Stringent due diligence combined with expert knowledge of Saudi Arabia’s construction market is critical for contractors eyeing tender opportunities in the kingdom, the joint bosses for the Middle East and Africa (MEA) region at HKA, Haroon Niazi and Jad Chouman, told Construction Week.
Ensuring that contracts are being properly administered is a key area that causes disputes in Saudi Arabia, Niazi explained, adding that since the "risk is higher in the kingdom", exercising due diligence around local market conditions, the contract, and the "implications of the Saudi government's tender and procurement law" could prove beneficial for contractors.
He added: “Once the contractor has signed on the dotted line, [they] have taken that risk and it’s too late to then say it’s inequitable. [They] then need to ensure they manage that risk, and part of having that contract administration function properly established is managing that risk.”
Moreover, as he explained, it is important for contractors to understand the consultant that has been employed for a project, and the design and standards they are employing for the scheme.
Contractors must also be aware, Niazi added, of employers in the kingdom that have a history of being “poor payers”.
Saudi Arabia's construction sector is being driven by its Vision 2030 economic diversification agenda, which is paving the way for megaprojects such as the Neom super-city; Qiddiya entertainment city; Al-Ula's development; and The Red Sea Project.
As construction progress is pursued on these projects, contractors are likely to be faced with “great opportunity", Niazi explained.
However, he added that "fierce" market competition was adding to price pressures in the kingdom – a market that he said contractors must remember is markedly different from the UAE.
With this in mind, contractors are being “prudent in terms of how they approach construction projects and the administration of a contract”.
Niazi's colleague and fellow leader of HKA's MEA business, Chouman, explained: “One major thing [for contractors] to ask is whether the design of [a] project that [they] are getting into is complete."
Providing an example, Niazi said that if designs were incomplete – and the parties were working under a contract that specified variations being limited to 10% – then contractors would end up having “an incomplete design and a law that says you’re not going to get more than 10% [of changes] approved".
He added: "All of a sudden there is a recipe there for a disaster if the design doesn’t work.
“That due diligence comes around the client, the contractor, and the project. [It’s] not different from what a good, competent contractor would do elsewhere. But it’s about doing that in light of understanding the market.”