Government Procurement

Government Procurement

Our experience on a day-to-day basis, which includes, e.g., advising government entities, multinational corporations, and local private sector companies, illustrates the range of applicable issues on both sides of the negotiating table in relation to government procurement.

From a government perspective, challenges include trying to accommodate both highly technical mega and giga-projects with a ‘one size fits all’ procurement method. Indeed, mega-projects for the Mecca Metro and the High-Speed Rail obtained special exemptions from the current Law; specifically, in relation to the tendering process, the types of contracts used, and the use of the English language in such contracts.

The new Government Tenders and Procurement Law (“GTPL”) seeks to increase flexibility for government procurement, with a wider range of procurement methods available, such as reverse auctions and competitions, new forms of contracting (e.g. by way of framework agreement), and purchase orders.

Government entities often require more efficient and streamlined procurement for lower-value purchases, particularly for newly established entities wishing to rapidly obtain the equipment and services needed to onboard staff and commence work. The new GTPL provides for direct purchase for procurement of less than SAR100,000, and limited tender for procurement of less than SAR500,000, which provides greater flexibility in this regard, particularly compared to the previous cap of SAR30,000 for low-value procurement that could be purchased without tender.

From a contractor perspective, concerns include limitation of liability issues and the ability to suspend work in the face of delayed payments. While the GTPL does not addresses these concerns specifically,  as a matter of public policy, we note that government entities engaging contractors on large projects of at least SAR100 million now have the authority to enter into arbitration agreements (with arbitration to take place in the KSA), a matter that was previously restricted to cases where the Council of Ministers had expressly granted permission. This development is likely to provide some comfort to contractors from a dispute resolution perspective. The issue that is likely to arise, however, is how the arbitral panel will apply principles of administrative law to a contract, particularly if contractual terms have been included that may conflict with the GTPL.