Supply Contract Delays in Saudi Arabia: Compensation, Termination

A new restaurant in Al Khobar set its opening date and contracted with a supplier for ovens and kitchen equipment worth SAR 380,000, to be delivered two weeks before the opening. Two days before the date, only half of the equipment had arrived, and the main oven was “at customs”. The supplier says he is not responsible for the shipping delay, and the owner says an oven that arrives after the opening is useless to him. Who is right? The answer starts with two lines in the contract that few people read.

The short answer: the rule in the Civil Transactions Law is clear. If the supplier misses a correctly calculated deadline, you may, after giving him formal notice (i'dhar), ask for delivery or termination, with compensation for the harm caused by the delay, unless he proves the delay was caused by something outside his control. If the contract has a penalty clause for delay, it is due without formal notice, but the court can reduce it.

When does the delivery period start in a supply contract?

Read what starts the count: signing the contract, payment of the advance, approval of the drawings or sample, or the final purchase order. Define what “delivery” means: goods arriving at your site, handing them to the carrier, or manufacturing and installing them? A delay by the shipper may be the supplier's responsibility or yours depending on what was written, and the supplier may look late when the condition that starts the period never happened.

Article 72 of the Civil Transactions Law requires the subject of the obligation to be specified or capable of being specified. In supply, that means the quantity, type, specifications, place of delivery and payment schedule. Calling the document a “supply contract” decides nothing on its own; supplying ready goods is different from manufacturing and installing equipment, and what matters is the content of the obligations.

Arrange the contract, purchase orders, specifications, correspondence, and proof of payment and delivery by date. This file alone shows when the delay really started and who caused it. If a new date is later agreed, keep the approval and who gave it, and make clear whether your acceptance of the extension only changes the schedule, or also waives claims for the earlier delay.

Can you terminate a supply contract because of delay?

Article 107 gives you, in a contract binding on both sides, the right to ask for performance or termination with compensation where justified, but only after formal notice to the supplier. The court may refuse termination if the unperformed part is of little importance compared with the whole obligation. “Little importance” is not measured by the number of boxes: one item may be essential for the whole system to work, like the main oven in the restaurant example, while a delay in a minor item does not justify returning everything you received and used.

The choice depends on whether you still need the goods. If they are still useful, the better option is usually to ask for delivery with compensation for delay. If the supplier is so late that performance is no longer useful to you, such as goods for a season that has ended, Article 170 allows compensation for non-performance. You may also give him a reasonable period to perform, and if he does not perform within it, claim compensation for non-performance, unless he proves the failure was caused by something outside his control. A reasonable period for goods available locally is different from one for equipment made to order.

If the contract has a clause allowing termination without a court judgment, it does not remove the need for formal notice unless the contract expressly waives it (Article 108).

Do you need to give the supplier formal notice before claiming compensation?

As a rule, yes. Article 175 makes compensation due only after formal notice to the debtor, unless there is an agreement or a legal text to the contrary. Notice is given by the agreed method or by any legal means of notification, including filing a lawsuit (Article 177). One text to the contrary is Article 178: compensation agreed in the contract does not require formal notice to be due.

Article 176 removes the notice requirement in some cases, the most relevant for supply being:

• You agreed, expressly or implicitly, that the supplier is in default as soon as the deadline passes.
• Performance has become impossible or useless because of the supplier's act.
• The supplier stated in writing that he will not perform.

Even so, a written notice does you no harm and ends the argument, and it is required if you want to terminate. Include the contract number, the goods, the agreed date, the quantity not delivered, what you require and the deadline, send it by the agreed notice method, and keep proof that it was sent.

The supplier says the delay was beyond his control. Who bears it?

