UK: Construction In Saudi Arabia: Decennial Liability

Last Updated: 17 April 2013
Article by Ben Cowling and Diana Hudson

In our previous article, Construction in Saudi Arabia: The Next Big Thing?, we discussed the contractual landscape of the construction industry for those seeking to enter the Kingdom of Saudi Arabia's vibrant construction market. Saudi Arabia remains a beacon for construction projects, with an estimated USD 600 billion in construction projects planned or underway1. In this article, we explore the principles of decennial liability under Saudi law and address the issue of contractors' and design consultants' exposure to decennial liability.

Decennial liability

The roots of decennial liability lie in the French Civil Code and Egypt.  It has been widely adopted in Middle East civil code jurisdictions, including the UAE, Qatar, Kuwait and Jordan.

Decennial liability is a strict liability applied to construction projects whereby the contractor and/or the design consultant will be held liable (in the absence of any evidence of breach of contract or negligence), to compensate an owner or employer in the event of defective works in built structures. The liability typically lasts for ten years after project completion.

Decennial liability under Saudi law

Saudi law is based on the Shariah (Islamic law). In the context of commercial transactions such as construction contracts, an important principle of the Shariah is that everything is permitted unless expressly excluded. Thus, the parties to a construction contract may agree any terms they wish and only exceptionally will the Shariah intervene.

In contrast to other Middle East countries, Saudi Arabia has not enacted a civil code setting out the general principles either applying to commercial dealings or explaining when parties will be liable to each other for civil wrongs (i.e. torts) or under contract. However, Saudi Arabia does have a comprehensive Government Tenders and Procurement Law (GTPL) that codifies the process for appointing contractors on government projects and the liabilities that arise from such appointments.

Decennial Liability in Saudi Arabia is governed by the GTPL which includes a provision on decennial liability at Article 76.  However, the GTPL, as its name suggests, only applies to government contracts. As such, projects being undertaken by ministries and other government departments will be subject to the GTPL, whereas projects undertaken by private companies will not.   

The terms of the decennial liability provision in Article 76 of the GTPL read as follows:

"A contractor shall provide a ten year warranty against partial or full collapse of what he constructs starting from the date of final handover to the Government Authority, if such collapse is due to a construction defect, unless the two contracting parties agree on a shorter period."

The factors to note about decennial liability in Saudi Arabia pursuant to Art 76 of the GTPL are that:

  • The trigger event is the partial or total collapse of the built structure.
  • Liability arises where the defect occurs within ten years of completion / handover.
  • Liability is triggered if the collapse is due to a construction defect.
  • The contracting parties may agree to the built structure having a life span of a shorter period, in which case liability attaches for the duration of the life cycle.

The decennial liability provision in Saudi Arabia is seemingly in contrast with the rest of the GCC. For example, decennial liability in the UAE (governed by Articles 880 to 883 of Federal Law No. 5 of 1985 (the UAE Civil Code)) is similar to that as set out in Articles 711 to 715 of Law No. 22 of 2004 (the Qatar Civil Code) in Qatar.  The key points to note in Qatar and in the UAE are: 

  • Trigger events are total or partial collapse of the building and/or a defect threatening the stability or safety of the structure.
  • No fault is necessary in order for liability to arise.
  • Contractors and consultants are jointly and severally liable.
  • Liability arises where the collapse or defect occurs within 10 years of completion.
  • Liability attaches notwithstanding that the collapse or defect is caused by sub-surface conditions or that the building owner approved the defective work.
  • Claims for compensation must be commenced within three years of the collapse or discovery of the defect.
  • Buildings or structures, the life cycle of which is less than ten years, attract liability for the duration of that life cycle.
  • Agreements purporting to exclude Decennial Liability are void.
  • Contractors/consultants are unable to pass the risk of decennial liability down to its subcontractors/ sub-consultants.

To a large extent, the main reason for this difference is that the statutory provision is shorter and, as a result, far more is left to interpretation. 

Trigger events creating a liability

The trigger events for "partial or full collapse" or "a construction defect" are not defined in the GTPL.  As a result, disputes over the interpretation of these phrases are likely to involve the interpretation of what amounts to a "partial or full collapse" and/or establishing whether the collapse was due to a defect or not, as construed in accordance with the terms of the contract and the general Saudi law.

Potential claimants

The potential claimant appears to be limited to the "owner" only and not the "employer" as in the UAE.  The significance of this is that the right to make a claim passes to successors in title.  However, as already noted above, the decennial liability provision found in Article 76 only arises in government contracts (where the owner is likely to be the government or a government-owned entity). Therefore, this distinction is unlikely to be of any practical effect.

