Government Contracting
Supplies of goods and services to all government agencies and most government-owned companies are regulated by the Government Bids and Procurement Law, issued in 2006. Certain contracts (e.g. for supply of military equipment, goods available only through one supplier, and certain consultancy and technical services) may be exempted from the tendering requirements.
The following are some key features of the Government Bids and Procurement Law.
All government tenders are announced and publicised.
Generally, bidders must have a legal presence in Saudi Arabia, and be appropriately licensed for the ac tivity the subject of the bid. Priority is given to bidders who specify the supply of Saudi manufactured goods and services.
Bids must generally include a preliminary bank guarantee of 1-2% of the contract value. Bids must be valid for 90 days from the date specified for the opening of bids. If a bidder withdraws a bid during this period, the preliminary bank guarantee is forfeited.
The successful bidder must submit a final bank guarantee of 5% of the contract value, usually within 10 days of being awarded the tender. If it fails to do so, then the preliminary guarantee is forfeited, and negotiations commence with the next bidder.
The prevailing language of all government contracts is Arabic. The contract forms are typically prepared by the Ministry of Finance and can be bilingual, although the Arabic version will prevail.
The government party must submit contracts with an execution period of more than one year and a value exceeding SAR 5 million (about USD 1.35 million) to the Ministry of Finance for review prior to entering into the contract. Service contracts with terms in excess of 5 years require the prior approval of the Ministry of Finance.
The government party may increase the obligations within the scope of the contract by up to 10% of the value, or decrease those obligations by up to 20%.
Contract payment entitlements, termination, penalties and extensions of contract are all regulated in the Government Bids and Procurement Law.
If the government party defaults, the contractor may not refuse to perform its obligations on the basis that the government party is in default, but it may lodge a claim for compensation with the Compensation Committee. It is not permitted for the contractor to file a claim before the courts in the initial stages.
As regards PPP projects, the new National Center for Privatization & Public Private Partnership was established in 2017. This new entity oversees the development of projects across sectors and will, in due course, promulgate further regulation and guidance in this regard.
