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Though it is noteworthy that public procurement is a national
activity, it is keenly gauged by international bodies like World
Bank, World Trade Organization (WTO) that
approximates the contribution of public procurement in GDP up to 10
to 15% signalling public procurement is as significant in
middle-income and poor countries as it is in high-income ones.
Saudi Arabia’s GDP growth is projected to slowdown in 2019 by
0.8% due to cut in oil production and worsening global outlook as
suggested by the International Monetary Fund. The Cabinet has
launched certain policy initiatives aimed to improve the
infrastructure in Saudi Arabia with the goal of diversifying the
economy and boosting foreign investment.
The new law comprises of nearly 99 articles and would replace
the previous legislation on the subject that was in force since
2006. The primary aim of this procurement law is to streamline the
procedure pertaining to tenders and procurements that shall be
followed by the government or public sector entities with
transparency and fairness thereby achieving economic efficiency and
aiding the progress of the country. The new law is also consistent
with the aims and objectives and action agenda as laid down in
Saudi Vision 2030.
To better understand why the new law on public procurement law
is a significant improvement over the previous law, it would be
better to have a bird’s eye view of the old law. The old law on
government tender and procurement law has the following
features:
I. Applicable to all government entities eg.
ministries, departments and public bodies with a corporate
personality.
II. It voids any inconsistent contractual terms
in the execution of government projects such as:
- Restricting any variations that may
spiral contract price by rate of 10% - Imposing a delay penalty of
approximately 10%
III. Ministry of Finance to draft template of
the standard form of contract such as Public Works Contract and
release it after approval from the Council of Ministers.
IV. Any departure from the standard form of
contract can be made only by the government entities but after
exemption granted from Royal Court.
V. The dispute resolution in case of government
project was to be referred to the Board of Grievances that
functions under the Saudi Court.
Therefore, the old government tender and procurement law (the
GTPL) consisted of a stringent legal
obligations pertaining to public tendering and procurement and
rights and duties of contractors appointed for the government
projects.
The new GTPL is progression or advancement over the old GTPL;
the new GTPL has following provisions which makes it distinct from
the previous regime:
I. Pre-Qualification and Post-Qualification Assessment of the
Bidders
The public sector entities can assess the aptness of interested
bidders before even the tender is advertised thereby allows bidders
to present their capabilities and efficacy. Also, if the potential
bidders don’t pre qualify, they would not be invited to
participate to submit the bid for any government tender. Hence, it
would be crucial for the interested bidders to review the legal
policies and documents so as to be fit for the successful
participation in the tender procedure.
Post-qualification assessment shall occur once the best bid for
the tender is selected or shortlisted and before the contract is
awarded. This is provided to assure the public sector entity that
the successful bidder would efficaciously execute the contract
without any issue/controversy at a later stage.
II. Performance Bonds
The new law waives the requirement of performance bond when
there is direct purchase i.e. government to government or not for
profit category of contracts. Also, the preliminary bank guarantee
is waived for the small and medium enterprises (SME) who take part
in the bidding/- tender process, and an undertaking to procure a
guarantee when contract is awarded would suffice.
Moreover, for works under 100,000 Saudi Riyals or contracts of
government-owned entities shall not require performance bonds. The
requirement of performance bond requirements can be adhered with
partial delivery of the goods equivalent to the contract value.
III. Advance Payments
Advance payments could be made while the performance bond is
already lodged.
IV. Dispute Resolution
The new GTPL provides for an option of arbitration as mode of
dispute resolution but after approval on a case-by-case basis.
V. Transparency and Integrity
The new GTPL has one of the objectives of increasing
transparency in government procurement, but more clarity on such
provision shall come when with Implementing Regulations that may
guide as to how to deal with integrity and resolve the conflict of
interest situations.
VI. Reverse E-Bidding
There is introduction of provision of Reverse E-Bidding by
logging onto E-Portal, the bidders may submit lower bids vis-a-vis
to the winning bid that has been selected from the tender
process.
VII. Ideas Contests
This provision shall be applicable for innovative ideas with
respect to virtual, design and creative projects of the government
entities. But the catch is the contract shall be awarded to the
bidder if they compete in ideas contest and prove their ideas as
innovative, cost-effective and with a winning streak.
VIII. Governance
For streamlining the governance of government tendering and
procurement process, a new section is added in the new law which
casts a duty on the Ministry of Finance to design templates,
maintaining E-Portal and ensure transparency. Also, two new bodies
shall assist the Ministry of Finance in its duty to implement GTPL,
viz.:
- Local Content and
Government Procurement Commission (LCGPC): This body
was established by Royal Order in December 2018 and focusses on
facilitating winning of publicly listed companies and SMEs of Saudi
to win contracts. The LCGPC would manage the transfer of technology
for Saudi firms from foreign companies. - The Unified Procurement
Competent Entity (UPCE): This body shall develop
framework agreements to be adopted by public entities in order to
reduce cost, maintain uniformity and deter duplication. The UPCE
shall release a list of projects that could be procured under such
framework agreements.
IX. Future Planning and Budgeting
The GTPL require government entities to undertake pre-RFP to
plan expenditure at commencement of each financial year. Therefore,
a tender shall be decided to be cancelled in case all bids are
higher than the approved budget of the government entity. But for
guidance and transparency, the government companies need to publish
their procurement plans at the beginning of each fiscal year.
X. Delegations and Powers
The new GTPL gives responsibility to the head of the government
body with regards to procurements. Hence, the head of the
government entity can approve tenders below 10 million Saudi
Riyals. Also, can cancel a tender or terminate the contract up to
earlier mentioned value.
Having discussed salient features of the new law above, though
the law is a progression in line with the international standards
as suggested by World Bank, World Trade Organization and other
bodies yet the provisions may have an uneven impact on the bidders.
As pre-bidding evaluation and scrutiny shall be conducted and in
case the bidder is not found appropriate and the result become
public, this may impact the reputation of the firm anywhere else in
the market. But what happens more to the new GTPL remains to be
seen as to clarity and elaboration that the subsequent Implementing
Regulations shall reveal. But one thing is for sure, that as Saudi
Arabia will chair the G-20 in 2020 which is a group 20 most
advanced economies in the world, such policy measure shall increase
its global profile to stimulate progress in the realm of structural
reforms.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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