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United Arab Emirates Government Procurement Regulations

Tariffs, taxes, and trade barriers of United Arab Emirates. Also covers UAE government procurement regulations and documentation.

United Arab Emirates Government Procurement Regulations

Postby bridgat » Tue Nov 18, 2008 8:29 am

GOVERNMENT PROCUREMENT REGULATIONS

1. SUMMARY: THE UAE GOVERNMENT AND THE AGENCIES IT CONTROLS
ARE THE BIGGEST PURCHASERS OF GOODS AND SERVICES IN THE UAE.
OFFICIAL STATISTICS INDICATE THAT GOVERNMENT EXPENDITURES
CONTRIBUTED AN AVERAGE 10 PERCENT OF THE UAE'S GDP DURING
THE LAST FIVE YEARS, BUT WE SUSPECT THIS FIGURE IS
UNDERSTATED GIVEN THE WAY THE UAEG ACCOUNTS FOR THE NUMEROUS
QUASI-GOVERNMENTAL COMPANIES IN WHICH IT IS PART OWNER.
WITH THE EXCEPTION OF THE UAE OFFSETS GROUP (UOG), WHICH
MAKES DEFENSE PURCHASES ON BEHALF OF THE FEDERATION, THERE
IS NO CENTRAL PURCHASING ENTITY FOR THE UAEG. INDIVIDUAL
MINISTRIES AND EMIRATE-LEVEL DEPARTMENTS ARE RESPONSIBLE FOR
THEIR OWN PROCUREMENT OF GOODS AND SERVICES. CURRENT
FEDERAL AND EMIRATE-LEVEL GOVERNMENT PROCUREMENT REGULATIONS
FAVOR DOMESTIC SUPPLIERS OVER THEIR FOREIGN COMPETITORS, OR
REQUIRE THAT FOREIGN COMPANIES CONTRACT WITH LOCAL AGENTS TO
PROVIDE EQUIPMENT AND SERVICES TO THE UAEG. SOME
INFORMATION ON FEDERAL GOVERNMENT TENDERS -- INCLUDING
ONLINE BIDDING, REGISTERING AS A FEDERAL SUPPLIER, AND
SAMPLING OF FEDERAL TENDERS -- IS AVAILABLE ONLINE AT
http://WWW.UAE.GOV.AE/. THE UAE IS NOT/NOT A SIGNATORY TO
THE WTO AGREEMENT ON GOVERNMENT PROCUREMENT. END SUMMARY.

--------------------------------------------
MILITARY PURCHASES OF EQUIPMENT AND SERVICES
--------------------------------------------

2. DEFENSE CONTRACTORS WITH AN EYE FOR INVESTMENT IN THE
UAE MUST NEGOTIATE DIRECTLY WITH THE UAE OFFSETS GROUP
(UOG), AND INVEST AN AMOUNT THAT WILL GENERATE A PROFIT
EQUAL TO AN AGREED-UPON PORTION OF THEIR CONTRACT IN THE
UAE. UOG INVESTMENT PROJECTS GENERALLY MUST SHOW THE
REQUIRED PROFIT AFTER SEVEN YEARS. THE CONTRACTOR MAY NOT
OWN MORE THAN 49 PERCENT OF THE PROJECT, AND UAE NATIONALS
MUST HOLD THE REMAINING 51 PERCENT. THERE CURRENTLY ARE
MORE THAN 25 OFFSET VENTURES; OFFSET PROJECTS COVER THE FULL
SPECTRUM OF ECONOMIC ACTIVITY, INCLUDING, INTER ALIA,
ADVERTISING, FISH FARMING, AIR CONDITIONING, LANGUAGE
CENTERS, SHIPBUILDING, AIRCRAFT MAINTENANCE, LEASING,
MEDICAL SERVICES, AND EVEN POLO GROUNDS. TWO OF THE LARGEST
OFFSET VENTURES ARE AN INTERNATIONAL GAS PIPELINE PROJECT
(DOLPHIN) AND THE OASIS INTERNATIONAL LEASING COMPANY -- A
BRITISH AEROSPACE OFFSETS VENTURE.

--------------------------------------------
CIVILIAN PROCUREMENT: A BIT MORE COMPLICATED
--------------------------------------------

3. UAE FEDERAL ORDER NO. 16 OF 1975 (THE PUBLIC TENDERS
LAW) REGULATES THE PURCHASE OF NON-MILITARY EQUIPMENT AND
SERVICES BY THE UAE FEDERAL GOVERNMENT. THIS LAW PROVIDES
THAT ONLY UAE NATIONALS, FOREIGN ENTITIES REPRESENTED BY A
UAE DISTRIBUTOR OR AGENT, OR UAE COMPANIES IN WHICH A
FOREIGN ENTITY HAS A MINORITY SHARE CAN BID FOR PUBLIC
SECTOR TENDERS FOR THE SUPPLY OF GOODS AND SERVICES. IN
PRACTICE, HOWEVER, NOT ALL UAE FEDERAL GOVERNMENT ENTITIES
COMPLY WITH THIS REGULATION BECAUSE FOREIGN COMPANIES
SOMETIMES ARE THE ONLY SUPPLIERS OF SPECIALIZED GOODS OR
SERVICES THAT ARE NOT WIDELY AVAILABLE.

