Give examples of procurement methods used in construction projects in Saudi Arabia

Give examples of procurement methods used in construction projects in Saudi Arabia

Give examples of procurement methods used in construction projects in Saudi Arabia

 

 

 

 

Introduction

Procurement in construction refers to the methods used to obtain funding, goods, and services, for construction activities. Project owners such as the governments and private enterprises have finite funds, equipment, labour, and other resources at their disposal. The limitation acts as a constraint for completing infrastructure, social development, or development projects. Hence, the government uses different procurement methods, by involving private enterprises to participate in the project. Private enterprises invest in the project, deploy their resources and expertise, and complete the project as per the requirement. In return, they obtain reimbursement, and if the government has sufficient funds, it raises a tender in which different contractors participate as per the contract terms. Several types of procurement methods are available. These include custom build, design and build, design build finance and operate, emerging cost contracts, lump sum contract, partnering, and many others (Ashworth, 2011). This paper examines important types of procurement methods. The paper also discusses other important terms related to procurement, costs, and risks.

1.0 Procurement methods in Saudi Arabia

Saudi Arabia and the Middle East have seen a very large amount of construction activity. A number of world famous and iconic buildings such as the Al Bhurj Khalifa, Kingdom Tower, Diamond Tower,  Makkah Clock Royal Tower, and many infrastructure development projects have been constructed in the kingdom. In 2014, Saudi Arabia has planned construction projects worth more than $75 billion (Saudi Gazette, 2014). While the oil rich nation has sufficient funds, project owners use different procurement methods for the construction projects. Procurement methods and government regulations are different for domestic and foreign contractors. Some of the methods used are planned design, engineering procurement and construction agreements (EPC), and build only agreements (Jaweed, 2004). 

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Lesser restrictions are placed on Saudi contractors, and these include capital requirement, owning equipment, relaxation for the number qualified engineers directly employed, and so on. International contractors must obtain a foreign investment license; they must form different corporate structures such as Temporary Commercial Registrations, LLCs, or Joint Stock Company. Contractors are placed different grades such as Grade A, Grade B, and so on up to Grade D. Grade A is at the highest level, and Grade D is at the lowest. Other classifications include Class I, Class II, Class II, Class IV, and Class V. These grades are based on the size and number of projects completed, number of full time workers employed, and certifications obtained by the contractors such as ISO 9001, ISO 14001, and OHSAS 18001, etc. Another very important aspect of procurement method is the project financing. International banks and financial institutions offer financing to construction projects by using conventional financing projects. Local Saudi banks mandate that Sharia compliant financing methods for private sector project (Al-Hazmi, 2009).

Some examples of procurement methods for public and private sector projects are discussed as follows.

  1. The Aldara Hospital project worth SAR 404 million was initiated through a joint venture between UAE government and a Greek contractor.
  2. The King Khalid International Airport, Terminal 5 project worth SAR 1.5 billion was completed as a joint venture between the Saudi government and a Turkish contractor.
  3. Jeddah Corniche, a mega project worth SAR 1,73 billion was taken up as a joint venture between Amias Real Estate Group and the UK based Lamar Investment and Real Estate Development Company.
  4. The King Fahad Medical City Hospital project worth SAR 522 million was taken up as a partnership venture between UK based Drake & Scull and Habtoor Leighton Specon.
  5. The Abraj Kudai Development project with SAR 13 billion was awarded to the Saudi Binladin Group on a design and build basis (Husein, 2014).

A large number of smaller projects use similar procurement methods.

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References

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