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.

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