In construction and industrial projects, contract termination is not merely a legal remedy triggered by underperformance. It is a high-impact commercial decision that can redefine the entire project lifecycle. Terminating a construction contract may lead to work suspension, re-tendering, schedule disruption, financial exposure, or prolonged litigation if not handled within a solid legal framework.
This article provides a practical overview of termination of construction contracts under Saudi law, explaining when termination becomes a lawful option for companies, how material breach is assessed, the role of notice and cure, and how courts balance contractual rights with project stability.
If your company is facing breach, delay, or defective performance in a construction or industrial supply contract — or is seriously considering contract termination — early legal assessment is critical to mitigate risk.
For a clear, business-focused legal evaluation of your options (termination, cure period, continuation, or claims), contact Mohammed Al-Muzayen Law Firm directly at +966 59 009 8800, from 9:00 AM to 5:00 PM
What Will Your Company Gain from This Article?
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Understand when contract termination is legally justified under Saudi law
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Distinguish between material and non-material breach in construction projects
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Identify the risks of premature termination
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Learn the role of notice and judicial discretion
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Make informed executive decisions before ending a construction contract
What Does Contract Termination Mean under Saudi Law?
Under Saudi law, contract termination refers to ending a binding contractual relationship before full performance due to breach by one of the parties. In construction contracts, breach commonly appears in the form of:
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Unjustified suspension of works
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Substantial delay in achieving milestones
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Defective or non-compliant execution
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Inability to complete a material portion of the project
Saudi law does not treat termination as a penalty. Instead, it is a corrective mechanism aimed at restoring contractual balance when the contract can no longer achieve its intended purpose.
Legal Framework Governing Contract Termination
The Saudi Civil Transactions Law regulates contract termination and recognizes breach of obligation as a principal ground for termination. The system reflects three key principles:
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The default rule is contract continuation
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Termination is an exceptional remedy
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Termination is generally subject to judicial oversight, not unilateral discretion
For construction companies, this means termination must be supported by documented facts and compliant procedures — not frustration or managerial dissatisfaction alone.
When Is Termination a Lawful Option for Companies?
Termination becomes legally defensible when the following elements are collectively present:
1) A Binding Bilateral Contract Construction contracts are inherently reciprocal. The contractor undertakes execution in accordance with specifications and timelines, while the employer undertakes payment and cooperation.
2) Performance or Readiness to Perform by the Claiming Party A party seeking termination must have performed its own core obligations — such as site handover or payment — or must be legally justified in withholding performance.
3) Existence of a Qualifying Breach Not every breach justifies termination. The law distinguishes between minor shortcomings and breaches that undermine the essence of the contract.
Material Breach in Construction Contracts
A material breach is one that:
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Affects the core purpose of the project
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Deprives the contract of its commercial value
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Renders continuation economically or operationally impractical
Common examples include:
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Failure to meet critical milestones without justification
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Persistent non-compliance with technical specifications
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Prolonged work suspension
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Inability to mobilize essential resources
The Notice and Cure Requirement
One of the most common mistakes companies make is proceeding directly to termination without issuing a notice to perform (cure notice). A proper notice:
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Formally demands performance within a defined period
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Warns of legal consequences, including termination
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Demonstrates good faith and procedural compliance
The Role of the Courts in Contract Termination
Under Saudi law, termination is typically judicial. Courts assess:
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The seriousness of the breach
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Whether termination is proportionate
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Whether continuation remains viable
Risks of Premature Contract Termination
Before terminating, companies must consider:
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Liability for wrongful termination
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Counterclaims for damages
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Project disruption and delay costs
Frequently Asked Questions (FAQ)
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Can a construction contract be terminated due to delay alone? Yes, if the delay is substantial and affects the core purpose of the project.
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Is proof of fault required? Saudi law does not always require proof of fault; the existence of material breach may suffice.
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Is partial termination possible? In certain cases, where the contract is divisible.
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Conclusion
Contract termination in construction projects is a strategic decision requiring careful assessment. Saudi law seeks to balance contractual stability with the legitimate right of companies to exit non-performing agreements.
Contact Us For professional assessment, contact Mohammed Al-Muzayen Law Firm at +966 59 009 8800, from 9:00 AM to 5:00 PM.
