Modernising public procurement in KSA
Chris Edwards, Mohammed Alammar and Juri Alghamdi of Reed Smith explain how the Kingdom’s new Government Tenders and Procurement Law speeds up decision-making, levels the playing field and gives contractors new protections.
For contractors who have waited weeks for a ministry sign-off, or months for payment, Saudi Arabia’s new procurement law offers something rare: structural change. In August 2026, the Kingdom issued a new Government Tenders and Procurement Law under Royal Decree No. M/76, replacing the 1440H regime that had governed public contracting since 2019. It is the most significant overhaul of the Kingdom’s procurement system in recent memory, and it sends a clear signal that Saudi Arabia is serious about building a faster, fairer and more transparent marketplace for government contracts.
The reforms are squarely aligned with Vision 2030’s objectives of economic diversification, private sector empowerment and institutional modernisation. For businesses already operating in the Kingdom, and those considering entry, the changes are worth understanding.
FASTER DECISION-MAKING AND GREATER DELEGATION
One of the most impactful reforms is the expansion of internal delegation. The head of a government entity may now delegate decision-making authority to officials within that entity for matters of up to SAR50 million, five times the previous SAR10 million limit. Heads of entities may also delegate the signing of contracts. In practice, far more procurement decisions can now be taken below the top of each organisation, without waiting for the minister or board to act.
Equally significant is the reduction in the Ministry of Finance’s contract review period, which has been cut from 15 working days to just four. If the Ministry does not respond within that window, the contract is deemed approved. Taken together, these changes mark a deliberate shift away from centralised bottlenecks towards a model of empowered execution.
For contractors and suppliers, the practical implication is straightforward: procurement cycles should become materially shorter, and the administrative drag that has historically slowed project timelines should ease considerably.
LOWER BARRIERS TO ENTRY AND FLEXIBLE CONTRACTING
The new law also lowers the barriers to market participation, particularly for small and medium-sized enterprises. The direct purchase threshold has been raised tenfold, from SAR100,000 to SAR1 million, and local SMEs are given priority when that route is used.
Alongside this, direct purchase now covers a wider range of categories, including research, development and innovation, software licences and electronic subscriptions, specialist scientific journals, exhibition and conference space, government staff training, and services available from freelance professionals. These reflect what modern governments actually buy, much of which does not lend itself to traditional tendering. This flexibility is not unbounded. Entities must explain and document their reasons for using direct purchase, consistent with competition principles and spending efficiency.
The change order regime has also been liberalised. Entities may add new items of up to 10 per cent and increase existing items by up to 20 per cent, within an overall 20 per cent cap, with the contractor’s consent required for new items and for increases above 10 per cent. Non-financial terms may also be amended by agreement. Both sides gain flexibility, while contractors remain protected from open-ended unilateral changes.
Security requirements have also been eased where guarantees would be disproportionate, including for freelance professionals and emergency or urgent procurements.
LEVELLING THE PLAYING FIELD FOR SOES AND THE PRIVATE SECTOR
The most striking change from a competition standpoint is the abolition of the performance bond exemption that previously applied to companies that are 51 per cent or more state-owned. Under the old regime, state-owned enterprises, including entities affiliated with the Public Investment Fund, enjoyed a significant structural advantage in the bidding process by virtue of being excused from posting performance guarantees.
That exemption is now gone. In most cases, SOEs bidding for government contracts will compete on the same footing as private contractors, posting the same performance bonds. This is a powerful signal of the Kingdom’s commitment to competitive neutrality. It is worth stressing that the change affects SOEs as bidders for government work. When they procure for their own account, state-owned companies generally remain outside the law, which applies to ministries, public authorities and other government entities rather than to companies. Some caution is also warranted: the decree preserves existing exemptions, including those granted to the Public Investment Fund and the Saudi Central Bank, and the position of PIF portfolio companies will become clearer once the implementing regulations are issued.
Article 95 also clarifies the position of companies acting for government. Those that carry out works and procurement on behalf of government entities must apply the law, and may be exempted only from specific provisions identified in the implementing regulations. Separately, the threshold below which no performance guarantee is required has risen from SAR100,000 to SAR300,000, easing the burden on lower-value contracts.
