The Kingdom of Saudi-Arabia (KSA) is the largest economy in the Middle East & North Africa (MENA) region. The country's public spending in infrastructure, health care, transport, and other government-driven sectors is among the highest the MENA region. In an unparalleled program of reform under its Vision 2030, the Kingdom tries to make its economic, social and legal landscape ready for coming generations. As part of this reform, KSA recently enacted a new Public Procurement Law that governs public tenders. This legal briefing gives an overview of the new Public Procurement Law and its key features.
1. What is the Public Procurement Law (PPL) and who is concerned by it?
The New Public Procurement Law ("PPL" or "Law") is the main legal regulation for all government procurement in the KSA. All government entities such as the State and its Ministries, Regional Authorities and Municipalities as well as Public Entities with an individual legal personality are subject to this new law.1 The Law regulates how these entities can cater to their needs in terms of procuring goods and services. It should be noted, however, that for certain sectors (especially in relation defence and security), many of the regulations are eased and facilitate an easier approach for the concerned government entities.
The Law establishes several new institutions for the Kingdom's procurement structures. The overarching responsible authority for the Law and its implication will be the Ministry of Finance (MoF). A new procurement portal, named Etimad (www.etimad.sa) under the supervision and constant development of the MoF.2
The Law also establishes a Unified Purchase Entity (UPE). The UPE's assumes several tasks. It is the unit directly interacting with the tendering parties in cases of more than one government entity being involved. It mainly provides background support such as research and guidance to government entities in procurement processes.
2. Why was the new Law introduced now?
In the course of its encompassing reform agenda (especially the Vision 2030), the KSA is implementing a consequent policy line in matters of transparency and combating corruption. The field of public procurement has been identified as an area of potential enhancement in these matters.
Anticipated gains are twofold: The state will profit from an optimized allocation of resources and hopefully from an improved image with providers of goods and services.
In turn, the Law also enables providers without connections or "wāsṭa" especially those ones of SMEs to face an increased chance of success in the respective tenders, as long as certain core values of the KSA such as localization are respected.
3. What are the procurement methods and tender procedures?
The PPL by default foresees a multiple stage system for procurement:
- Demand and background research of the concerned government entities, as well as financial planning of every government entity (outlines of which have to be published);
- Tender procedure;
- Standstill period for revision of the decision initiated by one of the competitors;
- Contract negotiation and conclusion; and
- Performance of the contract.
The PPL includes the following tender procedures:
a. General Tender (al-munāfasa al-ʿāmma)
General tenders serve as the default procedure of all tenders and will be announced publicly through the Etimad portal. General tenders are open to anyone's participation subject to meeting the necessary pre-qualification requirements.
b. Limited Tender (al-munāfasa al-maḥdūda)
Limited tenders are directed to a limited number of participants upon invitation of the government entity. Limited tenders can only be carried out in one of the following cases:
- A limited number of providers;
- Tender value does not exceed SAR 500,000 (approx. EUR 125,000);
- Time being of the essence;
- Products and services provided by non-profit entities; or
c. Two-Round Tender (al-munāfasa ʿalā marḥalatayn)
In the first (general) round of this tender (announced in the Portal), products/solutions as per the specifications of the government entity can be submitted without determination of the price.
In the second round (by invitation) suitable participants of the first round will bid by price.
d. Direct Purchase (al-shirā' al-mubāshir)
Direct purchases are only allowed in one of the following cases:
- Arms, military goods and respective spare parts;
- A monopoly of one provider;
- Anticipated tender value of SAR 100,000 max (approx. EUR 25,000); the award will be prioritized to local SMEs;
- Necessities preventing the methods mentioned under (a.) and (b.) due to reasons of national safety;
- Products and services provided by non-profit entities; or
- In a state of emergency. In the second round (by invitation) suitable participants of the first round will bid by price.
e. Framework contracts (Ittifāqīya iṭārīya)
Framework contracts are foreseen for a continuous procurement of services most expectably for a maximum of 5 years. The procurement of framework contracts can be open or closed.
f. Reverse Electronic Auction (al-muzāyada al-ʿaksīya al-iliktrūnīya)
Purchases a threshold value not exceeding SAR 5,000,000 (approx. EUR 1,250,000) can be made through a reverse electronic auction.
g. Competition (musābaqa)
The Law also includes a competition based tender procedure (relevant for design, modeling, etc.).
4. How are disputes resolved?
Bidders can contest the award as well as violations of the tender procedures leading to the award. Complaints need to be filed with the concerned government entity within five working days after the relevant decision or in case the award is contested within the standstill period. The awarding entity shall decide about the complaint within 15 working days. In case of a negative decision (assumed if the awarding authority has not decided within the time period), the complaining bidder has the right to approach the Ministerial committee for review of the decision within 3 days.
In government contracts, arbitration can be used as a means of dispute resolution. This, however, requires the consent of the Minister of Finance. In case of no consent, admirative courts will have jurisdiction to hear cases with regard to government contracts.
The PPL comes along with a number of paradigm changes:
- Establishment of a centralised procurement portal (Etimad);
- Establishment of a Unified Purchase Entity (UPE) that assist governmental bodies in preparing tender procedures;
- Introduction of innovative tender procedures and transparent criteria for the selection of tender procedures;
- Introduction of specialised committees for the resolving tender procedure-related complaints; and
- Inclusion of arbitration as a possible dispute resolution mechanism in governmental contracts.
It is expected that investors will have new and better chances under the PPL in engaging in economic activities with governmental bodies. Therefore, the Etimad portal should be monitored closely.
1. The PPL does not cover (fully or partly) government owned companies and enterprises such as Saudi Aramco, Saudi Basic Industries Corporation (SABIC), Saudia Airlines, Ma'aden or any publicly owned Banks or financial institutions.
2. Tenders will be announced under the following link: https://monafasat.etimad.sa.
Originally published 6 November 2019
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