Construction Claims in Saudi Arbitration and Courts: Quantifying Delay and Variation Costs

مطالبات المقاولات في التحكيم والقضاء: تقدير تكاليف التأخير والأعمال الإضافية — Construction claims quantification in Saudi arbitration and courts

Construction disputes have a character of their own: delay whose costs accumulate month after month, change orders executed before they are priced, delay penalties deducted from payment certificates, and terminations that leave executed work unpaid and profits unearned. In all of these the accounting expert is asked for one number: how much is the contractor — or the employer — entitled to, and on what evidence?

This guide sets out the types of financial claims in construction contracts, the legal framework for each in government and private contracts, what the expert needs from the contractor’s records to build a claim that survives the tribunal or the court, and why many of these disputes are decided in the project-costing system long before they reach the hearing room.

1. Who quantifies the costs, and for whom?

In arbitration, the tribunal may appoint one or more experts to report on matters it specifies; each party must provide the expert with information and allow inspection of documents; a copy of the report is sent to both parties for comment before the final report; and a hearing may be held to question the expert (Arbitration Law, Article 36). Before the courts, the expertise provisions of the Evidence Law apply (Articles 110–123). In both settings a party usually engages a consulting expert to prepare its claim or respond to the opponent’s before a neutral expert is appointed.

2. Types of financial claims and their legal framework

Claim	What it covers	Government contracts	Private contracts
Additional works and change orders	Pricing work not in the contract or increased quantities	Change orders up to +10% and down to −20% of contract value (Government Tenders and Procurement Law, Article 69)	Per the contract and the principle of compensating loss and lost profit (Civil Transactions Law, Article 137)
Price adjustment	Changes in key material prices, duties and taxes, or unforeseeable material difficulties	Exhaustively listed cases (Article 68)	Per the contract and the rules on unforeseen circumstances
Prolongation costs	Site, equipment and management costs for delay not attributable to the contractor	Extension and exemption from penalty for delay attributable to the government entity or emergency circumstances (Article 74)	Compensation for damage foreseeable at contracting (Article 180)
Delay penalty (contractor’s defence)	Deductions from certificates for delay	Not exceeding 6% for supply contracts and 20% for other contracts (Article 72)	A penalty clause may be reduced if excessive or the obligation was partly performed (Article 179)
Termination	Executed unpaid work, retentions, lost profit on remaining works	Deduction and execution at the contractor’s expense under the law and regulation	Margin on remaining works within foreseeable damage (Articles 137 and 180)

3. What the expert needs from the contractor — and the rule: no record, no claim

The contract, bills of quantities and rates, and the notices of claims served within the contractual time limits.
The baseline programme and its updates, because delay analysis (by the technical expert) precedes costing the delay.
Project cost accounting: a ledger for every project with cost centres (labour, equipment, materials, subcontractors, site costs), not one expense account for the whole company.
Daily attendance records for labour and equipment (operating and idle time), and site minutes.
Supplier and subcontractor invoices and contracts, and payment certificates.
Payment applications submitted, certified and paid, retentions, advance payments and their recovery.
Financial statements and budgets to substantiate overhead rates and historical profit margins.

A record made at the time of the event weighs more than any later reconstruction. That is why many construction disputes are lost inside the accounts department before the site: a contractor with a valid right and no cost ledger to prove it. See mandatory books and records.

4. The quantification method

Causal linkage: every claim item has a cause (a change order, employer delay, suspension), a time effect and a cost effect; “global” claims that lump losses into one figure without attributing them to causes are not accepted.
Time-related costs (equipment hire, site staff salaries, insurances, site offices) are assessed for the period of delay not attributable to the contractor, at actual rates from the books.
Quantity-related costs (materials, direct labour) are assessed at actual quantities and contract rates or actual cost, as the contract provides.
Head-office overheads are allocated at a rate substantiated from the financial statements, with the formula disclosed and care taken to avoid double recovery.
Lost profit on termination or reduction: the margin on the remaining works, not their value, within the limits explained in quantifying financial damages and lost profit.
Concurrent delay: where contractor delay coincides with employer delay, time-related costs are not charged in full to either side, and the expert shows the effect of each scenario.
Mitigation: what the contractor could have avoided by reasonable effort (redeploying equipment, reducing staff) is excluded (Article 137).

5. Subcontractor claims

Subcontracting under government contracts requires the written approval of the government entity, and the main contractor remains jointly liable with the subcontractor for performance (Government Tenders Law, Article 71). In accounting terms, a subcontractor’s claim passes through the main contractor’s books, and the expert examines the consistency between what was paid to the subcontractor and what was claimed from the employer for the same work.

6. The shape of a claim that holds up

Item	Cause and notice	Period	Basis	Amount	Evidence
Prolongation costs — equipment	Suspension by the entity’s letter no. … dated …	From … to …	Actual monthly hire × months	×	Hire contracts, invoices and operating log
Additional works — item …	Change order no. …	—	Approved quantities × contract rate	×	Change order and handover minute
Lost profit — remaining works	Termination on …	—	Value of remaining works − saved costs	×	Bill of quantities and cost analysis

Every line answers the five questions: why, when, on what basis, how much, and on what evidence. A claim that fails to answer one of them is rejected or reduced; we set out the grounds of challenge in the accounting expert report before the commercial court.

7. Readiness before the dispute

A cost-accounting system with cost centres for every project from day one.
A separate cost code for every event expected to become a claim (suspension, change, acceleration).
Contemporaneous site, equipment and labour records, signed by both parties where possible.
Claim notices within the contractual time limits, because many contracts extinguish the right when the deadline passes.
Certified financial statements that substantiate overhead rates and margins — the same statements needed for contractor classification.

We prepare, respond to and quantify construction claims within our litigation support reports service, working alongside the technical expert who carries out the delay analysis.

Frequently asked questions

What is the maximum delay penalty in government contracts?

Not more than 6% of the value of a supply contract and 20% of the value of other contracts; the percentages may be increased with the Minister’s prior approval provided this is made clear to bidders before they submit their bids (Government Tenders and Procurement Law, Article 72). Extension of the contract and exemption from the penalty apply in the cases listed in Article 74, including delay attributable to the government entity or emergency circumstances.

Can a government entity increase the works without limit?

No. Change orders may increase the contract by no more than 10% of its value and reduce it by no more than 20%, as the regulation provides (Article 69).

Can a penalty clause in a private contract be reduced?

Yes. At the debtor’s request the court may reduce the agreed compensation if the debtor proves it is excessive or the obligation was partly performed, and it is not due at all where no damage is proven (Civil Transactions Law, Article 179).

Who appoints the expert in arbitration?

The arbitral tribunal may appoint one or more experts on matters it specifies, the parties must provide information and make documents available, and both parties have the right to see the report, comment on it and question the expert at a hearing (Arbitration Law, Article 36). Each party may also submit its own expert report.

What most weakens contractors’ claims?

The absence of project-by-project cost accounting, lumping losses into one figure with no causal link, claiming the value of remaining works instead of their margin, and missing the contractual notice deadlines.