The Council of Ministers of Saudi Arabia adopted a resolution dated 03/06/1444H (corresponding to 27 December 2022G) clarifying the consequences in terms of eligibility to compete for government contracts for companies that fail to locate their Regional Headquarters (“RHQ“) in Saudi Arabia. This clarification has been anticipated for some time, since the Kingdom first announced at the end of 2020 that multinationals wishing to continue contracting with the government would need to locate their RHQs in the Kingdom by 2024.
The new resolution establishes various controls (“Controls”) applicable to government contracting with certain companies that do not have an RHQ located in Saudi Arabia (“In-Scope Companies”) and/or with parties related to them (“Related Parties”). The Controls are expected to come into force as of 19/06/1445H (corresponding to 1 January 2024G). Following the Saudi Government’s efforts to encourage multinationals operating in the Middle East and North Africa region to set up an RHQ in Saudi Arabia, the Controls are a long-awaited official clarification as to the possible implications of not doing so.
Overview and Scope of Application
Generally, the Controls have the effect of restricting Government Authorities (as defined below), whether subject to the Government Tenders and Procurement Law or not, from contracting with In-Scope Companies or Related Parties with respect to the procurement of goods or provision of services, as detailed below.
Government Authorities
The Controls impose restrictions specifically on “Government Authorities”, which term is defined to include Saudi Government ministries, authorities, agencies, commissions, establishments, and independent agencies with public legal personalities. The term does not appear to include companies owned in whole or in part by the Saudi Government.
In-Scope Companies
The Controls restrict Government Authorities from contracting with In-Scope Companies, which term is defined as multinational entities that have an RHQ in the Middle East and North Africa region, but not in Saudi Arabia, and that are expressly listed in a register (“Register”) that will be periodically updated and published on Etimad, the unified electronic portal for Saudi government procurement.
Related Parties
The Controls also restrict Government Authorities from contracting with any Related Parties, which term is defined as any agent of In-Scope Companies, or any distributor, supplier, or provider of their goods or services in relation thereto.
Restrictions under the Controls
The restrictions introduced by the Controls apply to Government Authority public tenders, limited tenders, and direct contracting. Generally, Government Authorities may contract with an In-Scope Company or Related Party only if certain criteria are met, in emergency situations, or if there is no alternative for the required good or service. For example, in public tenders, an In-Scope Company or Related Party may only be selected if it submitted the only acceptable technical bid or, if there are more than one, its financial bid is significantly below that of the second-best financial bid.
Exclusions
The Controls do not apply to dealings or procurements by a Government Authority with a cost not exceeding SAR 1 million (which threshold may be amended from time to time) or business or purchases carried out outside of Saudi Arabia.
Reporting obligations
Government Authorities that contract with any In-Scope Company or Related Party will be required to submit a report to the Court of Audit and the Expenditure and Project Efficiency Authority (EXPRO) signing the relevant contract, which must include a rationale for concluding the transaction.
Exemption Committee
The Controls also establish the Exemption Committee that will be empowered to review and approve requests submitted by Government Authorities to exempt In-Scope Companies and Related Parties from the Controls. The Exemption Committee may approve or reject a request in a manner consistent with public interest. A Government Authority may appeal a decision of the Exemption Committee before the Minister of Finance, who may issue a final and binding decision regarding the appeal.
