Removal of kingdom's bidding barriers only first step

13 November 2014

Other hurdles still remain for contractors when entering the Saudi construction market

With a population of 27 million people, Saudi Arabia is rightly the region’s largest construction market. But despite its size, the kingdom remains unknown territory to many of the world’s leading contractors.

That could soon start to change as the government attempts to open up its construction market for foreign firms. The latest move is the introduction of a temporary certificate that will allow firms to bid for government contracts without establishing themselves in the kingdom.

Previously, all firms had to be registered in the kingdom before bidding, and that process could take up to a year, meaning that for strategic projects requiring specialist expertise contractors often do not have enough time to get their registrations in place for the tender.

Whether firms can use the temporary permits to actually secure contracts will be the next test, and it is a big one. The Saudi market is price-driven and clients typically use deals with terms and conditions that contractors often do not feel comfortable signing.

The best example of aggressive pricing by a local player came in 2010, when the two main contracts for the expansion of Jeddah airport were tendered. Local heavyweight Saudi Binladin Group submitted bids that were about 25 per cent lower than the second-lowest prices, beating other bidders that included Turkey’s TAV, South Africa’s Murray & Roberts and Beijing-based China Harbour Engineering Company, and ensured it got the job despite the international competition.

As for terms and conditions, several very large international construction companies have withdrawn from major tenders in the past, notably the Riyadh metro project in early 2013, due to contracts they felt were too one-sided in favour of the client.

As the Saudi market grows and the opportunities become more sizeable, more foreign contractors will be prepared to compete in this environment and try to win work. If they are successful, the challenge will then shift to delivery and overcoming a wide range of bureaucratic and logistical hurdles.

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