Price Escalation in Saudi Arabia and Kuwait: Comparing the Routes to Relief

Article 3 of 3 in a series by Beale & Co on price escalation, exceptional circumstances and construction contracts in the GCC.

In the first two articles in this series, we introduced the doctrine of exceptional circumstances under GCC civil codes and examined the changes introduced by the New UAE Civil Code. In this final article, we turn to Saudi Arabia and Kuwait, two jurisdictions with distinctive approaches, including a renegotiation requirement in Saudi Arabia that contractors need to understand.

Saudi Arabia: Article 97, negotiate first, litigate second

The Saudi Civil Code (Royal Decree No. M/191 of 1444H) contains a general exceptional circumstances provision in Article 97. Where such circumstances arise which could not reasonably have been foreseen, and performance becomes burdensome so as to threaten the obligor with heavy loss, the obligor may call on the other party to negotiate without unjustified delay.

What makes Article 97 distinctive is this express renegotiation step. A party must first notify its counterparty and attempt to negotiate a reasonable adjustment before seeking judicial intervention. A request for negotiation does not entitle the obligor to suspend performance. If the parties fail to agree within a reasonable period, the court may reduce the onerous obligation to a reasonable extent. Any agreement contrary to Article 97 is null and void.

For contractors in Saudi Arabia, prompt action is essential. A party seeking relief should demonstrate that it engaged with its counterparty in good faith and attempted to reach a commercial solution before turning to the court. Evidence of that engagement is likely to be relevant to whether judicial intervention is available.

Article 471: construction-specific relief

The Saudi Civil Code also contains a construction-specific provision. Article 471(1) provides that where a contract is executed on the basis of a lump sum price, the contractor may not demand an increase even if material prices, wages or other expenses rise. In principle, price escalation risk sits with the contractor. However, Article 471(3) creates an exception: where the contractual balance deteriorates due to public exceptional circumstances that could not have been expected, and the financial basis of the contract is affected, the court may order restoration of the contractual balance.

The court’s powers include extending the period for performance, adjusting the contract price, or ordering termination. This mirrors Article 829(3) of the New UAE Civil Code. Both focus on whether exceptional circumstances have undermined the financial basis on which the contract was concluded.

One notable difference: unlike Article 97, Article 471(3) does not appear to contain express mandatory wording invalidating contrary agreements. This may leave open the possibility that parties could seek to exclude or limit its operation through clear contractual drafting, although this will depend on how the Saudi courts interpret the provision in practice.

Kuwait: Article 198, a simpler framework

Article 198 of the Kuwaiti Civil Code (Decree Law No. 67 of 1980) provides that where general extraordinary circumstances arise which could not have been foreseen, and performance becomes oppressive so as to threaten the debtor with heavy loss, the court may reduce the oppressive obligation to a reasonable degree, either by narrowing its extent or by awarding a balancing increase. Any agreement to the contrary is null.

The “balancing increase” is a useful feature for contractors facing price escalation: the court may consider whether a price adjustment is justified where material or labour costs have risen significantly beyond what was foreseeable at tender stage. However, unlike the UAE and Saudi Arabia, Kuwait does not have a construction-specific provision. Parties to construction contracts rely on Article 198 as the general basis for judicial intervention.

Key takeaways for contractors across the GCC

The exceptional circumstances provisions across the UAE, Saudi Arabia and Kuwait share a common purpose: they allow courts to rebalance contractual obligations where unforeseeable events have made performance excessively onerous. But the details differ, and contractors operating across multiple jurisdictions need to understand those differences.

In the UAE, the New Civil Code has expanded the available remedies (including rescission) and introduced a tailored mechanism for construction contracts under Article 829(3). In Saudi Arabia, a contractor must first attempt to renegotiate before seeking judicial relief, and should document that process carefully. In Kuwait, the framework is simpler but also narrower, with no construction-specific provision.

Across all three jurisdictions, the evidential burden is high – in fact very high in our experience. Contractors facing price escalation should maintain detailed contemporaneous records of cost movements, act promptly, and be prepared to demonstrate how the escalation undermined the financial basis of their contract compared to the assumptions at the time of tender.

These provisions are an important part of the legal landscape for construction in the GCC. However, they are not a substitute for clear contractual risk allocation, well-drafted force majeure and hardship clauses, and robust price adjustment mechanisms.

Beale & Co’s construction team regularly advises employers and contractors on hardship, force majeure and contractual risk allocation across the GCC. For further information, please contact Claire Miller or Ilham Adan.