attributable to it, it may still be entitled to payment for the work performed and reimbursement of expenses to the extent that the employer has benefited.[22] As a general rule, termination of the contract does not affect the arbitration clause, which remains effective under the principle of separability.
Claims are generally subject to a ten-year non-hearing period. Article 296 applies a five-year period to certain claims, including professional fees such as engineers’ fees and renewable periodic rights, while Article 297 applies a one-year period to specified categories of claims. The CTL calculates statutory periods using the Hijri calendar. Whether a period has commenced, been suspended, interrupted or recommenced will depend on Articles 295 to 306 and the circumstances of the claim.These statutory periods are distinct from contractual notice requirements and time bars, which may expire much earlier.[23]
Conducting Construction Arbitration in Saudi Arabia
Drafting a Valid Arbitration Agreement
The arbitration clause should clearly identify the applicable arbitral rules and, where relevant, the administering institution, as well as the seat, language and number of arbitrators. It should also define the scope of disputes covered, including disputes arising from amendments, variations and related work or purchase orders, and specify the law governing the contract and, where appropriate, the arbitration agreement. The parties should make sure that the signatories have the necessary authority and that all necessary approvals, especially for public bodies, are in place. The principles of competence-competence and separability do not cure defects in consent, authority or capacity.
Where the contract includes negotiation, an engineer’s determination, a dispute board or mediation before arbitration, the clause should state whether each step is mandatory, the relevant deadlines and whether urgent relief remains available. Clear drafting can help avoid unnecessary disputes over jurisdiction or admissibility.
Institution, Seat and Language
Saudi-related disputes may be referred to arbitration under the SCCA, ICC, LCIA, UNCITRAL Rules or under other institutional or ad hoc rules. The most suitable choice will depend on the nature of the project, the parties involved, the likely places of enforcement and whether the dispute may require multi-party procedures or urgent relief.
The governing law, seat of arbitration and hearing venue should be considered separately. Saudi law allows the parties to choose either a domestic or foreign seat, and the arbitration may be conducted in a language other than Arabic.[24]
For Saudi-seated proceedings, the 2023 SCCA Rules provide joinder and consolidation suited to project disputes.[25] Early determination procedures may help dispose of claims or defences that are plainly without merit. Under the SCCA Rules, emergency arbitration may provide urgent measures to preserve the status quo, prevent imminent harm or protect assets and evidence, with a decision typically issued within 14 days.[26]
In 2025, the SCCA registered 119 arbitrations involving USD 1.09 billion, with Construction and Engineering representing 47% of cases. Reported average disposal times were 259 days for regular, 148 for expedited, 52 for online under the then-applicable Online Dispute Resolution Procedure, and 14 for emergency cases.[27] These figures provide useful context on the SCCA’s caseload and efficiency, but they should not be taken as an indication of how long any particular case will take.
Documents and Expert Evidence
Construction arbitration often turns on the quality of the project record. Key documents include the contract and amendments, baseline and updated programmes, progress reports, RFIs, instructions and variation registers, notices, payment records, cost and resource data, test results, photographs, meeting minutes, correspondence and BIM records.
Delay experts should explain how the critical path developed during the project and distinguish between the different causes of delay. Quantum experts should reconcile the amounts claimed with the project accounts and avoid double recovery. Depending on the issues, technical experts may be needed to address design, defects or delay. Saudi-law experts may also be appropriate where the parties dispute the meaning or application of specific Saudi legal provisions, the authoritative Arabic text, mandatory rules, public policy, or the interaction between the contract and Saudi law. Further guidance on the preparation and presentation of expert evidence can be found in Aceris Law’s practical handbook on international construction arbitration.
Annulment and Enforcement of Construction Awards
A Saudi-seated award cannot be appealed on the merits. Article 50 of the Saudi Arbitration Law limits annulment to specific grounds, including an invalid arbitration agreement, a failure of due process, a decision beyond the tribunal’s mandate, irregular tribunal composition, or inconsistency with Sharia or public policy. The courts may not revisit the facts or merits of the dispute, and filing an annulment application does not by itself suspend enforcement.[28]
The SCCA’s study of more than 1,400 appellate judgments, together with selected Supreme Court judgments issued between 2017 and 2022, recorded an enforcement rate above 92% in every batch and a 94.32% rejection rate for annulment applications in the 2022 batch.[29] A 2026 report covering 967 later appellate decisions recorded 194 annulment applications, of which 174 were rejected; only one partial annulment involved a Sharia-related ground.[30]
To enforce an award under the Saudi Arbitration Law, the applicant must provide the original award or a certified copy, a true copy of the arbitration agreement, evidence that the award was deposited with the competent court and, if the award was issued in another language, an accredited Arabic translation. Foreign arbitral awards may be recognised and enforced under the New York Convention and the Saudi Enforcement Law, subject to the applicable treaty framework and requirements concerning due process, finality, jurisdiction, consistency with any Saudi judgment or order concerning the same subject matter, and Saudi public policy.[31]
Conclusion
The Civil Transactions Law has brought greater structure to Saudi construction disputes by setting out clearer rules on performance, payment, variations, price risk, defects, compensation, subcontracting and termination. But the result of any arbitration will still turn on the fundamentals: careful drafting, timely notices, a reliable project record and persuasive evidence on causation and quantum.
