Qatar passes laws regarding procurement of building materials

 

Buoyed by strategic government investment and a stable business environment, Qatar is perhaps the fastestgrowing construction and infrastructure market in the GCC. For example, it is estimated that Qatar’s infrastructure spend alone will reach $150bn over the next decade through investments in roads, railways, stadiums, hotels, a deep-water seaport – and even a new, ambitious planned city, Lusail.

With so many different projects anticipated in the run-up to the 2022 FIFA World Cup, as well as associated with Qatar National Vision 2030, building material availability and the potential for inflation of key commodities is a concern. The country’s local procurement policies ensure contractors source materials locally where there is no substantial price benefit as compared to foreign products.

LOCALLY SOURCED: Like many countries, Qatar has a policy that prioritises locally sourced materials for use in state-funded construction projects, particularly transport, stadium and port projects. Law No. 6 of 1987 (the unified rules for giving priority in government procurement to national products and products of national origin in the GCC member states) was enacted to ensure that, unless there is a substantial price benefit, construction materials produced in Qatar or a GCC member state should be given preference, so as to promote sustainable building and environmental protection.

A mandatory fine of 20% of the procurement value, i.e. 20% of the price paid for the foreign product, will be imposed on the contractor if it fails to comply. Design consultants are also required to comply with the policy by ensuring that all specifications align with material availability in Qatar and the GCC.

SINGLE SOURCE SUPPLY SCHEME: Industry members have raised concerns that Qatar’s construction boom will increase demand on material availability to the extent that inflation will reach levels experienced in the mid-2000s during the regional construction boom. At its peak in 2008, the cost of primary building materials such as aggregate had doubled.

To address these challenges, in 2006 the government established the Qatar Primary Materials Company (QPMC) with the objective of securing the supply of building materials to the local market, including by creating a strategic stockpile of aggregate and sand materials for the government in Mesaieed. QPMC’s initiatives have included expanding the Gabbro Terminal to streamline the import of aggregate and its storage and, in October 2014, QPMC signed a memorandum of understanding with Qatar Rail to secure materials for Qatar’s current and planned railway network projects.

In November 2014, in a report by Deloitte, the government said that it would intervene further in the commodities market by creating government-owned subsidiaries to import large quantities of materials including steel rebar and cement into Qatar, which would be made available to contractors to purchase. The government will amass volumes of materials from suppliers around the world, as well as increase internal production levels at local manufacturing plants. The materials will be made available to purchase for contractors working on public sector projects.

RISING COSTS: These initiatives have sought to increase supply and mitigate against the potential rising cost of construction due to intensified market demand in advance of the 2022 FIFA World Cup. That these emerging challenges are being strategically addressed has sent further positive signals to contractors in Qatar.

Moreover, greater due diligence at the outset of a project, both as to the materials which the project design will specify and the availability of those materials in Qatar and the GCC countries, is necessary to ensure compliance with the 1987 law. The existing and planned single supply source initiatives by the government should ensure the significant number of projects planned and under construction in Qatar does not have a disruptive effect on the price of building materials.

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The Report: Qatar 2015

Legal Framework chapter from The Report: Qatar 2015

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