Strengthening Subcontractor Rights in Saudi Government Projects: Legal Framework, Risks, and Safeguards
Saudi Arabia Focus
Dr. Abubaker JeeballahPartner,Dispute Resolution
Abdulrahman AlajajiSenior Associate,Dispute Resolution
Ahmed AmonetteSenior Associate,Dispute Resolution
What contractors need to know about the regulatory framework under the Government Tenders and Procurement Law
Subcontracting is a vital mechanism employed by main contractors in the execution of major government projects in Saudi Arabia. It enables the leveraging of specialized expertise, cost reduction, and acceleration of project delivery. When properly regulated and managed, subcontracting enhances operational efficiency and facilitates the transfer of knowledge to local small and medium enterprises (SMEs). However, in the absence of robust oversight or in cases of misuse, subcontracting can result in quality deficiencies or project delays. Recognizing these risks and opportunities, the Kingdom of Saudi Arabia has placed significant emphasis on regulating subcontracting within the framework of the Government Tenders and Procurement Law (GTPL) and its Executive Regulations, as part of a broader vision to promote transparency, accountability, and the effective governance of public expenditure.
The Government Tenders and Procurement Law, promulgated by Royal Decree No. (M/128) dated 2019, and its Executive Regulations, set out comprehensive controls and requirements for subcontracting in government contracts. The key regulatory provisions include:
Prior Written Approval: The main contractor must obtain the prior written approval of the relevant government entity before engaging any subcontractor (GTPL, Art. 71(1); Executive Regulations, Art. 118(1)(A)).
Liability: The main contractor remains jointly liable with the subcontractor for the performance of the contract in accordance with its terms (GTPL, Art. 71(3); Executive Regulations, Art. 118(1)(E)).
Eligibility and Blacklisting: Subcontractors must be properly licensed, qualified, and not blacklisted or otherwise prohibited from contracting with government entities (Executive Regulations, Art. 118(1)(C)).
Subcontracting Limits: The value of works assigned to subcontractors may not exceed 30% of the total contract value, unless a higher percentage is specifically approved by the relevant authorities (Executive Regulations, Art. 118(1)(D), (2)).
No Further Subcontracting: Subcontractors are prohibited from further subcontracting the works assigned to them (Executive Regulations, Art. 118(1)(F)).
Direct Payment Mechanism: The regulations allow for the possibility of direct payment to subcontractors by the government entity in the event of delays or non-payment by the main contractor, provided that an advance declaration to this effect is submitted (GTPL, Art. 71(2); Executive Regulations, Art. 118(1)(G)).
Promotion of Local Content: The law encourages the participation of local SMEs and prioritizes local content in subcontracting arrangements (GTPL, Art. 9; Executive Regulations, Art. 8(2)).
These provisions reflect the Kingdom’s commitment to balancing the flexibility required for efficient project execution with the principles of transparency, accountability, and the protection of public funds.
The Government Tenders and Procurement Law and its Executive Regulations provide a robust legal framework that seeks to ensure quality, transparency, and accountability in subcontracting arrangements.
A notable case before the Administrative Court (Ruling No. 14882/1444H) involved a public project for the relocation of telecommunication lines at a major intersection in Makkah. The main contractor held a formal contract with the Municipality of Makkah, but the actual relocation works were performed by a subcontractor. The subcontractor’s involvement was formally documented in a joint technical meeting minute, signed by the government entity, the main contractor, the subcontractor, and the Saudi Telecom Company (as the supervising technical party). The meeting record explicitly stated the subcontractor’s obligation to complete the works within a specified period and provided for payment to be made by deducting the value of the works from the main contractor’s dues, subject to confirmation by the Saudi Telecom Company.
Upon completion of the works, the subcontractor sought direct payment from the Municipality. The Municipality refused, citing the absence of a direct contractual relationship and arguing that the subcontractor should await the resolution of a dispute with the main contractor. The subcontractor, relying on the documented meeting minutes and the fact that the works were completed to the required specifications, insisted on direct payment.
The Administrative Court ruled in favour of the subcontractor, ordering the Municipality to pay the outstanding dues. The court’s reasoning included:
The works were fully completed in accordance with the technical specifications.
The joint meeting minutes constituted formal documentation of the subcontractor’s involvement, scope of work, timeline, and payment mechanism, and reflected the government entity’s prior knowledge and approval.
The works were approved by both the government entity and the technical supervisor.
The main contractor’s knowledge and approval were implicit in the documentation.
The government entity had benefited from the works without providing compensation, which would otherwise constitute unjust enrichment.
This decision demonstrates a pragmatic judicial approach that recognizes the rights of subcontractors in cases where their involvement and the government entity’s benefit are clearly documented, even in the absence of a direct contractual relationship. This approach is consistent with the GTPL’s emphasis on transparency, documentation, and the prevention of unjust enrichment.
Documentation and Transparency: The GTPL and its Executive Regulations emphasize the importance of clear and comprehensive documentation at every stage of the procurement and subcontracting process. This includes detailed records of meetings, approvals, and the scope and value of subcontracted works (GTPL, Art. 21, 22; Executive Regulations, Art. 21, 24).
Dispute Resolution: The law provides mechanisms for the resolution of disputes arising from government contracts, including recourse to the Administrative Court and, in certain cases, arbitration (subject to specific conditions) (GTPL, Art. 92; Executive Regulations, Art. 154).
Performance and Payment: The regulations set out clear procedures for the evaluation of contractor and subcontractor performance, the disbursement of payments, and the imposition of penalties for delay or non-performance (GTPL, Art. 67, 72, 73, 79; Executive Regulations, Art. 109, 119, 140).
Compliance and Enforcement: Violations of the GTPL or its regulations may result in disciplinary action against responsible employees, blacklisting of contractors or subcontractors, and financial penalties (GTPL, Art. 88, 94; Executive Regulations, Art. 10, 88).
Subcontracting remains an essential tool for the successful delivery of government projects in Saudi Arabia. The GTPL and its Executive Regulations provide a robust legal framework that seeks to ensure quality, transparency, and accountability in subcontracting arrangements. To achieve optimal outcomes, it is essential for all parties—government entities, main contractors, and subcontractors—to maintain high standards of legal awareness, ensure rigorous documentation, and adhere strictly to the regulatory requirements. Enhanced government oversight, clear mechanisms for pre-approval and assessment of subcontractors, and the facilitation of direct payment in appropriate cases are all critical to protecting the interests of all stakeholders and promoting the Kingdom’s broader objectives of economic development and local content enhancement.
For further information,please contact Abubaker Jeeballah, Abdulrahman Alajajiand Ahmed Amonette.
Published in September 2025
