Saudi Arabia Business: Performance Requirements & Settling Disputes

Saudi Arabia Business: Performance Requirements & Settling Disputes Last updated on Sunday 25th April 2010

The Kingdom of Saudi Arabia requires bid and performance bonds from most foreign companies in the amount of 1% and 5% respectively of the total value of a given contract.

Bonds may be in the form of a bank guarantee payable on demand, a certified check on a local bank, or cash. Each guarantee must be approved by a bank in Saudi Arabia acting as an agent for the foreign bank.

The government of Saudi Arabia issues a list of acceptable insurance companies. The limits which these companies may underwrite are also specified.

The performance bond is not required for consulting work, service contracts, supply of spare parts not for contracts which the government awards for direct-purchase whose value is less than one million riyals and which do not have to be tendered.

In some joint-ventures, the Saudi company may put up the whole guarantee.

The bid bond is always required except in the case of a purely negotiated contract where there are no competitors. The performance bond is generally due from the winning bidder within ten days of notification of the award of the contract. It is returned to the contractor on final completion of the project even though the contractor remains liable for defects of collapse of the structure for ten years -- unless the structure was not meant to last ten years.

An advance payment of 10% of the cost of a project must be paid by the Saudi client upon the signing of the construction contract. This advance must be supported by the contractor with a bank guarantee also of 10% of the project's cost. As work progresses, payments of up to 90% will be made on the completed work. The remaining 10% will be held pending the final delivery of the project or it may be paid against bank guarantees as the work advances.

Saudi companies and joint-ventures where a Saudi partner holds at least 60% of the capital may be paid in full for the completed work without requiring a bank guarantee.

Provisions for settling disputes are included in contracts as a matter of course. Commercial disputes are normally settled through personal contact and negotiation or through the Saudi arbitration system. There are arbitration and grievance boards set up for the settlement of disputes. Their decisions may be accepted by both litigants or they may be appealed to the Sharia court. In major disputes, the Council of Ministers may become involved.

As you like 'Saudi Arabia Business: Performance Requirements & Settling Disputes' you may also like following articles . . .

Saudi Arabia: Bidding for Government Contracts

The Saudi government must receive at least three bids for all contracts larger than one million riyals (US$266,667). For construction projects, at least five contractors must be asked to...

Saudia Arabia: Private Sector, Joint Ventures and Agents

Foreign companies working for the Saudi Arabian government are required to have Saudi representation or joint-venture partners in the Kingdom. The local representative will receive notices...

Taxes in Saudi Arabia

Income taxes of Saudi and expatriate employees working in the Kingdom were abolished in 1975. All Saudi citizens and all Saudi companies, however, must pay a religious tax -- zakat -- of 2....

Saudi Arabia

Overview History Nomads & tribes King Abdul Aziz The growing state Boom & dissent King Fahad & the Gulf War The growth of Jeddah Business Economy Currency & banking...

Business Licensing in Saudi Arabia

A number of licensing regulations exist for a number of different cases. In this page, some of the highlights will be covered. The Foreign Capital Investment Law governs the investment of...

Saudi Arabia: Currency and Banking

The unit of currency is the Saudi Riyal (SR) which is divided into 100 halalahs. Notes are issued in denominations of 1, 5, 10, 50, 100 and 500 riyals. There are also one riyal coins. The...

Doing Business in the Kingdom of Saudi Arabia

A quote from Prince Bandar bin Sultan, Saudi Arabian ambassador to the United States: "The Kingdom of Saudi Arabia is dedicated to the concept of free trade based on competition. There are...