Subcontract Agreements for Saudi Government Projects: Protecting the Main Contractor
Updated: Oct 6
Subcontracting on a Saudi government project needs the entity's written approval, and the main contractor remains liable to the entity for performance. Every gap in the subcontract therefore becomes a penalty on your company, not on the party that actually caused the delay.
The most expensive mistake: a subcontract that does not match the main contract
A company signs a government contract with a delay penalty of up to 20%, then hires a subcontractor on an old template with a 5% penalty and a longer programme. The company carries the difference. The fix is a back-to-back subcontract that passes the main contract obligations down clause by clause.
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. The subcontract should therefore be built on the figures of the law that governs your main contract.
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.
Clauses a lawyer drafts in subcontracts and supply agreements
Time and penalties: a shorter programme than the main contract, and penalties that cover what may be imposed on you.
Payment: subcontractor payments linked to your receipt of certified payments, including the case where the entity pays the subcontractor directly.
Guarantees: performance and advance payment guarantees from the subcontractor that mirror your own bond.
Change orders: the subcontractor's duty to perform increases or reductions ordered by the entity at agreed rates.
Termination: your right to end the subcontract if the main contract is terminated or the work is withdrawn.
Local content and Saudization: statutory duties and reporting passed down to the subcontractor.
Disputes: a forum or arbitration clause that does not conflict with the main contract.
If your company is the subcontractor
The review runs the other way: a cap on penalties, a payment period that is not tied indefinitely to the main contractor's receipts, and a right to claim for delay caused by others.
FAQ
Is subcontracting allowed in Saudi government contracts?
Yes, with the prior written approval of the government entity. The main contractor remains liable for performance. This condition applies under both the current law and the new law.
Who pays the delay penalty if the subcontractor is late?
The entity imposes it on the main contractor. Recovering it from the subcontractor depends entirely on how the subcontract is drafted.
Do you draft contracts in Arabic and English?
Yes, with a governing-language clause, which matters when the supplier or subcontractor is foreign.
Book an appointment and have the main contract and your list of subcontractors ready, and we will prepare matching subcontracts before work starts.
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