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1. What has happened so far?

2. What are the Controls under the Resolution?

The Resolution establishes various controls (“Controls”) applicable to government agencies contracting with companies having RHQ located outside Saudi Arabia (“In-Scope Companies”) and/or with parties related to them (“Related Parties”).

Following the Government’s efforts to encourage multinational companies operating in the MENA region to set up an RHQ in Saudi Arabia, the Controls act as an official statement of the implications in case of incompliance.

From a legal perspective, the Controls effectively restrict Government Authorities, whether subject to the Government Tenders and Procurement Law or not, from contracting with In-Scope Companies or Related Parties for the procurement of goods or provision of services.

The Controls impose specific restrictions on “Government Authorities” comprehending Saudi Government ministries, authorities, agencies, commissions, establishments, and independent agencies with public legal personalities. It is important to note that the term does not appear to include companies owned entirely or partially by the Saudi Government.

The restrictions introduced by the Controls apply to Government Authority in regard to:

• public tenders,
• limited tenders, and
• direct contracting.

3. How are In-Scope Companies and Related Parties defined?

The Controls impose restrictions on Government Authorities from contracting with In-Scope Companies, which refers to multinational entities that have an RHQ in the MENA region but not in Saudi Arabia. These companies are expressly listed in a register (“Register”) that will be periodically updated and published on Etimad, the unified electronic portal for Saudi government procurement.

Furthermore, the Controls prohibit Government Authorities from contracting with any Related Parties, referring to any agent of In-Scope Companies or any distributor, supplier, or provider of their goods or services in relation thereto.

4. Are there any exclusions or exemptions?

a. Exclusion – Threshold Value

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.

b. Exemptions

From a legal perspective, Government Authorities are only permitted to contract with an In-Scope Company or Related Party 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 various, its financial bid is significantly below that of the second-best financial bid.

Moreover, the reporting obligations require Government Authorities that contract with any In-Scope Company or Related Party to submit a report to the Court of Audit and the Expenditure and Project Efficiency Authority (EXPRO) at the time of signing the contract, which must include a rationale for the transaction. These reporting obligations are intended to ensure transparency and accountability in government contracting.

c. Exemption Committee

The Controls also establish the Exemption Committee, which is empowered to review and approve requests submitted by Government Authorities to exempt In-Scope Companies and Related Parties from the Controls. The Exemption Committee has the discretion to approve or reject a request in a manner consistent with the public interest.

It is important to note that Government Authorities may appeal a decision of the Exemption Committee before the Minister of Finance, who may issue a final and binding decision regarding the appeal.

5. Conclusion & Outlook

Multinational companies that wish to continue contracting with the Saudi government must ensure compliance with the new Controls, which will come into effect on 1 January 2024. This includes establishing an RHQ in Saudi Arabia and adhering to the reporting and exemption requirements. Failure to comply may result in ineligibility to compete for government contracts in Saudi Arabia.

It is important to note that the Resolution’s scope is broad since it also covers Related Parties, such as agents, distributors, and suppliers.

The Register maintained on the Etimad portal will serve as a de-facto “blacklist” and it is unclear at this time how the information for the Register will be obtained. In the case of self-declaration, companies should expect on-site verifications in the most common Regional Headquarter locations in the Middle East, namely in Dubai and Abu Dhabi.