ENHANCED TRANSPARENCY AND BIDDER PROTECTIONS
Transparency has been a central theme of the reform effort, and the new law delivers on several fronts. The previous dual-committee structure, which separated bid opening from bid examination, has been consolidated into a single Bid Opening and Examination Committee. This streamlining should reduce procedural complexity and provide bidders with a more coherent and accountable review process.
In the interests of speed, the standstill period, during which unsuccessful bidders may challenge an award, has been cut from a minimum of five working days to three, and may be dispensed with in cases set out in the implementing regulations. Even so, a formal standstill period remains, preserving bidders’ right to challenge an award.
Limited competition has also been tightened. The new law removes the ground that allowed it whenever the estimated value was SAR500,000 or less, and entities must now explain why an open tender is unsuitable. That restores open tendering as the default, while a new route for freelance professionals recognises how specialist services are bought.
A further notable protection for bidders is a new chapter requiring government entities to respond to bidder inquiries before the submission deadline. This codification of a right to information addresses a longstanding concern among contractors and should contribute to better-informed, higher-quality bids.
Procedural certainty has improved too. Bid validity is now measured as 90 working days rather than 90 calendar days, with clearer rules for extending it, giving both entities and bidders a more predictable evaluation timetable.
FAIRER TERMS FOR CONTRACTORS
Perhaps the most welcome reform for contractors concerns late payment. Where a government entity has unpaid dues to its contractors and fails to act after being notified by the Ministry of Finance, it may not issue new contract awards. Tying an entity’s ability to procure to its payment record is a practical incentive to pay on time.
Contractors will also welcome a gentler penalty regime. The cap on delay penalties for contracts other than supply contracts falls from 20 per cent to 15 per cent of contract value, and the cap on default penalties for continuous-performance service contracts falls by the same margin. Accountability still has teeth, but penalties no longer threaten to wipe out a project’s margins.
There is more pragmatism at the award stage, too. Where the best bid exceeds the estimated cost plus contingency, the committee may now negotiate with the bidder rather than cancelling the tender. Government entities may also transfer contracts to one another, giving contractors more continuity when responsibilities move between entities.
The framework also preserves meaningful routes for resolving disputes. Government entities may, with the approval of the Minister of Finance, agree to arbitration for disputes arising from their contracts, and the implementing regulations will set out other dispute resolution mechanisms for issues that arise during performance. Contractors also retain the right to seek compensation before the competent court if a government entity fails to perform its contractual obligations. For international contractors in particular, a credible path to arbitration is an important factor when pricing risk on Saudi government work.
INNOVATION AND LOCAL CONTENT
Looking further ahead, the law creates a dedicated regulatory track for research, development and innovation procurement. This is a significant development for the Kingdom’s growing technology ecosystem, giving government entities a formal pathway to buy innovative solutions that may not fit neatly within traditional procurement categories.
Complementing this, the law requires coordination with the Local Content and Government Procurement Authority (LCGPA) at the planning stage of procurement, reinforcing the Kingdom’s local content and industrial localisation agenda. Local content is embedded from the outset rather than treated as an afterthought.
LOOKING AHEAD
Saudi Arabia’s new Government Tenders and Procurement Law is more than a technical update. It is a statement of intent: the Kingdom’s public procurement regime will be modern, efficient, transparent and fair.
The law enters into force 120 days after publication in the Official Gazette, and the implementing regulations are due within the same period. Much will turn on those regulations, particularly on the Article 95 exemptions, the new research and innovation track and framework agreements. Tenders launched under the old law will generally continue to be governed by it, although the Minister of Finance may apply some of the new provisions to them.
In the meantime, businesses should review live tenders against the transitional rules, track the regulations as they are issued, and, for SOEs, prepare for bonding requirements that previously did not apply to them when bidding for government contracts.
The direction of travel is unmistakable. Saudi Arabia is building a procurement system designed to be faster, fairer and more commercially sophisticated, one that matches the scale and ambition of the Kingdom’s economic transformation.
Text by:
- Chris Edwards, counsel, Reed Smith
- Mohammed Alammar, partner, Reed Smith
- Juri Alghamdi, intern, Reed Smith
