Saudi Government Tenders: Suggestions for Foreign Contractors

Are you a foreign contractor considering participating in government tenders in Saudi Arabia?

Engaging in public procurement in the Kingdom of Saudi Arabia offers a wealth of opportunities, but it also comes with specific regulatory requirements that you need to be aware of. Navigating the legal framework effectively can be the key to getting government contracts.

For the purpose of this note, we will make reference to the Government Tenders and Procurement Law (the “GTPL”) issued with Royal Decree no. M/128 and to the Executive Regulations of the Government Tenders and Procurement Law (the “Executive Regulations”) issued with Ministerial Decree no. 1242)

1. Required Documentation: What You Need Before Submitting Your Bid

Article 13 of the Executive Regulations provides that in order to perform procurements or works with the Saudi Government Authority, the following documents are required:

• Commercial Register or Legal License. As a foreign contractor, you may not always be required to register with the Saudi commercial register. If you’re providing services from outside the Kingdom, you can bypass this requirement. However, if you’re performing the work within Saudi Arabia, you’ll likely need to register with the Saudi Ministry of Commerce. This is particularly true if the nature of the work demands an established local presence, such as in construction or large-scale service delivery.
• Zakat and Tax Certificates. Foreign companies not physically based in Saudi Arabia typically don’t need to pay Zakat. However, if you establish a branch or subsidiary in the Kingdom or your company generates revenue from within Saudi borders, you’ll be subject to taxation. In this case, you’ll need a certificate showing compliance with Saudi tax regulations. Always check your tax obligations depending on your business structure.
• GOSI Registration. The General Organization for Social Insurance (GOSI) registration is only required if you’re employing staff within Saudi Arabia. If your operations are remote or handled via subcontractors, this might not apply to you. However, if you’re planning on setting up shop locally, be prepared to register with GOSI and fulfill your insurance obligations. It is important to note that the registration of employees with GOSI is only for Saudi employees while the registration of non-Saudi employees is strictly restricted to the branch of Occupational Hazards.
• Chamber of Commerce Membership. Foreign contractors typically don’t need to join the Saudi Chamber of Commerce unless you’re setting up a local entity within the Kingdom. If your business operates on the ground in Saudi Arabia, you’ll need to obtain this membership to bid on government projects.
• Other Memberships. Depending on the nature of the project, you may also need to be a member of specialized organizations like the Saudi Contractors Authority (for construction) or the Saudi Council of Engineers (for engineering projects). These memberships are usually required for foreign contractors planning to execute projects locally.
• Saudization Compliance. One important requirement is compliance with Saudi Arabia’s Saudization policy, which provides that a percentage of your workforce must be Saudi nationals. While this is more pertinent to contractors with a physical presence in the Kingdom, it’s essential to be aware of this requirement when structuring your workforce.
• Any Other Specific Documents. Depending on the nature of the project, you may be asked for additional documents. For example, a certification related to your business’s environmental compliance might be requested for an eco-sensitive project or an ISO certificate for a construction project.

2. Pre-Qualification and Post-Qualification: When and How You Need to Qualify

Article 18 of the GTPL and Article 15 and following of the Executive Regulations provide for two different procedures to qualify as bidder. Both aim at ensuring that only competent and financially capable bidders are invited to submit bids.

• Pre-Qualification for Large Projects: For high-cost projects exceeding SAR 50 million or complex contracts, the government authority may invite contractors to participate in a pre-qualification process. This step is intended to vet bidders before the formal bidding process begins. As a foreign contractor, you’ll need to showcase your financial stability, technical expertise, and experience in handling similar projects. The pre-qualification process also considers your current workload and the number of current contractual obligations.
• Post-Qualification: If a project doesn’t require pre-qualification, the government authority will conduct a post-qualification process after bids are submitted. This ensures that the winning bidder is still capable of fulfilling the contract. For foreign contractors, this means demonstrating that your qualifications, financial status, and ability to deliver the project have not changed since submitting the bid.
• Qualification Validity: One thing to note is that qualification is valid for one year. If you’ve already been qualified for a similar project within the past 12 months, the government may skip the re-qualification process. However, if more than a year has passed, you’ll need to re-qualify to prove your continued eligibility.
  
  

3. Evaluation Criteria: What the Government is Looking For

Pursuant to Article 20 of the GTPL, Article 17 of the Executive Regulations provides the criteria that the Government Authority will use to assess whether contractors are capable of delivering on their obligations. These criteria are as follows:

• Financial Capabilities: The bidder must have adequate capital and liquidity to fund operations, manage cash flow, and cover contingencies.
• Administrative and Technical Capabilities: The Government Authority will need to see that the bidders have qualified personnel, a strong management team, and adequate resources to complete the work on time and to a high standard.
• Experience and Track Record: the bidders past performance plays a crucial role in the qualification process. Make sure to highlight successful projects similar to the one you’re bidding on, especially in the Middle East or other challenging environments.
• Ongoing Obligations: The government will assess how many projects the bidders are currently managing to ensure that they have the capacity to take on additional work without compromising quality.

Here are some practical steps to help you navigate the Saudi tendering process:

• Understand Local Regulations: While foreign contractors may be exempt from some local requirements (such as Zakat and GOSI registration), it is essential to stay informed about Saudi laws. Partnering with a local advisor who understands the intricacies of Saudi procurement laws can be invaluable.
• Build Local Partnerships: Partnering with a Saudi-based company can streamline the process, especially for projects that require a local presence. A local partner can help with registration, documentation, and compliance with Saudization policies.
• Prepare Comprehensive Documentation: Ensure that all your documents are updated and meet the government’s requirements before submitting your bid. Missing paperwork could disqualify you from the bidding process, so double-check everything before submission.
• Engage Early in Pre-Qualification: For larger projects, get involved in the pre-qualification process as early as possible. This will give you a better understanding of the project’s demands and allow you to demonstrate your capabilities upfront.
• Stay Updated on Qualifications: If you’ve been pre-qualified for similar projects, make sure you keep track of when your qualification expires. Reapplying ahead of time ensures you don’t miss out on bidding opportunities.

5. Conclusion

Participating in government tenders in Saudi Arabia can be a great opportunity for foreign contractors, but understanding the legal requirements and preparing thoroughly are essential. From registration with the Saudi commercial register to ensuring compliance with local laws, being well-informed can help you navigate the process smoothly.