Methods and Procedures to Form the Government Contracts in Saudi Arabia - Essay Example

Methods and Procedures to Form the Government Contracts in Saudi Arabia and the UNICTRAL Rules.” (A Comparative Study) The paper aims to explain the government contracts in Saudi Arabia, the establishment, and development of the Saudi Government Tenders and Procurement Law. Besides, it researches on the basic ways to form the government contract, as stated in the Government Tenders and Procurement Law. In addition, it will display a brief overview of the most relevant law of the country namely "Government Tenders and Procurement Law of Saudi Arabia." After which it will discuss whether Saudi Arabia complied with the UNICTRAL Model rules as a model for comparison. This paper is based on an international model. It compares it with the Saudi legislation in the government contracting procedures. II-Introduction Government procurement market is one of the largest markets in the world. Countries spend billions of dollars yearly to meet the needs in the various sectors of health, educational and municipal services, communications and technology. Therefore, it is not unforeseen that the issue of government procurement obtains great attention and consideration locally and internationally. Government Contract is an important tool used by the administration to achieve its requirements to ensure that the regularity of the public utilities. In consideration of the importance of government procurement law, many local and international organizations and conventions address government the contracting procedures. One of these agencies is the United Nations through “The United Nations Commission on International Trade Law (UNCITRAL). It is a “Model Law on Procurement of Goods, Constrictions, and Services with Guide to Enactment.” The law empowers countries around the world to reconsider their local laws on government procurement that contains uncertainty, lack of clarity, and lack of transparency. Therefore, when countries are drafting their laws, this model law can guide them. Thus, the UNICTRAL Model Law is a model for comparison between its rules and the Government Tenders and Procurement law of Saudi Arabia, which was enacted by the Royal Decree No. M/58 dated 27 September 2006. The papers scope is limited to clarifying the contracting procedures of the government agency in Saudi Arabia when choosing the contracting party. It relates to the Government Tenders and Procurement Law. The process is applicable in the contracting to purchase items or services, whether the contracting method is sealed bidding, limited tender or the direct purchase method. II- Topic One: Background A- The Emergence and the Organizational Development of Government Contracts in Saudi Arabia Before 1966, Saudi Arabia lacked an integrated law specialized in organizing the contracts entered into by the government agencies for the implementation of its projects. In addition, no relevant laws helped the nation to meet their needs until the released of the " Tenders and Auctions Law " in 1966.1 The application of this law continued until the adoption of UNICTRAL Laws. The law became with its executive regulations the system governing major operations. Specifically, it helped in forming the administrative contracts in Saudi Arabia including procedures, methods for selecting the contractors with the regulatory agencies. It also guided the mechanism of validity and the implementation, and the termination of such contracts for more than three decades.2 Saudi Arabia preferred privatization of tenders. The process entailed a change in the ownership or management of facilities, projects, and public services from the public sector to the private sector depending on the market and competition mechanisms.3 In addition, the practical application of the mechanisms of the "Securing of Government Procurement and Implementation of its Projects and Work Law." Finally, the contracts models issued accordingly proved the inability of this law to keep up with the evolution of the administrative contracts or meet the requirements of its modern approaches.4 Thus, Saudi Arabia needs a new system that would assist in the implementation of the privatization strategy that already adopted.5 Under the urgency of this need, the Saudi Council of Ministers took the decision number (223) /Date 2006 about the issuance of "The Government Tenders and Procurement Law”.6 B- The Most General Features and the Basic Principles in the New Saudi Government Tenders and Procurement Law The new law seeks to achieve the principle of equal opportunities and fair dealing between contractors or competitors. It also aims to protect public money by working to prevent the influence of personal interests on contracts with government agencies. Overall, it seeks to promote fair competition and transparency.7 These can be done through the adoption of a number of procedures in all stages of the competition. Some of which include determining presidency of the Commission that decides the validity of the competition. Finally, the objective is achieved through the prohibition of combining the presidency of the open the tenders and the position of the examination committee or membership of this committee.8 On the other hand, this law allowed the Examination