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New government tenders and procurement law, what changes will it bring?

  • Saudi Arabia


    Saudi Arabia’s cabinet has now approved the new government tenders and procurement law (the “Law”). The Law aims to ensure that procurement decisions by government agencies are not influenced by personal interest. Much of the detail of the Law will be in the implementing regulations to be issued later and so we await these to be able to better assess the full impact on the business, nonetheless, the approval of the Law is a welcome development and falls in line with the Saudi Vision 2030 to diversify the economy and encourage more foreign investment.

    The New Law allows the government agencies to choose between the RFP model or the invitation to bid model. RFP model is a globally known “competitive negotiations method” of soliciting proposals. This method is used when the end-product is unique, the government agency knows what it wants, but the methods and specifications aren’t readily available. This allows prospective contractors to offer different methods, solutions, and price points for the government agency to evaluate.

    While this would not only improve the government’s fiscal position by minimizing costs and improving the financial planning efficiency, it would give rise to introduction of innovative solutions by bidders in Saudi Arabia.

    On the other hand, the Law allows the government agency to choose the invitation to bid model when there is no substantial difference between the products or services that meet the specifications and allows the government agencies to conclude framework agreements with long term suppliers to avoid repetitive bidding which often increases the chances of collusion.

    Numerous projects have been delayed in Saudi Arabia in the past due to infighting between the prime and sub contactors on account of payment delays since the payments have not flowed down to the sub-contractor. The Law brings a considerable change to this regime and allows the government agency to pay the sub-contractor directly.

    Local companies, SME’s and Saudi listed companies are given priority over foreign companies. This is again significant as it would increase listings on the stock exchange especially by family held Saudi entities traditionally associated with execution of a majority of construction contracts in Saudi Arabia.

    Unlike the old law, the Law provides the government agency to terminate the contract and withdraw the works from a contractor partially with the option of executing the same on the contractor’s expense if there has been incessant delays. The withdrawal will however be without prejudice to the contractor’s rights and outstanding entitlements at the date of termination.

    The Law allows arbitration as a dispute resolution mechanism in government contracts. This would be extremely useful for disputes relating to complex construction issues benefitting from experienced arbitrators who have a high degree of technical expertise.

    This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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