Security of payment: Saudi Arabia

What legislation or regulations govern security of payment in construction contracts?

Unlike many other jurisdictions, Saudi Arabia does not have a dedicated Security of Payment Act. Instead, security of payment issues are generally governed by border legislation, including:

1. Government Tenders and Procurement Law (GTPL), applicable to government and public projects;
2. Saudi Civil Transactions Law (CTL, 2023), regulating general contract principles, obligations and remedies;
3. Commercial Courts Law and its implementing regulations, governing dispute resolution and interim measures; and
4. Enforcement Law (2012) and Administrative Enforcement Law (2021), governing enforcement against private and public entities respectively.

For example, under the general principles of Saudi law, contractors may suspend work until payment obligations are fulfilled. However, Saudi courts do not support suspension where the project is deemed to serve the public benefit. In such cases, the contractor is expected to continue performance and later pursue claims for delayed entitlements after project completion.

In practice, payment rights and obligations are primarily set out in the construction contract itself (often based on FIDIC forms) but always remain subject to the mandatory provisions of Saudi law (eg, prohibition of interest, fair dealing, force majeure, etc).

 

What framework is put in place to protect monies intended for progress payments?

There is no statutory payment protection regime comparable to trust funds or statutory adjudication elsewhere.

Are project bank accounts required?

No, Saudi law does not mandate the use of project bank accounts for progress payments. Payments are typically made directly by the employer, whether a government entity or a private party.

Are retention monies quarantined?

There is no statutory requirement to quarantine retention monies. Retention is purely a contractual mechanism, typically set at 5-10% of the contract price, with partial release upon completion and final release after the defects liability period. Retention amounts are held by the employer and are generally not segregated from the employer’s assets.

Are retention monies regimes prohibited?

No, they are not prohibited. Retention regimes are commonly used and enforceable, subject to the agreed contract terms and the general principles of Saudi law.

 

Can a contractor or subcontractor impose a lien or other form of security over the works or other assets of the developer?

No statutory construction liens exist under Saudi law. Unless otherwise agreed in the relevant contract (and always subject to Saudi law), contractors and subcontractors cannot claim a legal charge over land, works, or assets of the employer. However, after obtaining a final judgment or award against the employer, the contractor may apply to freeze the employer’s assets to satisfy the judgment as part of the enforcement process.

Where the employer is a government or public entity, its assets are not subject to liens under Saudi law.

 

What impact has the legislation or regulation had on the construction sector and insolvencies?

Since no dedicated security of payment legislation exists, payment risk remains a significant issue in the Saudi construction sector.

For government projects, the GTPL and its implementing regulations provide some discipline, including mandatory payment timelines and requirements for advance and performance securities.

In private sector projects, delayed payments are common and can cause liquidity stress, but Saudi courts tend to uphold contractual payment obligations strictly.

The Insolvency Law (2018, amended 2020) introduced restructuring and bankruptcy frameworks, which have been increasingly used by contractors facing payment disputes – but this remains a developing area.

 

What, if any, reforms are being considered?  

There is currently no announced draft law in Saudi Arabia equivalent to the “Security of Payment” regimes found in other jurisdictions.

However, the Civil Transactions Law (2023) has modernised contract law principles, providing greater certainty in enforcement. Additionally, there are ongoing discussions regarding construction sector reforms under Saudi Vision 2030, which may eventually introduce more formal statutory protection for payments, though no concrete proposals have been published to date.