4. THE STATE-RUN ABU DHABI NATIONAL OIL COMPANY (ADNOC),
FOR EXAMPLE, TENDERED THE PRIVATIZATION OF A 28 PERCENT
STAKE IN THE OFFSHORE ZAKUM OILFIELD DIRECTLY TO
INTERNATIONAL OIL COMPANIES EXXONMOBIL, CHEVRONTEXACO,
SHELL, BP AND TOTALFINAELF IN APRIL 2002. A FINAL DECISION
WAS EXPECTED IN 2003, BUT HAS BEEN DELAYED INDEFINITELY.
UAEG DIRECT PROCUREMENT FROM A FOREIGN SUPPLIER IS UNCOMMON,
HOWEVER, AND THE FEDERAL GOVERNMENT AGENCY OFTEN REQUIRES
THE FOREIGN COMPANY TO EMPLOY A SERVICE AGENT -- A UAE
NATIONAL WHO WILL BE ENTITLED TO RECEIVE A FEE CALCULATED AS
A PERCENTAGE OF THE CONTRACT VALUE. THE NOTIONAL ROLE OF
THE SERVICE AGENT IS TO ASSIST THE FOREIGN COMPANY IN
DEALING WITH THE FORMALITIES AND PROCEDURES IN THE UAE.

---------------------
A NOTE ABOUT AGENCIES
---------------------

5. IT IS WORTH MENTIONING THAT THERE ARE THREE IMPORTANT
PIECES OF LEGISLATION REGULATING AGENCY RELATIONSHIPS IN THE
UAE. FEDERAL LAW NO. 18 OF 1981 ON THE ORGANIZATION OF
COMMERCIAL AGENCIES (AS AMENDED BY FEDERAL LAW NO. 14 OF
1988) IS KNOWN AS THE "AGENCY LAW." ALTHOUGH THIS IS A
FEDERAL LAW, LOCAL LAWYERS TELL US THAT THERE ARE SOME
DIFFERENCES OF INTERPRETATION BETWEEN THE COURTS OF THE
DIFFERENT EMIRATES. THE UAE COMMERCIAL TRANSACTIONS LAW,
FEDERAL LAW NO. 18 OF 1993 (THE "COMMERCIAL CODE") ALSO
CONTAINS SEVERAL PROVISIONS RELEVANT TO COMMERCIAL AGENCIES.
THE COMMERCIAL CODE IS RELATIVELY NEW AND THE INTERPRETATION
AND ENFORCEMENT OF ITS PARTICULAR PROVISIONS BY THE UAE
COURTS HAVE NOT YET BEEN TESTED. LOCAL LAWYERS SAY THAT
THEY EXPECT COURTS TO APPLY THE PROVISIONS OF THE COMMERCIAL
CODE ONLY TO THE EXTENT THAT THE AGENCY LAW IS SILENT. THE
CIVIL TRANSACTIONS LAW, FEDERAL LAW NO.5 OF 1985 (THE "CIVIL
CODE") IS THE FINAL PIECE OF LEGISLATION REGULATING AGENCY
RELATIONSHIPS IN THE UAE, AND THE CIVIL CODE WOULD APPLY IN
INSTANCES WHERE THERE ARE GAPS IN THE COMMERCIAL CODE. A
MORE DETAILED CABLE ON THE SPECIFIC RIGHTS AND OBLIGATIONS
OF AGENTS IN THE UAE WILL FOLLOW SEPTEL.

------------------------
EMIRATE-LEVEL PROVISIONS
------------------------

6. IN ADDITION TO THE FEDERAL LAWS, EACH INDIVIDUAL EMIRATE
HAS SET OUT SPECIFIC PROVISIONS REGULATING GOVERNMENT
PROCUREMENT ACTIVITIES OF EMIRATE-LEVEL DEPARTMENTS. IN ABU
DHABI, FOR EXAMPLE, A CONTRACT BETWEEN A FOREIGN COMPANY AND
AN ABU DHABI GOVERNMENT DEPARTMENT IS SUBJECT TO ABU DHABI
LAW NO. 4 OF 1977. FOR GOVERNMENT CONTRACTS, ONLY LOCAL
COMPANIES OR LOCAL AGENTS (REGISTERED IN ABU DHABI) OF
FOREIGN COMPANIES CAN SUBMIT TENDERS. A BID BOND MUST
ACCOMPANY ALL TENDERS FOR GOVERNMENT CONTRACTS, AND THE BOND
AUTOMATICALLY IS FORFEITED IF A BID IS WITHDRAWN BEFORE THE
DATE FOR THE OPENING OF THE TENDERS.

