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Proposed updates to GTPL will benefit Saudi's construction sector

Haroon Niazi, partner in the Middle East at HKA, explains how proposed changes to Government Tenders and Procurement Law will impact procurement in the kingdom

Haroon Niazi, HKA.
Haroon Niazi, HKA.

Haroon Niazi, partner in the Middle East at construction, manufacturing and technology consultancy HKA, explains how proposed changes to Saudi Arabia’s Government Tenders and Procurement Law will impact procurement in the kingdom.

Saudi Arabia’s government plans to amend the Government Tenders and Procurement Law (GTPL), which was issued by royal decree over 10 years ago. 

Last year, the Ministry of Finance issued its first draft of changes to the GTPL, and invited comments from interested parties and the public. 

The purpose of the changes is to improve the government’s procurement process.Taking into consideration the underlying principles of Vision 2030, the proposed changes introduce more rigor to the procurement process. The aim is to ensure a robust process is in place throughout the procurement life cycle that is both transparent and sufficient to meet the objectives of the procuring entity.

Public procurement unit

Firstly, under the proposed changes to the GTPL, a strategic procurement unit will be created. The powers of this unit remain unclear, but the current drafting suggests that they will be wide-ranging. It appears that the unit will work closely with the various government entities seeking to tender new projects, and help these entities identify their requirements. 

It is clear that one of the underlying aims of the unit will be to prevent unnecessary – or perhaps, projects of lesser public importance – from going out to tender. This is in line with the strategic spending envisaged in the current budget and Vision 2030. For certain projects, the unit will actually be responsible for the public tender, and will take a leading role in evaluating tenders, as well as supporting government entities during the negotiation process. 

The unit will aim to unify the approaches taken by different government entities. In this regard, the unit will also take responsibility for ensuring the technical documents comprising the tender are sufficient for the project. 

The strategic objectives that have been set for this unit are admirable, as one of the primary challenges with projects tendered in the kingdom has often been with respect to supporting technical documents. Over the years, I have come across a number technical documents for projects that would have benefitted from further development. For example, the project may have been tendered with an incomplete design, there might have been inadequate ground surveys and reports, or the contract conditions may not have been properly developed and coordinated or were ambiguous. 

Issues of this type usually lead to myriad problems during the execution phase. It is presumed that the new unit will assist in resolving such problems.

Clearly, the unit will have a challenging role, and it will be interesting to witness the development of the relationship between the unit and various government entities.

Contractor selection

The draft law confirms that the Bid Examination Committee has the power to correct bids and estimate prices. The rules for this are to be set out in the Implementing Regulations document, which will accompany the new law. As yet, the details of the Implementing Regulations have not been issued, so it is not possible to determine how some of the provisions will actually take effect. 

GTPL has always allowed for the procuring entity to evaluate bids without necessarily appointing the lowest bidder. However, generally speaking, experience shows that the procuring entity has, more often than not, selected the 
lowest bidder. 

HKA has witnessed contractors being appointed when their bids were as much as 40% lower than the next bidding contractor. This is not necessarily the right decision for the project, and some projects have failed for this very issue. 

It appears that under the proposed changes, the procuring entity and the unit will increase the level of scrutiny in comparison to current practice.

Dispute resolution

Article 95 of the new law introduces arbitration as a valid dispute resolution forum for government disputes. This is a significant and welcome change for the kingdom, where previously, a dispute in relation to a government project could only be resolved through litigation in the Board of Grievances. 

With fairly new arbitration laws in place, it is envisaged that parties will look to arbitration as a viable option to 
resolve disputes. 

The new law will apply to all entities in which the state owns 51% of the contracting entity. This is an important change, and is likely to have a significant impact. 

Previously, GTPL was not applicable to projects procured by the likes of Saudi Aramco, SABIC, and the Public Investment Fund. However, with the change now in place, it is likely that the law will apply to this type of company, in addition to a number of companies being created as part of the country’s National  Transformation Program. 

A significant change that is proposed includes increasing the delay penalty from the current maximum amount of 10–20% of the contract sum. This change will introduce further risk for the private sector bidder. 

For new contracts, it is likely to lead to an increase in tender pricing, as contractors attempt to mitigate delay risk by pricing the penalty as part of their tender. It is not clear how the change will affect contracts currently in place with the 10% penalty. 

Further impact

From an administrative perspective, there will be a greater onus on contractors to ensure they have robust record-keeping procedures in place, to ensure they are able to substantiate any entitlement they may have to an extension of time.

The law does not contain provisions in relation to public-private partnership (PPP) provisions. A number of projects are currently being evaluated for procurement on this basis, and it is envisaged that laws relating to PPP projects will be released later this year. 

Overall, I would say that there are some welcome changes proposed as part of the new law. However, a number of provisions that have always caused challenges – such as the 10% additional work limitation – remain unchanged. This limitation will certainly have a significant impact on some of the complex oil and gas projects procured in the kingdom. 

Without seeing the detail within the Implementing Regulations, the real impact of the proposed changes remains unclear. It is important, however, that those affected by the law promptly participate in the consultation process.  

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