Together with Saudi Arabia’s modern arbitration framework and limited judicial review of awards, the Law gives parties greater certainty when managing and resolving complex construction disputes.
Aceris Law represents clients in construction disputes across the Middle East, with particular experience in matters involving Saudi Arabia and Saudi law, from the preparation of notices of dispute through to international arbitration and enforcement. Parties facing a potential or ongoing dispute are welcome to contact us for advice tailored to their project, contract and dispute strategy.
[1] Saudi Center for Commercial Arbitration, 2025 Annual Report (2025), pp. 15-18.
[2] See Aceris Law LLC, A Practical Handbook on International Construction Arbitration, 3 January 2026 (last accessed 29 July 2026); Aceris Law LLC, International Construction Arbitration, 20 September 2018 (last accessed 29 July 2026).
[3] Saudi Civil Transactions Law, Royal Decree No. M/191 of 18 June 2023 (the “CTL”), Arts. 1 and 461-478. The official English translation is for guidance only, and the Arabic text prevails.
[4] S. Gonem and L. Carpentieri, Saudi Arabia’s Evolving Legal Framework: Building a Secure Environment for International Investment in Line with Vision 2030, 16(1) Intl. J. of Arab Arb. 1, pp. 1-3 and 8-10; A. Tabbara, The Saudi Arabian New Civil Transactions Law: Reshaping the Landscape of International Arbitration?, 15(1) Intl. J. of Arab Arb. 41, pp. 41-44.
[5] CTL, Art. 1; A. Tabbara, The Saudi Arabian New Civil Transactions Law: Reshaping the Landscape of International Arbitration?, 15(1) Intl. J. of Arab Arb. 41, pp. 47-50.
[6] Saudi Arbitration Law, Royal Decree No. M/34 of 16 April 2012, Arts. 2 and 25. As of July 2026, the 2012 Law remained in force, while a draft replacement released for consultation in 2025 remained under consideration. Saudi Center for Commercial Arbitration, Arbitration in Saudi Arabia: Country Report (2026), pp. 7-10.
[7] Saudi Arbitration Law, Arts. 9-10.
[8] A. Almihdar, FIDIC Contracts and the Law of the Kingdom of Saudi Arabia, in F.J. Rosenfeld and F. Ferrari (eds.), The FIDIC Conditions of Contract and Domestic Construction Law: A Guide for Global Dispute Resolution (2025), pp. 312-318 and 323-328.
[9] CTL, Arts. 95 and 104.
[10] CTL, Arts. 463-469.
[11] CTL, Arts. 468-469.
[12] CTL, Arts. 466-467 and 167.
[13] CTL, Art. 470.
[14] CTL, Art. 471(1) and (2).
[15] CTL, Art. 471(1).
[16] CTL, Arts. 97 and 471(3).
[17] CTL, Arts. 136-137 and 170-171.
[18] CTL, Arts. 178-180.
[19] D. Sahab, SCCA Saudi Case Law Study: Three Years in Review, 41(6) J. of Intl. Arb. 723, pp. 725-728.
[20] CTL, Arts. 110, 174 and 294.
[21] CTL, Arts. 473-474.
[22] CTL, Arts. 475-477.
[23] CTL, Arts. 295-300.
[24] Saudi Arbitration Law, Arts. 28-29 and 38.
[25] 2023 SCCA Arbitration Rules, Arts. 12-14.
[26] 2023 SCCA Arbitration Rules, Art. 26 and Appendix III, Arts. 1-7.
[27] Saudi Center for Commercial Arbitration, 2025 Annual Report (2025), pp. 15-18. The report records 119 arbitrations, a total amount in dispute of USD 1.09 billion, and Construction and Engineering as the largest sector at 47%.
[28] Saudi Arbitration Law, Arts. 49-55.
[29] D. Sahab, SCCA Saudi Case Law Study: Three Years in Review, 41(6) J. of Intl. Arb. 723, pp. 723-729. The study reviewed more than 1,400 appellate and selected Supreme Court judgments issued between 2017 and 2022; in the 2022 batch, 94.32% of annulment applications were rejected.
[30] Saudi Center for Commercial Arbitration, Arbitration in Saudi Arabia: Country Report (2026), pp. 12-13. Of 194 annulment applications covered by the report, 174 were rejected, an 89.7% rejection rate; only one partial annulment involved a Sharia violation.
[31] Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature 10 June 1958, Art. V; Saudi Enforcement Law, Royal Decree No. M/53 of 3 July 2012, Arts. 9, 11 and 12.
