Article 28 of the Saudi Privatization Law
المادة 28 من نظام التخصيص
With the competent authority's approval, the contracting authority may terminate a partnership contract unilaterally for material breach after notice, bankruptcy, the public interest, or cases set in the contract; the contract determines the effects and compensation.
Official text (Arabic)
This article has not been amended since the law was issued.
1- مع مراعاة الأحكام التعاقدية ذات العلاقة، للجهة التنفيذية -بعد الحصول على موافقة الجهة المختصة- إنهاء عقد الشراكة بين القطاعين العام والخاص والعقد التابع أو أي منهما بالإرادة المنفردة قبل انتهاء مدته في أي من الحالات الآتية:
أ- إخلال الطرف الخاص بتنفيذ التزاماته التعاقدية الجوهرية، أو عجزه عن تحقيق مستوى الجودة المتفق عليه، وذلك بعد إخطاره كتابةً بهذا الإخلال، وعدم تصحيحه لأوضاعه خلال الفترة المحددة في الإخطار، ويحدد العقد الالتزامات الجوهرية للطرف الخاص.
ب-إفلاس الطرف الخاص، أو تصفيته.
ج- إذا اقتضت المصلحة العامة ذلك.
د- أي حالات أخرى يحددها العقد.
2- يحدد عقد الشراكة بين القطاعين العام والخاص أو العقد التابع الآثار المترتبة على إنهائه بالإرادة المنفردة قبل انتهاء مدته في الحالات الواردة في الفقرة (1) من هذه المادة، ويجوز أن يتضمن العقد تحديدًا لنطاق التعويض الذي يستحقه الطرف الخاص نتيجةً لإنهاء العقد، أو آلية احتسابه.
3- مع مراعاة أحكام العقد ذات العلاقة، يجوز أن يحدد العقد نطاق التعويض عن الكسب الفائت الذي يستحقه الطرف الخاص في حال إنهاء عقد الشراكة بين القطاعين العام والخاص لسبب مرتبط بالجهة التنفيذية دون وقوع إخلال من الطرف الخاص.
This is the official Arabic wording, the only legally binding version. We do not translate the law itself; the explanation below is ours. Official source: Bureau of Experts at the Council of Ministers
Article 28 explained in plain English
This article regulates terminating a partnership contract before its term ends by the contracting authority's unilateral decision, subject to the contractual provisions and after the approval of the competent authority.
Grounds for termination:
- Material breach: the private party breaches its material contractual obligations or fails to achieve the agreed level of quality, after being notified in writing and failing to correct it within the period set in the notice. The contract specifies which obligations are material.
- Bankruptcy or liquidation of the private party.
- The public interest, if it requires it.
- Any other cases the contract specifies.
Effects and compensation:
- The contract or subsidiary contract sets the effects of termination, and it may include the scope of the compensation the private party is entitled to or the method of calculating it.
- The contract may set the scope of compensation for lost profit if the contract is terminated for a reason connected to the contracting authority without breach by the private party.
In practice, the private party's protection on termination depends largely on how the contract is drafted; the text allows the contract to set compensation but does not itself state the amount. An investor should therefore negotiate these clauses carefully with the help of a lawyer who specializes in commercial matters and partnership contracts.
Practical example
A contracting authority decided to terminate a partnership contract for operating a sports center before its term ended because the public interest required converting the site to another use, after the competent authority's approval. The company had not breached its obligations, so if the contract sets the scope of compensation for lost profit, it is entitled to it accordingly.
Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.
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Frequently asked questions about Article 28 of the Saudi Privatization Law
When may the government terminate a partnership contract?
For material breach after notice and failure to correct, bankruptcy or liquidation of the private party, where the public interest requires it, or in cases the contract specifies, with the competent authority's approval.
Is the private party compensated for lost profits on termination?
The contract may set the scope of compensation for lost profit if termination is for a reason connected to the contracting authority without breach by the private party.
More articles on Amending and Terminating a Partnership Contract
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A privatization contract may include a delay fine, penalty clause or compensation for breach, and if the contract so provides the contracting authority may perform it itself or through others after notifying the private party and it fails to correct the breach.
1- يجوز أن يتضمن العقد -أو العقد التابع- فرض غرامة تأخير، أو شرط جزائي، أو تعويض؛ نتيجة إخلال أي من طرفيه في تنفيذ التزاماته التعاقدية، ويحدد العقد -أو العقد ال
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The contracting authority may transfer, amend or terminate existing government contracts without the counterparty's consent where the project requires it, while preserving the counterparty's right to compensation.
إذا تطلب تنفيذ مشروع التخصيص نقل عقود قائمة لتقديم خدمات، أو مقاولات، أو توريد سلع، بين جهة حكومية وأطراف أخرى متعاقدة معها إلى الطرف الخاص، أو إجراء تعديل عليه
The texts are reproduced from the official website of the Bureau of Experts at the Council of Ministers for reference; where they differ, the officially published Arabic text prevails. This content is not legal advice.