Article 171 requires a late debtor to compensate for the harm caused by delay, unless he proves the delay was caused by something outside his control. So the burden of proof is on the supplier, and the question is: what was the cause, what proves it, and how did it actually cause the delay? The contract may also have placed the risk of force majeure on the supplier, which Article 174 allows. If the buyer contributed by his own fault, for example by delaying approval of a necessary specification or preparing the site, he loses all or part of his right to compensation in proportion to his share (Articles 172 and 128).

Higher prices or import difficulties do not automatically amount to force majeure. Article 97 deals with general exceptional circumstances that could not be foreseen and that threaten the debtor with a heavy loss. It gives him the right to invite the other party to negotiate without delay, but states that asking to negotiate does not allow him to stop performing. If they do not agree within a reasonable time, the court may reduce the burdensome obligation to a reasonable level, and any agreement to the contrary is void. A normal price rise or one delayed shipment is usually not enough.

How much compensation for late delivery?

If the contract has a penalty clause for delay, such as an amount per day or week, Articles 178 and 179 govern it. It does not require formal notice, but it is not due if the supplier proves you suffered no harm. The court may reduce it if it is excessive or if part of the obligation was performed, and may increase it up to the harm if the harm exceeded it because of fraud or gross fault. Any agreement to the contrary is void.

If no amount was agreed, the court assesses compensation as the loss suffered and the gain missed, with an important limit in contracts: a debtor who did not commit fraud or gross fault is liable only for harm that could normally be foreseen when the contract was made (Article 180). So it helps you to state the purpose of the supply or the season in the contract or the purchase order. Only harm you could not avoid with reasonable effort is compensated (Article 137), so document what you did to reduce your loss, such as buying or renting from an alternative source.

The main oven did not arrive, so the restaurant owner rented a replacement oven for three weeks for SAR 18,000, after giving the supplier formal notice.

That invoice, with proof that renting was necessary for the opening, is much stronger than a general estimate of lost profits.

A claim for all the profits expected in the first weeks needs separate proof of sales and costs. The supplier may dispute the period and the cost, but the oven arriving later does not erase the claim.

Can you buy the goods from another supplier at the late supplier's cost?

Yes, within limits. If the goods are defined by type rather than as a specific item, and the supplier does not perform, Article 165 allows you to obtain goods of the same type at his expense with the court's permission, or without permission in an urgent case, while keeping your right to compensation. So do not buy at any price and then send him the invoice; document the urgency, and choose a similar replacement at a reasonable price.

You may also withhold payment for the part not supplied as long as the supplier refuses to perform, because Article 114 allows this for mutual obligations that are due. But do not hold back the whole account for a small part, and do not sign a final payment worded as a “final settlement” unless you mean it.

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 both sides

If you are the buyer:

• Send written formal notice by the agreed method stating what was not supplied, the period you require, and the effect of the delay on you.
• Decide whether you still need the goods: if so, ask for delivery with compensation; if their purpose has passed, consider termination or compensation for non-performance.
• If you receive late or incomplete goods, record the quantity and condition in a report, state that you reserve your right to compensation, and do not sign a “final acceptance” for an incomplete supply.
• Keep invoices for replacements and proof of why they were necessary and what they cost; they are the basis of compensation.
• If it is better than a dispute, agree in writing on a revised delivery schedule with a set discount or compensation.

If you are the supplier:

• Check the clause that starts the period: did you receive the advance, the sample approval and the specifications on time? Record any delay by the buyer with dates, because the burden of disproving responsibility is on you.
• Inform the buyer of the delay and its cause as soon as you know, with shipping or customs documents and an alternative plan.
• If general exceptional circumstances arise, invite the buyer to negotiate in writing without delay, and continue performing as far as possible.
• Offer partial delivery or a matching alternative with a written settlement of the delay, instead of repeated promises.
• If the penalty clause is excessive or the buyer suffered no real harm, prepare your evidence to ask for it to be reduced or not applied.

If you have a supply contract that is running late, on the buyer's or the supplier's side, send the contract and correspondence on WhatsApp and we will help you choose the best next step before the dispute grows.