Covid-19 – Contract Management Hints & Tips….
We have received lots of enquiries this week from clients who are delivering projects in the Kingdom and are concerned about the impact of Covid-19 on their ability to perform their contracts.
The below hints and tips are based on our experience of managing similar ‘force majeure’ issues in Saudi in the past and, as such, should not be viewed as formal legal advice.
This post covers how your project may be impacted in terms of the movement of people, an overview of how force majeure should be approached and how to deal with pauses in contract performance.
For more detailed advice please get in touch with Yazan at [email protected]
Will my project be affected?
The most significant impact of Covid-19 at the moment is the travel restrictions that have been placed on movement to and from the Kingdom.
If your project is staffed mainly by Iqama holders (i.e. residents) then the travel restrictions should have a minimal impact as residents should be prepared to remain in the Kingdom for an extended period of time.
Some Iqama holders have been caught overseas, whilst on leave or on a business trip, and have not been able to return to the Kingdom. In most cases, they have either been ‘stranded’ as flights have been cancelled or they have to observe a 14-day quarantine in a ‘neutral’ country.
For these employees, the key thing to note is that their exit/re-entry visas may need to be extended. There is a process to do this which requires their Sponsor to contact the Saudi Ministry of Foreign Affairs. The Iqama holder may have to visit the Saudi Embassy to complete the extension.
Most impacted are expatriate staff who are in the Kingdom on a visit visa. Restrictions on travel mean that visa resets (often at 30 days and 90 days) are becoming more difficult and the risk of overstaying is increasing.
The Saudi authorities have been very clear – do not overstay; you will still face penalties even if flights to your home country have been suspended. So long as the airspace remains open and you are able to leave the Kingdom to fly somewhere, the authorities will not accept any excuses for overstaying. We do not know what the approach will be if the airspace is fully closed.
Of course, with limited flights out of the Kingdom, it is likely that flights will be full so planning / booking in advance will be crucial.
You can extend the duration of a stay on a visit visa electronically through the Muqueem System and visit visa holders should contact their sponsor to request an extension. The extension can only be applied for in the final 7 days of the visit period and if your visa states ‘duration of stay 90 days’ you should be extended by 90 days. If it states ‘30 days’ you should be extended by 30 days. You must check and take note of your new exit date – do not overstay!
At the moment, the electronic extension is only permitted once so this is not a long-term solution. More information is available here.
What about contract performance?
If your employees (whether Saudi Nationals, iqama holders or visit visa holders) are impacted by Covid-19 either by the virus itself or by the travel restrictions, and this is preventing you from performing a contract, you should submit a formal notification of a force majeure event.
For contracts held with the Saudi Government, you should be subject to the Saudi Government Tender & Procurement Law (GTPL) and the corresponding Implementing Regulations. Even if specific articles of the GTPL are not included in your contract, the client should recognise and be bound by the GTPL.
The GTPL does allow for Force Majeure in broad terms but is light on detail so you need to act quickly and you will have to negotiate a specific agreement with your key senior stakeholder. The stakeholder needs to have the authority to make a binding commitment on behalf of the Client.
For contracts with private companies i.e. not with Government, you need to check the terms of your contract which should have a Force Majeure provision. If not, you will need to negotiate a bespoke settlement / agreement to deal with the impact of Covid-19.
What can we claim for?
In terms of schedule relief, and to avoid delay penalties in particular, you should be seeking an acknowledgement from your client that the impact from Covid-19 is an excusable delay and that delay penalties will not be applied.
You should seek a contract amendment to include a new, revised delivery schedule if possible. If delivery timescales remain uncertain, you should seek acknowledgement from the client that deliveries have been suspended and that no penalties will be applied. This is likely to be difficult and will require senior stakeholder engagement.
In terms of cost increases as a result of delay due to a Force Majeure event, it may be difficult to extract additional money from a Saudi Government client due to budget constraints. However, you should ask of course, even if it is likely that no extra funding will be available. This could have a significant impact, particularly if you have ‘standing army’ costs.
How do we claim?
You should write a formal letter, dated and stamped, to ‘register’ the impact of Covid-19 as a Force Majeure event and describe in detail the specific impact on your ability to perform the contract.
You should identify your key stakeholder and talk to them face to face as quickly as possible. For Saudi Government clients, you should ask what advice / guidance they have been given, if any, about how to manage Force Majeure claims.
Try to get a receipt or acknowledgement for all formally submitted documents.
Should we withdraw our team?
If you have a team on the ground and are concerned about having them stranded in the Kingdom, you need to think very carefully before withdrawing your employees.
Of course, employee welfare is important, but you need to ensure that all actions taken are compliant with the terms of your contract and do not accidentally leave you in breach of contract. A breach of contract could result in the calling of any performance bond that might be in place.
Communication with key stakeholders is therefore key.
In very broad terms, showing commitment to your client, even under challenging circumstances, is beneficial for your reputation with any client, but history has shown that this is particuarly the case in Saudi. The client should be understanding if you want to draw down particular resources (perhaps based on age or vulnerability to Covid-19) but you should be planning on maintaining a presence client-side. This is particularly relevant if you are providing consulting services and or rely on a ‘fly-in / fly-out’ approach for staffing.
If you are directed to withdraw and effectively ‘pause’ contract delivery, you should seek payment for the work performed up to that point. As a minimum, you should seek formal acknowledgement of the work performed. This could be expressed as a percentage completion of a particular deliverable or the handover of completed material as a part-delivery.