Potentially liable parties

At first glance, Article 76 would not seem to apply to a design and supervision consultant.  Other provisions in the GTPL also suggest that the "contractor" in Article 76 is intended to mean the party engaged to build the works (i.e. the construction contractor) not the party engaged to design and/or supervise the works.  For example, Article 30 refers to the work site being handed over to the contractor, which common practice suggests is a reference to the construction contractor, not the design and supervision consultant.

That said, uncertainty remains as to the meaning of "contractor" as the term has not been specifically defined in the GTPL, therefore it is not clear who is anticipated to fall within the scope of this term, and other parts of the legislation suggest that a "contractor" could be engaged to provide services only. 

Furthermore, because a defect in construction may have its roots in a defective design, one cannot rule out the possibility of a contractor who is facing a decennial liability claim seeking to join a design consultant into any ensuing dispute. 

In our experience, Courts in civil law countries tend to take a less literal approach to the application of Statues. It is possible therefore that the Saudi courts would take a broad-brush approach to the application of Article 76 against design and supervision consultants.  Even if Article 76 could be said not to apply to design and supervision consultants, liability of such consultants in respect of structural defects is subject to the general law of Saudi Arabia, which is Islamic Shariah.

Nature of liability

In most Middle East jurisdictions where decennial liability has been adopted, the liability of the contractor and/or the design and supervision consultant is strict (i.e. no fault is necessary in order for liability to arise). Conversely, in Saudi Arabia, liability under Article 76 only arises if the collapse is due to a construction defect, which would necessarily require consideration of evidence of breach of contract or negligence (i.e. causation). 

Exclusion of liability

Article 76 is silent as to whether the parties can contract out of this provision.  In the UAE for example, any contractual term which attempts to do so is void.  The position in Saudi Arabia is likely to be the same as the GTPL is compulsory for all government ministries and departments. As such, the local courts are likely to decide that the GTPL overrides any contractual term that is inconsistent with its strict terms.

Limitation period for decennial liability claims

Whereas in the UAE or Jordan any decennial liability claim must be brought within 3 years and 1 year respectively, there is no concept of limitation periods in Saudi Arabia. Therefore, even after more than ten years have passed since the project was handed over (and Article 76 therefore no longer applies), a contractor or design and supervision consultant may still not be free from liability for defective works if such liability arises under the general law of Saudi Arabia.

Decennial insurance

The obligation to maintain specific insurance against decennial liability is found in certain civil law countries, most notably France which introduced the requirement for the absolute obligation on the part of the contractor, the building designer and the building owner to insurer themselves against decennial liability. Decennial liability insurance is not obligatory in much of the Middle East including Saudi Arabia.

As a rule, decennial liability falls outside the scope of the standard cover provided by Contractors' All Risks (CAR) and Professional Indemnity (PI) insurance.  This is because CAR policies typically cover physical loss or damage to the works being executed, and will typically exclude liability for repair or replacement of property which is defective in design, specification, materials or workmanship. General PI is designed to protect a designers or consultants (and sometimes contractors) against third party claims in negligence. It does not generally extend to the presumption of (i.e. strict) liability imposed by decennial liability.  Furthermore, the indemnity limits of PI insurance rarely adequately cover a scenario such as a building collapse. As such, decennial liability is generally uninsured unless particular cover has been obtained. 

More recently, professional liability insurers have begun offering 10 year Extended Reporting Period (ERP) extensions to professional liability policies that, subject to the wording of the policy, may provide additional coverage for decennial liability claims by third parties. However, typical PI cover based on a "negligent act, error or omission" style wording would probably not cover decennial liabilities, whereas a broader civil liability type wording might do so.

In Saudi Arabia (and the Middle East generally) insurance coverage available for inherent defects and decennial liability is generally limited and, where available, would be expensive as a result of the need for insurers' heavy involvement in monitoring the design and construction process. That said, parties would be wise to balance the costs of obtaining such insurance against the long term risk which could be considerable. 

Conclusion

Saudi Arabia has a codified decennial liability provision in legislation concerning government contracts. This provision appears to present a low risk for design and supervision consultants because a plain reading of the provision is that it applies to construction contractors only. That said, there is no guidance as to how the Saudi courts would interpret the potential application of Article 76.The scope and extent of decennial liability is difficult to ascertain as little case law exists. As such, this residual risk cannot be discounted entirely.

In respect of projects not subject to the GTPL, no codified decennial liability provision applies.  Notwithstanding this, there is no concept of limitation periods in Saudi Arabia, therefore the contractor and/or consult will remain exposed to claims arising from structural defects decades after handover. Given the value and complexity of construction projects, contractors and consultants should ensure they are aware of specific decennial liability laws to determine their exposures and, so far as possible, seek to tailor their insurance needs accordingly as a means to limit having to pay a decennial liability claims out of their own pockets. 

 Footnotes

1.Deloitte, GCC Powers of Construction 2012 – Construction sector overview

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Ben Cowling
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.