If your establishment supplies goods to Saudi government entities, three rules decide whether your bid is accepted, how it is compared with competitors, and what you must prove after delivery: the Mandatory List of National Products, the price preference for national products, and the national product share you commit to in your bid. All three are set out in the Regulations for Preference of Local Content, Local SMEs and Listed Companies in Works and Procurement (Council of Ministers Resolution No. 245 dated 29/3/1441H), and they are separate from the local content weighting mechanism that governs works and services contracts. This guide explains each rule from its text, with a worked example of the adjusted-value formula and what a supplier must evidence in the final report.
1. Three definitions that govern everything (Article 1)
- National product: any product produced in the Kingdom, including extractive, agricultural, animal and industrial products, whether in primary form or at any later stage of assembly, processing or manufacturing.
- Mandatory List: a list of national products issued and periodically updated by the Authority, which sets the criteria for inclusion and exemption in agreement with the Expenditure Efficiency Center and in coordination with the Ministry of Industry and Mineral Resources, the Saudi Standards Organization and the Federation of Saudi Chambers (Article 8).
- National product share: the value of national products the bidder undertakes to supply as a percentage of the total bid value, excluding products on the Mandatory List.
2. The Mandatory List: a condition of acceptance, not an evaluation advantage
Article 4 obliges the government entity to comply with the Mandatory List when tendering its works and procurement. The effect on the supplier is direct under Article 9: in supply tenders and mixed tenders, a bid that does not comply with the Mandatory List is excluded, and where the tender is divisible only the non-compliant items are excluded. During execution the entity monitors compliance and does not accept delivered products that contravene the List, except where the contractor has obtained an exemption. The first step before pricing any supply item is therefore to match it against the current Mandatory List on the Authority’s website and identify its national source.
3. Price preference for national products and the adjusted-value formula
For national products not on the Mandatory List, the price preference mechanism applies to all contracts: the national product is preferred by assuming the foreign product’s price is 10% higher than stated in the bid documents, and the percentage may be increased by agreement between the Authority and the Center if stated in the tender documents (Article 10). In supply tenders the entity compares the bidders’ national product shares, and the financial evaluation is based on the adjusted value (Article 11):
Adjusted bid value = bid price + 10% × bid price × (1 − national product share)
Where a tender includes both Mandatory List products and others, the formula is applied to the value of the non-listed products only, and the value of the listed products is then added to the adjusted value. The bidder must state in the bill of quantities whether each product is national or foreign; otherwise the products are deemed foreign.
A worked example
| Supplier X | Supplier Y | |
|---|---|---|
| Bid price | SAR 1,000,000 | SAR 960,000 |
| National product share | 80% | 10% |
| Adjustment | 10% × 1,000,000 × (1 − 0.80) = 20,000 | 10% × 960,000 × (1 − 0.10) = 86,400 |
| Adjusted value | SAR 1,020,000 | SAR 1,046,400 |
Supplier X ranks ahead in the financial evaluation despite a price SAR 40,000 higher, because its national product share is higher. Had X left the origin column blank in the bill of quantities, its products would be deemed foreign and its adjusted value would be SAR 1,100,000.
4. Obligations after award and the final report
- The contractor must give preference to national products when buying the materials and tools it needs for the contract, using the same formula (Article 12).
- In supply contracts the contractor provides the government entity with a final report within 30 days of contract end evidencing that the products are national, per the Authority’s instructions; the entity reviews the actual national product share within 10 working days, failing which it is deemed approved, and sends a copy to the Authority (Article 13).
- Penalties: up to 10% of the supply contract value for failing to meet the national product share (Article 29), and up to 10% of the value of the item concerned for breaching the preference for national products in contract purchases (Article 30), within an overall ceiling of 20% of the contract value (Article 34).
- Referral to the violations committee: where the gap between the national product share in the bid and the actual share exceeds 50%, the contractor is referred for consideration of a ban on dealing with government entities or a downgrade of its classification (Article 37).
5. What proves that a product is national?
The Regulations refer proof to the Authority’s instructions, but the file that convinces the government entity and the Authority is built before delivery, not after. From our work with suppliers, this is what it should contain for each item:
| Element | What is documented | Why |
|---|---|---|
| National source | The name of the factory or producer inside the Kingdom and its industrial licence or register, and the item number on the Mandatory List where listed | To establish “national product” status under the Article 1 definition |
| Supply chain | Purchase invoices from the national factory or its distributor, linked to bill-of-quantities items and batch or lot numbers | To trace every delivered unit to its source |
| The supplier’s Local Content Certificate | The approved local content percentage of the factory or supplier and its expiry date | Because your purchases from a certified supplier also count towards your own percentage, as explained in our guide on the Local Content Certificate |
| Share calculation | A working paper linking the value of each national item to the total bid value, excluding Mandatory List items from numerator and denominator | Because the share is calculated on non-listed products only |
| Exemptions | Any exemption decision from the Mandatory List and its period | Because the entity accepts non-compliant products only under an exemption |
6. How we help
For suppliers we prepare the national product share working paper and the evidence file before the bid, verify the final report before submission, and issue the Local Content Certificate for factories and suppliers whose customers need their approved percentage. See our local content service, and our guide on the local content weighting formula if your tenders are for works and services rather than supply.
What is the Mandatory List of National Products?
A list of national products issued and periodically updated by the Local Content and Government Procurement Authority. In supply tenders a bid that does not comply with it is excluded, and the government entity does not accept non-compliant products except under an exemption (Articles 8 and 9 of the Preference Regulations).
How is the price preference for national products calculated?
By assuming the foreign product’s price is 10% higher than stated in the bid. In supply tenders the adjusted value = bid price + 10% × bid price × (1 − national product share), and bids are compared on the adjusted value (Articles 10 and 11).
What happens if I do not state in the bill of quantities that a product is national?
The products are deemed foreign, so your adjusted value is computed as if your national product share were zero (Article 11).
Do Mandatory List products count towards the national product share?
No. The share is calculated on products not on the Mandatory List only, and the value of listed products is added to the adjusted value after it is computed.
What is the penalty for failing to meet the national product share?
A penalty of up to 10% of the supply contract value (Article 29), and where the gap between the share offered and the actual share exceeds 50%, the contractor is referred to the violations committee for consideration of a ban or a downgrade (Article 37).
When is the final report due in supply contracts?
Within 30 days of contract end, evidencing that the products are national per the Authority’s instructions; the entity reviews it within 10 working days, failing which it is deemed approved (Article 13).
Sources
- Regulations for Preference of Local Content, Local SMEs and Listed Companies in Works and Procurement, Council of Ministers Resolution No. 245 dated 29/3/1441H, Articles 1, 4, 8–13, 29, 30, 34 and 37 (Bureau of Experts, Council of Ministers)
- Government Tenders and Procurement Law, Royal Decree M/128 dated 13/11/1440H, Article 9 (Bureau of Experts, Council of Ministers)
- Organisational Rules of the Local Content and Government Procurement Authority, Council of Ministers Resolution No. 551 dated 15/9/1442H (Bureau of Experts, Council of Ministers)