Committee to exclude any offer among the competing offers. Specifically, when the size of the contractual obligations of its owner exceeds his potential technical or financial abilities.9 The law also permits the exclusion of any offer. Mainly, that the idea of the low price in case of whether this offer is less than the government agency estimates or the market prevailing rates of 35% or higher.10 The law allowed the examination committee to recommend not excluding the offer if the resulting financial and technical analysis on the ability of the contractor to implement convinced the committee.11 In addition, its provisions include emphasizing the capacity to grant purchase preference or priority to national products and services.12 C-The Scope of applying the Saudi Government Tenders and Procurement Law. All ministries, government departments, public institutions, and agencies with an independent legal personality are subject to the provisions of this law. It also applies to the international treaties and conventions which Saudi Arabia is a party in it.13 As for the validity of this law in terms of the time, it applies to all business and contracts announced after its entry into force.14 After this review about the emergence and scope of using the Saudi Government Tenders and Procurement Law, I will cover under the following paragraphs the United Nations Commission on International Trade. Notably, “UNCITRAL Model Law on Procurement of Goods, Construction, and services”. III-Topic Two: Body I will cover under this section the government contracting procedures according to the Saudi Government Tenders and Procurement law, and discuss whether Saudi Arabia complied with the UNICTRAL Model as a state member. A. The Contracting Methods: The original ways to form the government contract, as stated in the Government Tenders and Procurement Law, the sealed bidding, the auction, and the direct purchase. In addition, the exceptional ways to contract added by the Executive Regulations in Article (27). a. The Sealed Bidding: The government agency uses this method to implement the public works and construction works. It also entails the transport and other relevant projects. The Sealed Bidding is contracted through the competition by the announcement, submission of the proposals, and then examination the offers. After which, the board decides the winner and the completion of the contract.15 b. The Auction: The government agency uses it for the sale and leasing of real estate and movables of the government. It helps to obtain the largest and highest returns on the assets. Thus, the law requires meeting several conditions in the auction. The most notable requirements are the announcement of the auction, then the submission of the proposals, examination of the offers and selection of the winner.16 c. The Direct Purchase: The law approves that the government agency can use this contracting method in urgent and necessary situations. Furthermore, it offers exemptions in the case of a monopoly for some varieties, due to the requirements of national security.17 The Saudi government Tenders and Procurement law allows the government agencies to use such methods to contract with a private party in order to meet their needs. It also emphasizes sealed bidding as the principal method.18 In other words, the government agencies shall use the auction or direct purchase method only in exceptional cases and when there are urgent reasons to use it.19 Article (6) of the Saudi Government Tenders and Procurement law stated, “All government works, and procurements shall be put up for public tender except those exempted under the provisions of this law.” Therefore, the main reason for making Sealed Bidding an essential method of contracting is the distinctions by this method such as public and transparency in the proceedings and as it provides equality and free competition. Therefore, sealed bidding is the primary method of contracting in Saudi Arabia. Saudi legislator agrees with the UNCITRAL Model Law that also makes sealed bidding is the main way to contract and use the other methods in exception cases that can be used in case of all its conditions present. B. The Announcement of the Sealed Bidding: The announcement is the only means by which the suppliers, contractors, or service providers know and come up with the opportunities that available in the government market.20 Therefore, the objective of the announcement is to expand the scope of the competition between the competitors. In addition, it confirms the principle of transparency in the contracting procedures. Moreover, the announcement helps to achieve the equality between the competitors to participate in contracting procedures and submitting proposals. Hence, this cannot be preserved in a limited number of competitors. The announcement in the Saudi law is mandatory if the government agency decided to contract through the sealed bidding.21 In addition, the announcement has two parts that must be mentioned. The first is the announcement methods, and the second is the information that must be included in the publication. First, Article (7) of the Saudi Government Tenders and Procurement law stated “All government tenders shall be publicized in the Official Gazette, in two local newspaper and by electronic means of