Saudi General Authority for Competition Takes Action Against Anti-Competitive Practices in the Construction Sector

The Saudi Construction sector is one of the fastest growing sectors in the Kingdom. It was estimated at USD 133.1 billion in 2022 and expected to achieve an annual average growth rate of over 4% in the period from 2024 to 2027. Saudi Arabia has maintained its position as the largest construction market across the MENA region with the highest total value of project awarded for four consecutive years. As of October 2022, Saudi Arabia holds a 35% market share with a recorded USD 31 billion worth of contract awards against an overall MENA total of $87 billion as tracked by MEED Projects.

Still, competition issues remain prevalent in the Saudi construction sector. The lack of fair competition in the sector first attracted broad attention in 2011, when complaints that  Saudi Oger held a monopoly in the Saudi construction sector surfaced. Small and medium enterprises were rarely awarded contracts and SMEs had problems procuring bank loans. Banks preferred doing business with the large players in the market and neglected small and medium undertakings. This practice further disadvantaged SMEs in the sector.

To address these issues the Saudi Government now tasked the General Authority for Competition (GAC) to conduct a study to identify malpractices  in the Kingdom’s construction sector. The study is meant to identify factors harming competition in the sector.  GAC started its assessment end of January of this year. They reached out to the sector and requested construction companies to comment on the competition situation in the Saudi building and construction sector.

The GAC’s actions have already led to enforcement action. In  early April the GAC announced that it fined 14 cement manufacturers in Saudi Arabia a total of approx. USD 37.3 million for price manipulation; an infringement of article 4 of the Saudi Competition Law. The GAC’s investigations showed that the cement manufacturers concluded an agreement to increase the cement prices and divide the Saudi market among them. The investigation was initiated in responds to concerns expressed to the GAC by construction companies during the consultations initiated in January.

Furthermore, in early Aril the GAC issued fines in an amount of approx. USD 563,000 against two enterprises for colluding in a project of the Saudi Authority for Industrial Cities and Technology Zones, (MODON). In another bid rigging case, a Riyadh court in late February upheld the USD 2.7 million fine GAC imposed against a company for bid rigging in a tender for construction services related to the Arar Domestic Airport. To date four other companies have been fined in relation to this case as part of the ongoing probe of the authority into the matter.

Earlier this year GAC fined three major construction companies for colluding to reduce competition and increase prices in a municipality tenders. The companies shared information on future pricing and commercial strategy. They also coordinated their commercial activities to reduce uncertainty, including monitoring each other’s prices and challenging quotes they deemed too low.

With the  increased vigilance of the GAC and its monitoring of the construction sector companies working in the sector need to ensure compliance with the Saudi competition regime. Notably, the GAC has shown an interest in mor indirect forms of collusion. Traditionally GAC was concerned primarily with more direct anti-competitive practices such as price fixing and division of markets. However, in recent investigations into the construction sector the authority also considered more indirect activities such as information exchange. Thus, the recent enforcement activities of the GAC show an increasing sophistication of the authority’s investigative department.