Saudi Arabia's new Government Tenders and Procurement Law introduces notable concepts not customarily seen in procurement regimes that apply universally to all government projects.
The New Law
On 16 July 2019, following two years of public consultations, the Saudi Council of Ministers approved the new Government Tenders and Procurement Law (the GTPL).
In force and applying to all Saudi government projects as of November 2019, the GTPL has the broad objective of aligning the Saudi government's procurement system with its Vision 2030 initiative and aims to guide government entities to make procurement decisions in a more transparent, unbiased manner and free from conflicts of interest.
The GTPL introduces much-anticipated updates to Saudi Arabia's old procurement law issued in 2006 which was considered to impose an unnecessarily strict and outdated regime. The updates include:
- a suite of template contracts (Article 57);
- the use of framework agreements (Articles 14 and 33);
- a centralised governing body (provisionally named "The Entity Concerned with Unified Procurement" which will be formed by a separate cabinet decision);
- an online Portal (Articles 14, 16 and 17); and
- the option for parties to agree on arbitration as the preferred method of dispute resolution, albeit only with prior approval from the Minister of Finance (Article 92).
The GTPL also introduces notable concepts not customarily seen in procurement regimes that apply universally to all government projects. These are summarized below.
Electronic Reverse Tender (Article 34)
Government entities will have the option to use 'Electronic Reverse Tenders' (more commonly referred to as 'online reverse auctions' or 'reverse eAuctions') whereby bidders will be given the opportunity to submit successively lower bids on the Portal during a specific time window.
Traditionally, reverse auctions have been used predominantly in renewable energy projects, but there has been a steady increase in the implementation of reverse auctions in public procurement worldwide over the past two decades. This has resulted in more dynamic and competitive bidding processes. That being said, the construction industry in general still opposes their use, arguing that reverse auctions:
- are not designed for construction procurement and disregard long-recognized industry practices for traditional 'design-bid-build' construction bidding that advocate best practices aimed at increasing efficiency;
- lead to artificially-inflated initial pricing and/or cut-throat pricing (and consequently corner-cutting and increased risk of compromising the quality of projects); and
- expose bidders to breach of tendering laws, trade treaties and foreign laws.
With the bulk of Vision 2030 funding concentrated on Saudi's ambitious infrastructure program, it will be interesting to see the extent to which Saudi government entities use reverse auctions and the reactions from the international construction community. As the GTPL applies to all government projects, the use of reverse auctions will certainly impact other industry sectors as well.
The Competition (Article 36)
Article 36 of the GTPL allows government entities to hold competitions for "idea and design or any other copyright" and award contracts to the winners.
This mechanism of awarding contracts is often used in architectural design projects (referred to as 'idea competitions' or 'design contests') and in product or business development (referred to as 'innovation competitions'). In the context of public procurement, its implementation has been limited and largely confined to service-oriented projects such as technical assistance projects.
Again, it will be interesting to see how idea competitions will impact the various industries that fall within the remit of the GTPL and, more specifically, how creatively the Saudi government entities and bidders will use them, as the broad drafting of Article 36 leaves open endless possibilities. For example, in the case of construction procurement, the subject matter of competitions could range from ideas relating to the procurement process itself (such as bidding, payment mechanism, delivery method, etc.) to innovations in design and technology (such as materials, design, durability and safety, etc.) and project management tools. As another example, in military procurement, all of the above would apply and even diplomatic relations and the potential to form new alliances could, in theory, be the subject matter of idea competitions.
Watch this space
Much of the operational specifics of the GTPL will be contained in the supplementary Implementing Regulations, which, albeit have been referenced nearly 70 times in the GTPL, are yet to be issued. We are unaware of the expected time of their issuance. However, once the Implementing Regulations are available and have been tried and tested, we look forward to assessing the full impact of the GTPL on the construction industry in Saudi Arabia. Sign up to our mailing list below to receive updates on the GTPL and other legal developments in the region.
