Exciting developments continue to come out of Saudi Arabia. A new Government Tenders and Procurement Law was approved by the Saudi Arabian Council of Ministers on 16 July 2019 and came into force on 1 December 2019 (the New GTPL). The New GTPL replaces the previous Government Tenders and Procurement Law issued in 2006 (the Old GTPL).
In line with Saudi Vision 2030, the New GTPL promotes economic development and encourages investment by promoting equality, increasing transparency and preventing the abuse of power. The New GTPL makes changes to the existing government tender and procurement framework, including establishing the ‘Entity Concerned with Unified Procurement’, the development of an online portal, new methods of contracting and the introduction of a standstill and protest mechanism.
The New GTPL applies to procurement by Government Entities, which are defined as ministries, government agencies, authorities, departments, public institutions and agencies having an independent public legal personality. Works and procurements executed outside of Saudi Arabia are also included within the scope of the New GTPL.
The Ministry of Finance has a pivotal role under the New GTPL, which includes setting policies and issuing directives, collating and distributing information, maintaining a list of boycotts and approving tender and prequalification forms, contract forms, performance evaluation forms and other documents.
The New GTPL also establishes the ‘Entity Concerned with Unified Procurement’ to reduce costs and streamline procurement. In particular, it is tasked with identifying works and procurement required by multiple Government Entities, standardising their technical specifications, issuing tender procedures, receiving and examining bids, selecting bidders and concluding framework agreements with successful suppliers to be used by all Government Entities.
The Ministry of Finance is tasked with establishing, supervising and developing a unified e-portal for government procurement efforts. The procedures for all government tenders and procurements shall be announced on the portal, unless there are technical or national security issues.
The portal will include a register for each Government Entity, including all information, data and procedures related to contracts it concluded and the projects and works tendered. Electronic copies of tender documents shall be made available on the portal except where this is not possible due to technical reasons.
Methods of contracting
Under the New GTPL, public tenders remain the default position. The New GTPL also maintains existing alternatives under the Old GTPL, including limited tenders, where there are limited contractors/suppliers, the costs are under SAR 500,000 and/or for the procurement of consultancy services and direct purchases, which may be used, for example, for military equipment, in the interests of national security and/or where there is only one contractor/supplier.
A welcome addition to the methods of contracting is the two stage tender. This provides some flexibility for complex matters where it is not possible to determine technical specifications or final contractual terms early on.
Another addition is the electronic reverse tender, which reflects an increasingly competitive market and a core objective of the government of Saudi Arabia to achieve the best value for public funds. Using the portal, bidders will have the chance to submit successively lower bids during a specified bid period.
The New GTPL also introduces what is dubbed the ‘Competition’, whereby a Government Entity may run a competition for the best idea, design or copyright and conclude a contract with the winner.
Tenderers are required to submit a bid bond of between 1 and 2 per cent of the value of the bid. Bids submitted without a bid bond shall be rejected. However, the New GTPL excludes the requirement for a bid bond for direct purchases, competitions, contracts concluded between Government Entities, contracts concluded with a civil institution, association or non-profit entity and contracts concluded with local SMEs.
Standstill and protests
The New GTPL introduces a new requirement for a standstill period of between five and 10 days following a tender decision to allow unsuccessful bidders to raise an objection. During this period the Government Entity is prohibited from entering a contract with the successful bidder.
Tenderers have the right to file a grievance with the Government Entity and subsequently, to a committee formed by the Minister of Finance. The New GTPL requires an applicant to submit a guarantee equal to half the bid bond, which will be refunded if the grievance is upheld.
Contract requirements, assignment and subcontracting
The New GTPL sets out requirements for the drafting and execution of contracts. In particular:
- All contract documents are required to be in Arabic. Where an additional language is used, the Arabic original shall prevail.
- Government Entities shall use the types of contracts set out in the Regulations.
- Government Entities awarding a contract relating to an allocation under the General Budget must submit the contract to the Ministry of Finance for approval prior to conclusion.
A contractor may not assign a contract or enter a subcontract without the prior written consent of the Government Entity. In respect of assignment, the written consent of the Ministry of Finance is also required. The New GTPL introduces the option of direct payments to subcontractors, which is a significant change.
Financial considerations and pricing
Contracts shall be paid in Saudi Riyals although the Government Entity may provide for another currency with the approval of the Ministry of Finance. The total contract value shall include the costs of execution, including fees and taxes. Moreover, there shall be no exemption in respect of taxes on the profits of parties contracting with the Government Entity or the incomes of their employees.
The contract value may only be amended in respect of (i) a change in prices of materials or services included in the tender provisions; (ii) a change in custom tariffs, fees or taxes; or (iii) unforeseen financial difficulties arising during the execution of the contract.
A Government Entity may issue a change order increasing the contract value by up to 10 per cent or decreasing it by up to 20 per cent.
The New GTPL is a significant and welcome development for the Kingdom of Saudi Arabia. It provides for a centralised approach to government procurement and tackles key issues which have concerned investors in the past such as those relating to efficiency, equality and transparency. This should help to attract further interest in the market and provide a positive step towards Saudi Vision 2030.