advertisement.” In addition, article (10) of the Implementing Regulations of Government Tender and Procurement Law states, “Announcement abroad shall be published in a major newspaper in countries that provide the service. It uses worldwide electronic advertising sites in both English and Arabic. Publication of such announcement may be carried out in collaboration with the Kingdom embassies abroad if crucial.” The above articles emphasize that Saudi legislators added on the announcement abroad through the embassies if necessary. It is not the situation inside the country because the sealed bidding targets are also providing an opportunity for competitors from outside the country to compete. The government agencies are required to leave the announcement remains posted until the deadline for submission of the bids.22 There is no doubt that the aim is to provide an opportunity for a greater number of interested suppliers, contractors, or service providers to view the announcement and know about the procurement. In addition, this illustrates another goal that is the government will be able to get bids with high quality and low prices. Moreover, we can notice that the government provides that the Secretariat of the Council of Chambers of Commerce and Industry should have an electronic copy of the announcement.23 This method will inform competitors about the announced opportunities more efficiently than contact all the government agencies in the country to determine their upcoming sealed bidding. It should be noted that lawmakers allowed the use of the electronic means to announce only on the Council of Chambers of Commerce and Industry website. It does not require the announcement of sealed bidding in the official website of all the government agencies procurements or on the website of the concerned government agency.24 The concept is similar to other countries and regional organizations, and it is easier for competitors to obtain the advertised opportunities equally. Furthermore, the UNCITRAL Model law required that the announcement be in the global language often used in the global trade area, and in a widespread newspaper.25 Saudi Government Procurement Law embodies this even with the announcement process abroad. It required the announcement be in English and Arabic. Furthermore, it allowed for publishing it in the local newspaper of the foreign country. IV-Topic Three: UNCITRAL & WTO’ GPA I will discuss in the following paragraphs UNICTRAL Model, and the WTO GPA what is Saudi Arabia status in it, and explain whether Saudi Arabia complied with the GPA rules. V. Conclusion At the national level, countries expect that their government procurement laws will enable them to fight corruption and protect the public money. In addition, it will be useful in the government procurement law as a tool to support its national programs, whether in industrial, social, environmental or other as encouragement the domestic product or the national competitor. In addition, it helps companies that contribute to achieving the country plans to employ citizens or minorities, or use materials that do not harm the environment. Then, those companies will get its preference in the government procurement market. On the other hand, the international and regional conventions interested in organizing the government procurement law consider as one of the significant obstacles. It hinders the opening of the market, economic integration, and free trade. It uses procurement by many countries as a tool to support the local product or the national competitor. In addition, the critics think it supports the national development programs against a product or foreign competitors. Thus, it works against the economic benefits as previously mentioned. It leads to the closure of large areas of the national market before the free competition by companies and other entities of the member states in the international or regional agreements on economic integration and free trade. Therefore, countries, at the national or the international level should adopt many tools including Non-discrimination between competitors. Locally, this can be obtained by giving all the contractors the same opportunity or treatment, and internationally can be achieved by applying the same national treatment rule on foreign contractors. These rules ensure that no discrimination against goods, services, and contractors from other countries. Moreover, the issuance of procedural rules that organizes the government contracting process that is characterized by simplicity, clarity, and the allowance of free and fair competition. Providing an independent and an impartial judicial body to consider the claims or complaints lodged by contractors against the tender committees for their failure to perform or violation of the laws that are regulating the government procurement. Finally, transparency is one of the essential elements that supports the previously mentioned tools. It encompasses the prohibition of discrimination rules, the procedural rules that organize the government procurement law and provides the right to legitimacy. It also makes them more useful and achievable to the desired goals on either the national or international level. The transparency shows the capability to obtain the information and its clarity. Read More