26 Nov 2014

NEW FEDERAL PROCUREMENT AND WAREHOUSE MANAGEMENT REGULATION

Authored by: Valeria Lysenko

NEW FEDERAL PROCUREMENT AND WAREHOUSE MANAGEMENT REGULATION

Valeria Lysenko, Partner in Hadef & Partners Banking & Finance department, considers what the new federal procurement and warehouse regulations mean for companies contracting with the federal government and federal government entities in the UAE.
 
Since 2011 the UAE federal government has been gradually working on modernising and streamlining laws and regulations relating to federal public revenues and expenditures and related laws and regulations. Laws and regulations issued on, among other matters, state public revenues, re-organisation of the State Audit Institution and unification of financial and accounting rules, regulations and policies of the federal government and independent federal entities are now complemented by new regulations on the federal procurement and warehouse management.
 
The UAE Cabinet has issued a Resolution No 32 of 2014 on the Procurement and Warehouse Management Regulations at the Federal Government (Federal Procurement Resolution). The regulation has been gazetted and comes into effect before the year-end.
 
The new procurement regime applies to all purchases and contracts for supply, execution of works and provision of services concluded with:
 
(a) The federal government and the federal ministries and governmental agencies.
 
(b) Specific independent federal entities, such as the General Authority for Civil Aviation, Emirates Real Estate Corporation, FEWA, ESCA, Insurance Authority, Emirates Post Group Holding, National Transport Authority, Telecommunications Regulatory Authority, UAE University and Zayed University.
 
The regulation does not apply to a limited number of federal entities, including the Ministry of Defence.
 
Highlights include the following:

  • The supplier selection method, awards, signing or termination of contracts are subject to approval by each relevant competent authority or its duly authorised delegate in accordance with the prescribed procurement methods and financial ceilings.
  • Federal entities are mandated, among other things, to ensure consistency with procurement-related international agreements to which the UAE is a party and to observe the highest degree of transparency and integrity in procurement management.
  • Their employees are required, among other things, to avoid any actual or potential conflicts of interest (including without limitation having any interest in the procured work, contracting or contracts), reject any gifts or donations from any person dealing with the relevant federal entity, and are specifically prohibited from participating in procurement through companies or establishments which the employees own, in which they are partners or for which they act as agents.
  • Federal entities are under the statutory obligation, among other things, to rescind a concluded contract in the case of any fraud, deception or bribery by the supplier and to put such supplier on the banned list prepared by the UAE Ministry of Finance for at least three years.
  • Procurement plans of all federal entities are required to be prepared in advance and include the prescribed detail of all the procurement needed for the following fiscal year. In awarding contracts, the federal entities and their employees are mandated, among other things, to avoid reliance solely on the lowest bid. Contracting at federal entities may only be on the basis of actual need, feasibility studies and availability of the necessary funds in the federal entity’s budget or any other sources of funding.
  • Suppliers may not, subject to limited exceptions, bid in any currency other than UAE Dirhams.
  • The priority must, subject to specification requirements, be given to national industrial products. Procured materials must meet UAE approved standard specifications (ESMA is currently the sole standardisation body in the UAE). In the absence of such specifications, the federal entity is required to follow, among others, Gulf or international standards.
  • RFPs must include the detail prescribed by the regulation. They must be prepared in the Arabic language, if issued to suppliers in the UAE. If issued to suppliers outside of the UAE, the request (except for technical specifications) must be in both Arabic and English. In the event of inconsistency, the Arabic language version of the RFP prevails.
  • Except for contracts of construction and execution of work, all forms of contracts, orders, applications and receipts must be prepared and approved by the UAE Ministry of Finance or the independent federal entities (provided that such entities adhere to the requirements and principles set out in the Federal Procurement Resolution).
  • Contracts must include mandatory clauses (such as provisions dealing with fines and penalties for delay, subcontracting and assigning, withdrawal or failure to execute for any reason, and dispute resolution clauses) and such additional contractual provisions as may have been agreed by the parties.

In any event:

(a) There is an overarching mandatory requirement for a contractual protection of the interests of the federal entity, to the extent the protection measures are realistic, balanced and comply with the law applicable and prevailing in the UAE.

(b) Where it may be agreed on arbitration, agreement to arbitrate outside of the UAE is permitted. However, no dispute arising out of the contract or in connection with any related procedures may be subject to any law which does not apply in the UAE, and any provision to the contrary will be deemed null and void.

Detailed regulation of penalties and fines for delay (capped at 10% of the value of supplied materials or contract’s total value as relevant) and failure to supply within a prescribed grace period, including where caused by an event of a force majeure or other circumstances outside of the supplier’s control.

Prescribed execution formalities for procurement contracts.

The requirement for a prior written approval by the relevant federal ministry of subcontracting by the supplier and mandatory limitations on the total value of subcontracts.

Regulation of outsourcing and PPP contracts. In the case of PPPs, federal entities have the statutory right to conclude contracts of operation and maintenance, contracts of design, construction, finance and operation, contracts of construction, acquisition and operation and limited others.
 
Without prejudice to international treaties to which the UAE is a party, suppliers which may be registered in the electronic procurement database of suppliers must meet, among others, the following criteria:
 
(a) If the supplier is a licensed natural person, he/she must be an Emirati citizen.
 
(b) A corporate supplier may be a company which is duly registered and appropriately licensed in the UAE and governed by the current Commercial Companies law (or another substitute law).
 
(c) A supplier may be a branch of a UAE free zone-incorporated company, provided that the branch is registered and suitably licensed in the UAE “onshore”. No distinction is drawn between UAE free trade zones and UAE financial free zones in this context.
 
All suppliers must comply with the federal environmental law and related requirements, obligations under the Wage Protection System (a government scheme designed to ensure punctual payment of wages) and the applicable pension and social insurance regulations.
 
Conditional preferential treatment is afforded to:
 
(a) Corporate suppliers whose capital does not exceed AED 10 million and in which the UAE national shareholding is not less than 51%.
 
(b) Facilities which are financed by SMEs-supporting funds and governed by federal or local law. This development may be welcomed by SMEs.
 

Overall, the Federal Procurement Resolution is relatively detailed and clear, although some areas remain to be addressed by subsequent regulations.
 
While it does not entirely depart from the regime set forth in the current federal procurement law, the Federal Procurement Resolution will prevail over and repeals any conflicting or inconsistent provision. It definitely merits due consideration where contracting with the federal government, ministries and agencies and the relevant independent federal entities is contemplated.

 

This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the develop jurisdiction of the UAE