Subcontractor Work in Saudi Arabia: Government Project Payment

The main contractor has finished his part, and you, as a subcontractor, have completed all the electrical works. The government entity paid the progress payment (mustakhlas) to him, and he tells you: "Wait." Do you have any route other than waiting for him? And was his contract with you legal in the first place?

The short answer: your legal relationship is, in principle, with the main contractor, not with the government entity. The Civil Transactions Law does not allow you to claim for yourself from the project owner what is due to the main contractor, unless the main contractor has assigned it to you (Article 474). But the Government Tenders and Procurement Law allows the government entity to pay you directly under the rules of the Implementing Regulations (Article 71), provided your subcontract received its written approval. Otherwise, your route is a court claim against the main contractor.

Does the government entity have to approve the subcontractor?

A contractor with a government entity may not subcontract to another contractor, supplier or provider without the entity's written approval, and the Regulations set the conditions for this (Article 71 of the Government Tenders and Procurement Law). Assigning all or part of the contract requires written approval from the entity and the Ministry (Article 70).

Subcontracting without written approval is one of the cases in which the government entity may terminate the contract (Article 76(2)(c)). Assigning the contract without the approval of the entity and the Ministry is one of the cases in which it must terminate (Article 76(1)(c)). The difference matters: the first leaves the entity a choice; the second obliges it.

Is the main contractor released from liability?

No. In all cases, the contractor with the entity remains jointly liable with the subcontractor for performing the contract according to its terms (Article 71). The Civil Transactions Law sets the same rule for every construction contract: the contractor may give the work to a subcontractor unless the law, the agreement or the nature of the work prevents it, and he remains liable to the project owner (Article 473).

When does the government entity pay the subcontractor directly?

The government entity may make payments directly to the subcontractor, and the Regulations set the conditions and rules for this (Article 71). This matters for a subcontractor who is not being paid on time by the main contractor, provided his subcontract was approved by the entity.

If this does not apply, as a rule you cannot claim from the entity what it owes to the main contractor, unless the main contractor has assigned his right to you (Article 474 of the Civil Transactions Law). So from the start, ask for your contract to include an assignment of your dues, or a direct payment arrangement approved by the entity.

How do you claim your money from the main contractor?

The contract between the main contractor and the subcontractor is a private contract governed by its terms and the Civil Transactions Law. If both parties are traders and the dispute arises from their commercial business, the Commercial Court has jurisdiction (Article 16 of the Commercial Courts Law). If the contract has an arbitration clause, arbitration is the route.

An electrical subcontractor completed works worth SAR 650,000 in a government building, and his subcontract had the entity's written approval. The entity paid the progress payment to the main contractor two months ago, and he has received nothing.

He collects the signed handover records and a copy of the approval. He writes to the entity asking it to consider direct payment of the remaining progress payments under the rules of the Regulations, and sends the main contractor a written demand for the amount.

If he had no written approval, his main route would be a case against the main contractor alone.

This is general information based on the official Arabic texts of Saudi laws, which prevail over any translation. It is not legal advice for your specific case.

Practical solutions for the subcontractor and the main contractor

If you are the subcontractor:

• Before you start, make sure your subcontract has the entity's written approval, and keep a copy.
• Write payment dates in your contract and link them to the release of progress payments, with an assignment of your dues if possible.
• If the main contractor is late, ask the entity about direct payment under the rules of the Regulations.
• Document your completed works with signed handovers and weekly records.
• Send a written demand stating the amount and its due date before any case.

If you are the main contractor:

• Do not subcontract before written approval; a breach allows the entity to terminate the contract (Article 76).
• Remember that you are jointly liable to the entity for the subcontractor's performance.
• Link the subcontractor's payments to what you actually receive, and say so expressly in the contract.
• Pay him on time to avoid the entity stepping in or a court dispute.

Subcontracting on government projects needs planning in advance. Send us both contracts, the approval letter and the handover records on WhatsApp, and we will identify your position and the route to recover your money.