Reviewing a Saudi Government Contract Before Signing: Performance Bond and Delay Penalties
Updated: Oct 6
A contract review before signing decides whether the project makes money: a maximum delay penalty plus a called 5% performance bond can erase the whole margin. The review does not rewrite the standard government form. It turns each risk clause into an action: price it, insure it, or pass it down to a subcontractor.
Five clauses a lawyer checks first
The figures below are under the current law (Royal Decree M/128), which governs tenders launched before early January 2027:
Performance bond: 5% of the contract value within 15 working days of the award notice. Arrange bank facilities before award and review the guarantee wording.
Delay penalty: up to 6% on supply contracts and 20% on other contracts. Send written notice of every delay cause outside your control.
Change orders: increase of the contractor's obligations up to 10% and reduction up to 20%. Never perform extra work without a written order and an agreed price.
Assignment and subcontracting: prior written approval of the government entity. Request approval before signing any subcontract.
Withdrawal and termination: after a default notice, with completion at the contractor's expense. Answer every notice in writing within its deadline.
Which law governs your contract: the current one or the new one?
The new Government Tenders and Procurement Law was issued by Royal Decree M/76 and published in the Official Gazette (Umm Al-Qura) on 4 September 2026. It takes effect 120 days after publication, in early January 2027. Until then the current law, issued by Royal Decree M/128, continues to apply.
Tenders launched before the new law takes effect remain governed by the current law, even if the contract is still being performed after January 2027, although the Minister of Finance may apply some provisions of the new law to them. A tender awarded to you today is therefore governed by the current law.
Delay penalty on non-supply contracts: up to 20% under the current law, up to 15% under the new law. On supply contracts, up to 6% under both.
Increase of the contractor's obligations: up to 10% under the current law, up to 20% under the new law. Reduction up to 20% under both.
Standstill period before signing: 5 to 10 working days under the current law, 3 to 10 under the new law.
Performance bond: 5% within 15 working days under both.
When is a contractor excused from delay penalties?
The law allows an extension of time and relief from penalties where delay is caused by additional works, insufficient budget allocations, the entity's own delay, unforeseen circumstances or a suspension order. In practice, a contractor that does not file the extension request in writing and on time pays the penalty even when the entity caused the delay.
What about private-sector contracts?
In tenders run by large private and semi-government companies there is no statutory cap on penalties. The contract governs. Here the lawyer negotiates a penalty cap, a limit of liability, a clear payment mechanism and a workable arbitration clause.
FAQ
What is the delay penalty in Saudi government contracts?
Under the current law it may not exceed 6% of the value of a supply contract or 20% of the value of other contracts. Under the new law, which applies to tenders launched after it takes effect in early January 2027, the cap on other contracts falls to 15%.
When does the new Saudi Government Tenders and Procurement Law take effect?
120 days after its publication in Umm Al-Qura on 4 September 2026, which is early January 2027. Tenders launched before that remain governed by the current law.
Can a delay penalty be challenged?
Yes, through a reasoned request for relief or extension to the entity, then before the administrative courts if refused. The challenge is only as strong as the notices documented during performance.
How long does a contract review take?
It depends on the volume of documents. Start on the day of the award notice, because the bond deadline is only 15 working days.
Book an appointment and have the draft contract and tender documents ready for review before you sign.
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