A number of landmark large-scale construction projects are currently under development as part of the Kingdom of Saudi Arabia’s Vision 2030, an ambitious strategic plan for creating a more diversified and sustainable economy in the country. Among the most ambitious projects is a US$500 billion megacity that is expected to cover around 27,000 km². Qiddiya Entertainment City is expected to be the largest entertainment city in the world, covering nearly 370 km², and the ultra-luxury Amaala project is expected to serve as a top destination for wellness, arts and culture. A series of major projects have been announced in Al Ula, an ancient city of historical and archaeological significance. The scale, complexity and uniqueness of many of these projects give rise to important practical, legal and contractual considerations for project proponents..
For many projects currently planned or undertaken in Saudi Arabia, it is cutting-edge design and bold architectural vision that are of paramount importance. For example, for the hyper-connected city called “the Line”, the conceptual strength of the project lies in the linear design of the city. At the Sharaan complex of Al Ula, designed by renowned architect Jean Nouvel (designer of the Louvre Abu Dhabi and the National Museum of Qatar), the aesthetic depth of ancient Nabataean culture is a crucial part of the project’s architectural concept, aiming to bring to life a strong spatial, sensory and emotional experience for those who visit it. Similar considerations apply to a number of other developments currently planned or under development, such as at Diriyah, where key design imperatives revolve around maintaining the Najdi heritage and architectural style.
The fundamental importance of design aesthetics for such projects can have a significant impact on owners’ procurement strategies and the provisions they may seek to include in construction contracts for such projects. For example, where design aesthetics are of paramount importance, owners may seek to exercise more control and oversight over design elements than in contractual agreements for an EPC or turnkey project. typical (in which functionality often takes precedence and aesthetic considerations do not usually feature as prominently).
From a procurement perspective, this can encourage owners to move away from design-and-build contracts towards a traditional procurement strategy in which the owner directly appoints specialist designers to develop and finalize the design of the project before embarking on the construction phase. Such an arrangement allows the client to bid on and designate a designer of its choice on the contractual terms it dictates, and to enter into a direct contract with that designer, allowing the client direct contractual recourse and control of development. of the design. This in turn ensures that the project owner has the opportunity to review, comment on and approve all project designs before construction begins. In such a scenario, approved designs would typically be provided to one or more construction contractors, who would build the project to the design under a stand-alone construction-only contract (such as FIDIC Red Book).
However, such a contractual arrangement is not without risk. As is well known, owners and third-party lenders often tend to favor a single contractor with “single” responsibility for the design, procurement and construction of a project. Splitting the design and construction elements of the works into separate contract packages represents a move away from single liability, which may, for example, make it more difficult to resolve liability for defects in the works if they occur (because a contractor may seek to blame faults in the works on a faulty design and vice versa). Also, when design and construction elements are separated, work will likely need to proceed sequentially, with construction not commencing until after substantial completion of the design, which will lengthen project completion times.
For these reasons, owners may prefer to adopt a contracting strategy in design and construction. If this is the case, to ensure that the design and construction contract provides the owner with appropriate control over the design of the project, the owner may consider including certain provisions in the construction contract. design and construction, including: (i) detailed design review and approval rights for the project owner covering both the identity of the design sub-contractors for the project and the designs developed by these sub-contractors; contractors, (ii) allowing the project owner direct recourse against any design subcontractor (for example, via the inclusion of collateral guarantees from subcontractors or third party rights agreements) and/or (iii ) the option for the client to appoint the design consultant (either directly, followed by a novation of these design consultancy agreements to the design and build contractor – similar to the strategy used for procurement long-lead items (as discussed below), or as a named sub-contractor) to allow the contractor to “wrap around” the design risk.
Although this approach may appear to combine many of the advantages of single-point liability and traditional procurement, it is likely to result in higher overall CAPEX for the project (because a design-build contractor is likely to charge a premium for assuming design risk, especially where the client is heavily involved in the design process and decision-making) and may encounter resistance from design and construction contractors. Therefore, developers will need to weigh the relative merits of each approach and adopt the most advantageous approach on a case-by-case basis.
The design elements of a project often involve elements or materials with long lead times. For example, for new developments in the desert that require landscaping, plants and trees may need to mature for years before being planted on the site. To ensure timely installation of these components, a project owner may consider entering into contracts with suppliers for the supply of long-lead items early in the project life cycle and prior to appointment. of the main contractor. In order to ensure single liability, the client may then consider transferring the supply contracts to the main design and build contractor once the main contractor has been appointed, with the main contractor taking on the contractual responsibility management of these supply contracts. Such an approach avoids the contracting authority having to wait for the designation of the contracting authority to move forward with the acquisition of long-term goods. This is likely to save time and money, and gives the project owner greater control over important design components.
Fossils, antiquities and objects
Where, as is the case with the projects at Al Ula, development takes place at sites of historical significance not previously developed, careful consideration should be given to how the discovery of fossils, antiquities and artifacts will be processed. The typical contractual regime for fossils, artifacts of antiquity and other objects of geological or archaeological interest in model contracts such as FIDIC requires the contractor to comply with all applicable laws and the instructions of the owner of the project, and generally requires that such items found on site be in the custody of the owner. It is common to see the contractor placed under a contractual obligation to ensure that their staff and sub-contractors do not remove or damage these finds. The contractor may be required, upon discovery of such items, to give prompt notice to the project owner (who will then instruct the contractor to deal with the items, and the contractor may be entitled to request a repair to comply with these instructions). In addition, fossils and artefacts discovered on site in Saudi Arabia may fall under the jurisdiction of the relevant government authority, so the discovery of an artefact on site may require the contractor to notify government agencies in order to comply. applicable laws.
The projects referenced in this article are of such magnitude that they will all likely involve numerous contract packages, as well as various contractors and subcontractors (each potentially responsible for separate but interconnected design components). The commitment of multiple contractors on many batches of contracts leads to a need for good anticipation of project interfaces and good sequencing of working methods. Careful consideration of how these interfaces should be managed to avoid conflicts and delays during the construction phase of the works is therefore essential for the success of these projects.
Contracting in the era of COVID-19
COVID-19 continues to impact construction projects in the region and around the world. There are a number of key considerations that project owners may wish to consider as part of their procurement strategy to mitigate the impact of COVID-19 related claims. Clients may, for example, wish to pay particular attention to the supply chain management of potential contractors at the bidding stage, to minimize the likelihood of disruption due to COVID-19. 19, and to pre-agree on a contractual regime and entitlement to relief for COVID-19-related Claims. These considerations are discussed in more detail in the following article: COVID-19: Considerations for future construction contracts.
Given the scale of the projects mentioned above, the conceptual uniqueness of each project and the unprecedented ambition of the owners, the specific contractual requirements differ from project to project and are also likely to change over time. Careful consideration of these changing requirements and the rapid implementation of contractual arrangements in response to them will play an important role in ensuring the success of projects that push the boundaries of architectural design, both regionally and internationally.