Local Content in Saudi Procurement: A Worked Example of Raising Your Score

A simplified, illustrative calculation of a contractor's local content share and how sourcing and hiring decisions move it, with the LCGPA framework explained.

The Local Content and Government Procurement Authority (LCGPA) sets local content rules for government procurement, including mandatory lists of local products, price preferences for local goods and, in many tenders, a local content score for the bidder. The official methodology uses templates that treat labour, goods, services and investment in specific ways. The simplified example below shows how the logic works so a foreign company can see which decisions move the score.

The situation

A foreign-owned contractor with a Saudi entity is preparing for tenders that weigh local content. Its annual Saudi cost base is SAR 20,000,000. It wants to understand its approximate local share and what would raise it, before commissioning a formal assessment.

Assumptions (illustrative)

• Salaries of Saudi employees: SAR 3,000,000.
• Salaries of expatriate employees: SAR 2,000,000.
• Goods bought from Saudi manufacturers: SAR 6,000,000.
• Imported goods: SAR 6,000,000.
• Services from Saudi providers: SAR 2,000,000.
• Depreciation on assets located in the Kingdom: SAR 1,000,000.

Step 1: Check the cost base

SAR 3,000,000 plus 2,000,000 plus 6,000,000 plus 6,000,000 plus 2,000,000 plus 1,000,000 equals SAR 20,000,000.

The total is the denominator. The official template defines which costs belong in it and how inventory and other items are treated.

Step 2: Count local items in the simplified model

Saudi salaries SAR 3,000,000 plus Saudi goods SAR 6,000,000 plus Saudi services SAR 2,000,000 plus local depreciation SAR 1,000,000 equals SAR 12,000,000.

This simplified model counts these items fully as local and expatriate salaries and imports as zero. The official method gives partial local credit to some items, such as part of expatriate compensation, and looks through suppliers' own local content.

Step 3: Estimate the local share

SAR 12,000,000 divided by SAR 20,000,000 equals 60 per cent.

This is an internal estimate for planning. It is not a certified score and should not be quoted in a bid.

Step 4: Shift part of the imports to local suppliers

Moving SAR 2,000,000 of imports to Saudi manufacturers gives SAR 14,000,000 local out of SAR 20,000,000, or 70 per cent.

Sourcing is usually the biggest lever. The real gain depends on the local content of those suppliers, which the official method reflects.

Step 5: Replace expatriate roles with Saudi hires

Replacing SAR 1,000,000 of expatriate salaries with SAR 1,000,000 of Saudi salaries, on top of the sourcing change, gives SAR 15,000,000 out of SAR 20,000,000, or 75 per cent.

Saudisation also improves Nitaqat standing, so the same decision helps on two fronts.

Step 6: Account for training and supplier development

If SAR 500,000 of new spending on training Saudi staff is added, local costs become SAR 15,500,000 out of SAR 20,500,000, or about 75.6 per cent.

Adding local spend raises both numerator and denominator, so the effect on the percentage is smaller than it looks. The official template may treat training more favourably.

What changes the answer

• If a Saudi supplier's own products contain mostly imported inputs, the official method may credit less than the full purchase value.
• Partial credit for expatriate salaries in the official template would raise the starting score above this simplified 60 per cent.
• A large one-off import, such as equipment for a single project, can reduce the share in that year.
• Tender-specific requirements, such as mandatory local products, apply regardless of the company score.
• Scores are measured on audited figures for a defined period, so timing of sourcing changes matters.

What the numbers tell you

• Sourcing from Saudi manufacturers and hiring Saudi staff are the main levers for most contractors.
• Model the effect using the official LCGPA templates before promising a score in a bid.
• Coordinate local content, Saudisation and supplier strategy, since the same choices affect all three.
• Obtain the formal certificate or assessment through the LCGPA-approved route when tenders require it.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

Domira works with foreign investors on the property side of entering Saudi Arabia: finding land or premises, due diligence, design, construction and asset management. For licensing, tax and legal steps, work with a licensed adviser; we coordinate with yours so the property decision fits the structure you choose.