President Xi Jinping’s state visit to Saudi Arabia in December 2022, attending the first China-Arab States Summit and the first China-Gulf Co-operation Council Summit, laid the groundwork for enhancing China’s influence in Saudi Arabia. Soon afterwards, on 10 March 2023, China promoted Saudi Arabia and Iran’s restoration of diplomatic relations. Numerous other recent events underline China’s growing diplomatic, trade and other multi-faceted relationships with Saudi Arabia and the Arab world.
Since Saudi Arabia introduced its “Vision 2030” in 2016, the country has strongly supported government-led investment projects, such as the NEOM mega-city project with total investment of up to USD500 billion. Within these opportunities, Chinese companies have great potential.
To assist Chinese enterprises more effectively participate in Saudi government-led investment projects, this article provides an overview of the tendering and procurement framework, highlighting key considerations under the Saudi Government Tendering and Procurement Law and associated regulations.
LEGAL FRAMEWORK
Senior Counsel
Zhong Lun Law Firm
The Saudi government legal framework applying to procurements conducted by government entities falls under the Government Tendering and Procurement Law and its implementing regulations.
The first article of the law defines government entities as ministries, government institutions, government agencies, public bodies and institutions with legal personality of public corporate status. Apart from this law, certain government agencies such as the General Authority for Military Industries (GAMI) may have their own procurement rules. It is worth mentioning that, in practice, some Saudi state-owned enterprises may also refer to these above-mentioned rules.
The Ministry of Finance has established a unified electronic portal for government procurement activities. Unless there are technical or national security concerns, all relevant procedures for government tendering and procurement should be publicly announced on the portal.
SPECIAL PROCUREMENTS
According to the provisions of the Government Tendering and Procurement Law and its implementing regulations, all government procurement should be conducted through open tender.
However, there are exceptions to this general process, as follows:
LIMITED TENDER
This applies:
- Where there are only a limited number of capable suppliers for the project;
- Where the estimated project amount does not exceed SAR500,000 (USD133,323) and the maximum number of invited bidders (not less than five) prioritises local small and medium-sized enterprises;
- For emergency projects;
- For projects and procurements that can be provided and implemented by non-profit organisations; and
- For consulting services.
TWO-STAGE TENDER
This involves the first stage of soliciting technical advice and determining technical standards, followed by the second stage of preparing tender documents based on the final technical solution. It applies to complex matters where it is not possible to determine technical specifications or final contract terms at an early stage.
DIRECT PURCHASE
This applies for the following cases:
- Where the project can only be provided by a single supplier;
- For procurement of weapons and military equipment through the GAMI;
- Where the estimated project amount does not exceed SAR100,000 and, in limited cases, local small and medium-sized enterprises are considered;
- When public tender is not feasible to protect national interests; and
- Where the project can only be provided and implemented by a non-governmental or non-profit organisation.
ELECTRONIC REVERSE AUCTION
Bidders submit successively lower bids within a specified period, and the purchasing party uses the electronic portal to automatically evaluate the bids until the winning bidder is determined.
KEY RULES FOR TENDERING
Associate
Zhong Lun Law Firm
- Bid and performance bonds. Except for direct procurement and competitive bidding, other bidders must submit a bid bond equivalent to 1% to 2% of the tender price, failing which the bid is deemed invalid. The successful bidder must provide a performance bond within 15 days of being awarded the contract and sign the contract thereafter.
- Contract subcontracting. Subcontracting contracts by suppliers require prior written consent from the government procurement party, and subcontractors are not allowed to further subcontract. The total value of subcontracted works and procurements should not exceed 30% of the contract amount. In exceptional cases with prior approval from the supervisory authority, suppliers can subcontract works totalling 30% to 50% of the contract amount, but such works must be subcontracted to two or more subcontractors.
- Contract amount. Unless approved by the Ministry of Finance, contracts should be denominated in Saudi riyals as the payment currency. Contracts should be based on a fixed price, and the contract amount cannot be modified unless:
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- There are changes in the official basic materials or service prices within the scope of the bid;
- Customs duties, fees or other taxes are adjusted; and
- Unforeseen circumstances or financial difficulties beyond the contractor’s control occur.
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- Insurance. The government procurement party may stipulate different insurance requirements for each project. Generally, contractors are required to obtain insurance in their own name and in the name of the relevant government procurement party for the entire duration of the contract. Insurance companies must waive all subrogation rights against the project owner.
- Contract language. All contract documents require the use of Arabic. If there are translations in other languages, the Arabic original text shall prevail.
Saudi Arabia has become China’s comprehensive strategic partner in the Middle East. From 2005 to 2020, China’s total investment in 17 Arab countries amounted to USD196.9 billion, with Saudi Arabia accounting for more than 20%, making it the Arab country that received the most Chinese investment during this period.
As Chinese companies intensify their efforts to tap into the Saudi market, it is crucial to study and utilise the local legal regulations. Due to space limitations, this article provides only a general overview of Saudi Arabia’s government procurement and tendering legal framework. The Government Tendering and Procurement Law and its implementing regulations contain numerous detailed and important requirements that Chinese companies should further explore with the assistance of legal professionals.
Wang Jihong is a senior counsel and Xu Yibai is an associate at Zhong Lun Law Firm
22-31/F, South Tower of CP Center
20 Jin He East Avenue
Beijing 100020, China
Tel: +86 10 5957 2288
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