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7 Critical Challenges and Real-World Strategies for Success in Construction Sector in Saudi Arabia 2026
Construction in Saudi Arabia 2026
Saudi Arabia’s construction sector in 2026 is operating at an unprecedented scale. Giga-projects, PPP frameworks, large EPC contracts, and aggressive delivery timelines are redefining how construction projects are planned and executed. At the same time, regulatory enforcement, contractual scrutiny, and dispute volumes have increased sharply.
In this environment, project failure rarely comes from engineering alone. Most delays, cost overruns, and disputes arise from regulatory gaps, contract misalignment, payment failures, and unmanaged risk allocation. This article identifies seven critical construction challenges currently faced in Saudi Arabia and provides practical, legally grounded strategies to address them.
1. Regulatory and Licensing Delays Across Multiple Authorities
Construction projects in Saudi Arabia require approvals from multiple authorities, including municipalities, civil defense, utilities, zoning departments, and sector-specific regulators. Delays commonly arise due to overlapping jurisdiction, changes in technical standards, or incomplete submissions.
In 2026, regulatory enforcement has become stricter, particularly for safety, zoning compliance, and environmental requirements. Projects are frequently delayed after mobilization due to pending or revoked permits, creating cost exposure and contractual disputes.
How to Overcome It
- Conduct a pre-acquisition regulatory feasibility review covering zoning, land use, and authority approvals.
- Prepare a permit responsibility matrix identifying which party is responsible for each approval.
- Include contractual relief clauses for authority-related delays beyond contractor control.
- Implement a permit tracking system with authority timelines and escalation points.
- Perform a legal compliance audit before mobilization and before each major construction phase.
2. FIDIC Contracts Not Properly Aligned with Saudi Law
FIDIC-based contracts remain widely used in Saudi Arabia. However, many disputes arise because standard FIDIC clauses are applied without proper localization to Saudi law. Certain provisions relating to damages, termination, risk allocation, and dispute resolution can conflict with Saudi legal principles if not adapted.
In disputes, courts and arbitral tribunals focus on Saudi law compliance rather than the original international drafting intent, exposing parties to unexpected outcomes.
How to Overcome It
- Localize FIDIC contracts to ensure full compatibility with Saudi law and Sharia principles.
- Clearly define the hierarchy of contract documents to avoid interpretational conflicts.
- Align liquidated damages, penalties, and termination provisions with enforceable standards.
- Customize claims, variations, and notice provisions to reflect Saudi procedural expectations.
- Conduct a pre-execution legal review by construction law specialists before contract signing.
3. Cost Escalation and Price Adjustment Disputes
Material price volatility, logistics constraints, and workforce cost increases have significantly affected construction budgets. Fixed-price contracts executed without escalation mechanisms have led to widespread disputes over entitlement to additional payment.
In Saudi Arabia, cost escalation claims are often rejected when contracts lack clear adjustment mechanisms, regardless of market realities.
How to Overcome It
- Include price adjustment clauses linked to recognized cost indices where possible.
- Distinguish clearly between force majeure, hardship, and commercial risk.
- Require contractors to maintain contemporaneous cost records supporting escalation claims.
- Establish interim claim procedures instead of deferring all claims to final accounts.
- Adopt risk-sharing models for long-term or high-value projects.
4. Delays, Extension of Time (EOT), and Liquidated Damages Exposure
Delay-related disputes remain the most common construction conflicts in Saudi Arabia. Employers often impose aggressive schedules, while contractors face delays caused by variations, late approvals, or employer-related issues. Liquidated damages are frequently deducted automatically without proper delay analysis.
Saudi tribunals increasingly require clear causation and compliance with notice procedures.
How to Overcome It
- Ensure the baseline construction program is realistic and contractually approved.
- Strictly comply with notice requirements for delays and EOT claims.
- Maintain detailed delay records and contemporaneous site documentation.
- Define caps and relief mechanisms for liquidated damages in the contract.
- Use dispute avoidance tools, such as engineer determinations or dispute boards, where permitted.
5. Cash Flow Constraints and Payment Delays
Delayed interim payments, disputed certifications, and withheld retention amounts are critical risks for contractors and subcontractors. Cash flow disruption often leads to project slowdowns, suspension threats, and eventual disputes.
Saudi courts and arbitral tribunals increasingly scrutinize payment certification procedures and employer conduct.
How to Overcome It
- Define clear timelines for interim payment certification and release.
- Include contractual suspension rights for prolonged non-payment.
- Protect subcontractors through direct payment or step-in mechanisms where feasible.
- Replace cash retention with bank guarantees or insurance bonds.
- Provide for contractual remedies, including compensation or interest for late payments where enforceable.
6. Labour Law Compliance and Workforce Risk Allocation
Construction projects involve large workforces, often through multiple subcontracting layers. Saudization requirements, Wage Protection System (WPS) compliance, and employment documentation are closely monitored by authorities.
Non-compliance by subcontractors can expose main contractors and project owners to regulatory sanctions and operational disruptions.
How to Overcome It
- Include labour compliance obligations explicitly in subcontract agreements.
- Conduct regular workforce compliance audits across all project tiers.
- Clearly allocate employment liability risks contractually.
- Monitor Saudization ratios and WPS compliance continuously.
- Maintain compliant employment contracts and termination procedures aligned with Saudi labour law.
7. Dispute Escalation, Arbitration, and Enforcement Challenges
When disputes arise, poorly drafted dispute resolution clauses often worsen the situation. Arbitration clauses that are not enforceable under Saudi law, unclear governing law provisions, or poorly selected arbitration seats can delay resolution and enforcement.
Enforcement strategy is now as important as winning the dispute itself.
How to Overcome It
- Draft Saudi-enforceable arbitration clauses compliant with local requirements.
- Clearly specify governing law, arbitration seat, and procedural rules.
- Maintain evidence-ready contract administration from project inception.
- Include mediation or amicable settlement stages before escalation.
- Plan an enforcement strategy at the contract drafting stage, not after the dispute.
Conclusion: Construction Success in 2026 Requires Legal Precision
In Saudi Arabia’s construction market, technical capability alone is no longer sufficient. Projects succeed or fail based on how effectively legal, contractual, and regulatory risks are identified and managed from the earliest stages.
Contract alignment, regulatory compliance, disciplined contract administration, and dispute preparedness are now essential components of project success. Companies that integrate legal strategy into project planning are significantly better positioned to protect margins, timelines, and long-term relationships.
Atyar Law Company advises contractors, developers, and investors across the full construction lifecycle—contract structuring, claims management, dispute resolution, and enforcement—ensuring that projects in Saudi Arabia are not only built, but legally protected.
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