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Key considerations for project owners in the construction of design-led projects in Saudi Arabia

A number of iconic, large-scale construction projects are currently in development as part of the Kingdom of Saudi Arabia's Vision 2030 − an ambitious strategic blueprint for the creation of a more diverse and sustainable economy in the country. Amongst the most ambitious projects is a US$500 billion mega-city that is set to span approximately 27,000 km². Qiddiya Entertainment City is expected to be the world's largest entertainment city, at almost 370 km², and the ultra-luxury Amaala project is planned to serve as a leading destination for wellness, arts and culture. A series of major projects have been announced at 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 developers.

 

Design considerations

For many projects currently being 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 power of the project lies in the linear design of the city. At the Sharaan resort in Al Ula, designed by the renowned architect Jean Nouvel (designer of the Louvre Abu Dhabi and the National Museum of Qatar), the aesthetic profundity of ancient Nabatean culture is a crucial component of the project's architectural concept, aimed at bringing to life a strong spatial, sensorial and emotional experience for those who visit. Similar considerations apply to a number of other developments that are currently planned or under development, such as at Diriyah, where the key design imperatives revolve around maintaining the Najdi heritage and architectural style.

The fundamental importance of design aesthetics for such projects may have a significant impact on the procurement strategies of project owners and the provisions they may seek to include in the construction contracts for these projects. For example, where design aesthetics are of paramount importance, project owners may look to exert more control and oversight over design elements than in the contracting arrangements for a typical EPC or turnkey project (in which functionality often takes precedence and aesthetic considerations do not usually feature as prominently).

From a procurement perspective, this may encourage project owners to move away from design and build contracting in favour of a traditional procurement strategy whereby the owner appoints specialist designers directly to develop and finalize the design of the project prior to embarking on the construction phase. Such an arrangement allows the project owner the right to tender for and appoint a designer of its choice on contractual terms that it dictates, and to enter into a direct contract with such designer, allowing the project owner direct contractual recourse to and oversight of the development of the design. This in turn ensures that the project owner has the opportunity to review, comment on and approve all designs for the project before construction commences. In such a scenario, the approved designs would typically be provided to one or many construction contractors, who would build the project in accordance with the design under a standalone construct-only contract (such as the FIDIC Red Book).

However, such a contracting arrangement is not without risk. As is well known, project owners and third party lenders often tend to favour a single contractor assuming "single point" responsibility for the design, procurement and construction of a project. The splitting of design and construction elements of the works across separate contract packages represents a move away from single point responsibility which may, for example, make it more difficult to resolve responsibility for defects in the works should they arise (as a contractor may seek to blame defects in the works on defective design and vice versa). In addition, where design and construction elements are split, the works will likely need to proceed sequentially, with construction only commencing following substantial completion of the design, giving rise to longer completion timelines for the project.

For these reasons, project owners may prefer to adopt a design and build contracting strategy. If this is the case, to ensure that the design and build contract allows the project owner appropriate control over the design of the project, the project owner may consider including certain provisions in the design and build contract, including: (i) detailed design review and approval rights for the project owner covering both the identity of the design sub-consultants for the project and the designs developed by such sub-consultants, (ii) allowing the project owner direct recourse against any design sub-consultants (for example, via inclusion of subcontractor collateral warranties or third party rights agreements) and/or (iii) the option for the project owner to appoint the design consultant (either directly, followed by a novation of such design consultancy agreements to the design and build contractor − similar to the strategy used for procurement of long-lead items (as discussed below), or as a nominated subcontractor) to allow the contractor to "wrap" the design risk.

While this approach may appear to combine many of the benefits of single-point responsibility and traditional procurement, it is likely to result in a higher overall CAPEX for the project (as a design and build contractor is likely to charge a premium for assuming design risk, particularly where the project owner is heavily involved in the design process and decision-making) and may be met by resistance from design and build contractors. Therefore, project owners will need to weigh up 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 items 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 at the site. So as to ensure timely installation of these components, a project owner may look to enter into contracts with suppliers for the supply of the long-lead items early on in the project lifecycle, and before the appointment of the main contractor. In order to ensure single point responsibility, the project owner may then consider novating the supply contracts to the main design and build contractor once the main contractor has been appointed, with the main contractor taking contractual responsibility for managing those supply contracts. Such an approach avoids the need for the project owner to wait until the appointment of the main contractor for progress to be made on the procurement of long-lead items. This is likely to save time and cost, and gives the project owner greater control over important components of the design.

 

Fossils, Antiquities and Artefacts

When, as is the case for projects in Al Ula, the development is on previously undeveloped sites of historical significance, careful consideration should be given to how the discovery of fossils, antiquities and artefacts will be dealt with. The typical contractual regime in respect of fossils, articles of antiquity and other items of geological or archaeological interest in standard form contracts such as FIDIC require the contractor to comply with all applicable laws and the directions of the project owner, and usually require that any such items found on the site should be placed under the care of the project owner. It is common to see the contractor placed under a contractual obligation to ensure that its personnel and subcontractors do not remove or damage any such findings. The contractor may be required, upon discovery of such items, to give prompt notice to the project owner (who will then issue instructions to the contractor for dealing with the items, and the contractor may be entitled to claim relief for complying with such instructions). In addition, fossils and artefacts discovered on site in Saudi Arabia may fall within the jurisdiction of the relevant government authority, such that the discovery of an artefact on site may require the contractor to notify government bodies in order to comply with applicable laws.

 

Interfacing considerations

The projects referred to in this article are so large in scale that they will likely all involve a numerous contract packages, as well as various contractors and subcontractors (each potentially responsible for distinct but interconnected design components). The engagement of multiple contractors on numerous contract packages gives rise to a need for the proper anticipation of project interfaces and the correct sequencing of working methods. The careful consideration of how those interfaces are to be managed so to avoid clashes and delay during the construction phase of the works is therefore essential for the successful completion 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 contracting strategy to mitigate the impact of COVID-19 claims. Project owners may, for example, wish to give careful consideration to the supply chain management of potential contractors at bid stage, to minimise the likelihood of disruption as a result of COVID-19, and to pre-agree a contractual regime and relief entitlement for COVID-19 related claims. Such considerations are discussed in more detail in the following article: COVID-19: Considerations for Future Construction Contracts.

 

Conclusion

Given the scale of the projects referred to above, the conceptual uniqueness of each project, and the unprecedented ambition of project owners, the specific contracting requirements differ across each design-led project, and are also likely to evolve over time. Careful consideration of these changing requirements, and the prompt implementation of contractual arrangements in response to them, will play an important role in ensuring the successful completion of projects that will push the boundaries of architectural design – both regionally and internationally.

 

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