Abdulrahman al-Zamil, president of the Council of Saudi Chambers business association, has written a letter to King Salman bin Abdulaziz al-Saud warning of the financial difficulties companies in the kingdom now face due to late payments on government projects.

The letter said: “If the delay in payments continues, these companies will be at risk of default, or go completely out of business,” according to a report by London-based Reuters.

In January, Saudi Arabia’s Finance Ministry has slashed advance payments to contractors to 5 per cent. They should also not exceed SR50m ($13.3m). The government used to pay 20 per cent of the contract value in advance to firms working on public schemes.

Riyadh has significantly cut state spending to counter the decline in oil prices.

In the 2016 budget, the Finance Ministry announced cuts to infrastructure spending of more than 60 per cent.

The drop in spending from SR63bn ($17bn) in 2015 to SR23.9bn in 2016 will mean progress on the largest projects on which contracts were due to be awarded this year will be slow.

Construction firms working in Saudi Arabia have struggled as government spending has been curtailed. The local Abdullah A.M. Al-Khodari Sons recorded a net loss in the fourth quarter of 2015, citing declining revenues and increased financial charges for the poor performance. 

Other firms have been forced to lay off workers. In December, the local Saudi Binladin Group laid off more than 15,000 workers.

Tough year ahead for contractors

 Tough year ahead for contractors

Tough year ahead for contractors

Fewer contract awards and tightening cash flow were the two main themes for construction companies in 2015 as clients adjusted their capital expenditure plans in the wake of the drop in oil prices.

Payment delays have forced contractors to secure loans from banks to cover monies owed, and in some cases cut costs and headcount. Read More