7. IF A COMPANY'S TENDER IS SELECTED, THE COMPANY MUST
PROVIDE A PERFORMANCE BOND ISSUED BY A LOCAL BANK OF BETWEEN
5 AND 15 PERCENT OF THE CONTRACT VALUE; THE GOVERNMENT
DEPARTMENT DETERMINES THE EXACT AMOUNT OF THE BOND. ONCE
THE CONTRACT HAS BEEN SIGNED, ANY DELAY IN THE COMPLETION OF
THE CONTRACT WILL RENDER THE COMPANY LIABLE TO A DELAY
PENALTY, CALCULATED ON A DAILY BASIS, WHICH CANNOT EXCEED 10
PERCENT OF THE TOTAL CONTRACT VALUE. THERE IS NO
REQUIREMENT FOR THE GOVERNMENT DEPARTMENT TO PROVE LOSS OR
DAMAGE ARISING FROM THE DELAY. IN ADDITION, ALL GOVERNMENT
CONTRACTS ARE SUBJECT TO THE ISRAELI BOYCOTT LAW (FEDERAL
LAW NO. 15 OF 1970). (NOTE: THE UAEG NO LONGER ENFORCES THE
SECONDARY AND TERTIARY ASPECTS OF THE ARAB LEAGUE BOYCOTT ON
ISRAEL. END NOTE.)

8. DUBAI LAW ON CONTRACTS OF GOVERNMENT DEPARTMENTS (LAW
NO. 6 OF 1997) IS VERY SIMILAR TO ABU DHABI LAW NO. 4 OF
1977. IT CONTAINS SIMILAR PROVISIONS AND DETAILS REGULATING
CONTRACTS BETWEEN DUBAI GOVERNMENT DEPARTMENTS AND COMPANIES
ENTERING INTO A CONTRACT, INCLUDING THE PREPARATION OF
TENDER DOCUMENTS, ISSUING THE TENDER, BID BOND REQUIREMENTS,
PERFORMANCE BOND REQUIREMENTS, ETC. DUBAI GOVERNMENT ALSO
USUALLY REQUIRES A FOREIGN COMPANY TO EMPLOY A SERVICE
AGENT, IN PRACTICE.

--------------------------------
THE EXPERIENCE OF U.S. COMPANIES
--------------------------------

9. ALTHOUGH THE GOVERNMENT TENDERING PROCESS IN THE UAE
VARIES WIDELY FROM CONTRACT TO CONTRACT -- THERE IS NO SET
TIMEFRAME FOR THE AWARD OF CONTRACTS, NO STANDARD
ADVERTISEMENT OF TENDERS, NO SYSTEM FOR SUPPLIERS TO
CHALLENGE THE AWARD OF A CONTRACT -- U.S. COMPANIES IN
RECENT YEARS HAVE WON A NUMBER OF HIGH-PROFILE GOVERNMENT
CONTRACTS IN THE TELECOMMUNICATIONS, DEFENSE/AERONAUTICAL,
AND MEDICAL SECTORS IN RECENT YEARS. U.S. COMPANIES
LIKEWISE ENJOY A 45 PERCENT MARKET SHARE IN THE LUCRATIVE
OIL AND GAS FIELD SERVICES AND EQUIPMENT SECTOR IN THE UAE,
AND CONTINUE TO BE THE PREFERENTIAL BIDDERS FOR GOVERNMENT
PROJECTS IN THE OIL INDUSTRY.

10. U.S. COMPANIES WITH A PERMANENT PRESENCE IN THE UAE SAY
THEY HAVE LEARNED TO MANEUVER THE RELATIVELY OPAQUE
GOVERNMENT PROCUREMENT PROCESS EFFECTIVELY. SOME OF THESE
COMPANIES SUCCESSFULLY HAVE HIRED AS THEIR LOCAL AGENT
PROMINENT EMIRATIS WITH ACCESS TO INFLUENCE SENIOR UAEG
OFFICIALS. MORE IMPORTANTLY, NEARLY ALL OF THESE U.S.
COMPANIES HAVE DEVELOPED RELATIONSHIPS WITH THEIR KEY
CONSUMERS WITHIN THE UAEG AND, THEREFORE, ARE IN A BETTER
POSITION TO WIN CONTRACTS. UAEG OFFICIALS, LIKEWISE,
USUALLY ADVERTISE TENDERS TO FOREIGN SUPPLIERS WITH WHOM
THEY KNOW WELL AND HAVE WORKED ON PAST PROJECTS. AS SOME
INDICATION OF THE IMPORTANT ROLE PERSONAL RELATIONSHIPS PLAY
IN THE GOVERNMENT PROCUREMENT PROCESS, NEWCOMERS TO THE UAE
MARKET OR COMPANIES WITHOUT AN OFFICE HERE FREQUENTLY ARE
NOT/NOT SHORT LISTED FOR AWARDS AND COMPLAIN ABOUT THE LACK
OF TRANSPARENCY IN THE TENDERING PROCESS.
bridgat
 
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Joined: Thu Nov 13, 2008 12:51 am

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