The Governance Procedures of Public Tenders in Kuwait

Public agencies need a group of contracting and supplies according to the nature of their work, especially at a time when other state institutions may not be able to provide such services and goods, therefore public agencies are forced to contract with private sector entities.

This contract is regarded as one of its kind, as it affects the state budget when financing purchase or contracting, so it was necessary to have a method to ensure control of the contracting process of the public authority with the investing contractor, hence the idea of the public tender has emerged.

The usual Competitive Bidding aims primarily at obtaining the lowest possible purchase price within the framework of certain quality standards; that is why we find that the bidders compete to reduce the prices of their bids in the hope of the success of their bid in this “tender.”

However, the tender procurement process may might be used by high positions and administrative corruption as an opportunity to exploit public funds, where the employees in charge of the tender can pass some offers which do not match with the tender’s standards in exchange for a percentage of the contractor’s profits.

Accordingly, the legislature had to intervene in order to confront such practices that harm public funds. Law 37/1964 was then issued, and finally Law 49/2016 was issued as well in order to grant procedures some flexibility.

A – The Governance of legislative governing tenders: Disadvantages of Law 37/1963:

At the beginning of the sixties, the Kuwaiti legislator was working on controlling the procedures for requesting offers, dissolving them, and awarding them through the bidding method.

However, Law 37/2016 transferred most of the powers of tender management to a central public authority, which it called: the ”Central Tenders Committee ” (Article/1 Law 37/1963).

Thus, the legislator relied on the concept of central management of public tender procedures until award of bid (Article 43 of the same law), and then signing the contract with the public authority (Article 53 of the same law).

In fact, the fully centralized approach in public tenders has some drawbacks, such as:

·The Central Tenders Committee cannot be specialized in all the needs of the public authorities that require a request for proposal (RFP); those parties that are better able to discover the offer that advances their interest.

· The emergence of an investment-repelling climate due to the strict treatment of applicants by the Central Committee; The investor fears dealing with him in an arbitrary manner, as permitted by Law 37/1963, for example:

· The 1963 law granted broad authority to the Central Committee, which is to reject the bid if according to its assessment were found any anomalies or differences, without controlling these powers (Article / 37 same Law).

· The 1963 law did not grant the bidder any right even after awarding the tender to him until the contract is concluded (Article /52 same Law).

·The 1963 law has suggested canceling the tender and then raising the issue to the Council of Ministers, if the committee finds according to its assessment that the prices are high after being guided by the last prices of transactions (Article/47 the same law).

·The 1963 law did not protect public tenders from exploitation; Centralization and arbitrariness in administrative decisions and lack of control over discretionary powers contribute to this kind of act.

B – The Governance of legislative goals: Flexibility within public tenders in Law 49/2016

In order to develop the traditional legislative vision, the legislator was seeking to issue a new law for public tenders, but the issue may directly affects public money, which put limits to the ambition of developing tender regulations.

The most prominent developments that Law 49/2016 brought concerning the decentralization of administrative decision were as following:

· The Law of 2016 has abolished the Central Tenders Committee, and replaced it with the Central Agency for Public Tenders, which is a change in the name rather than in Capacities (Article/4 Law 49/2016).

·The Law of 2016 has granted the powers to decide, award, cancel and extend contracts to the central body in principle (Article /4-1 the same Law), while allowing the agency to authorize the public body to implement the procedures (Article /18), and the Law allows the public body to procure without referring to the central body mainly in Narrow exceptional cases (Article/19).

Thus, the main purpose of Law 49/2016 was to give some flexibility to the public tender procedures, but the legislative development in this framework was limited and formal in many of the new regulations.

Despite the strictness of the rules of the 1963 Law regarding turning back the contract after awarding the tender, the legislator kept it in the 2016 Law (Article/64 Law 49/2016).

C – The Governance of the boundaries: The Scope of implementing the Tender Law

By analyzing the scope of application in Law 49/2016, it is possible to extract some rules that aimed to give flexibility to procurement operations from public authorities, by excluding some procurement cases from the application of this Law (Article/2 Law 49/2016), such as:

For Defense, National Guard, and Interior Affairs

·Central Bank; concerning monetary matters and banking professions, the Contracts Committee of the Central Bank is responsible for the Central Agency for Public Tenders, and tenders are carried out according to the instructions of the Bank Governor and under the supervision of the Audit Bureau. As for the construction and maintenance of buildings, they remain subject to the Central Agency.

Kuwait Petroleum Corporation and its wholly owned companies; relating to:

· Typical purchase cases (Varieties -contracting-services) that do not exceed 5 million Kuwaiti Dinars are handled by the purchasing unit in the institution, but it must apply the provisions of Law 49/2016.

· Operations of extraction, sale and purchase of oil, gas, petrochemicals and specialized services related to drilling and maintenance of oil wells.

· ”Instant investment operations” of public institutions and public bodies according to their respective competences; It is a broad exception that allows the public authorities to have complete financial flexibility with regard to the daily investment operations undertaken by the public authorities, which fall within their competence and in their nature, which also require an Immediate decision, such as dealing in documents and securities.

Accordingly, a large sector of state procurement is either outside the scope of application of the Public Tenders Law 49/2016 or outside the powers of the Central Tenders Agency with the need to apply the law, and this is recorded in the legislative development towards the flexibility of procurement operations from public agencies.

D – The Governance of specializations in tender procedures: Between centralization and decentralization

We will see the specialization of each party in the subject of the tender according to its stages:

· Study and planning; It is carried out by the “organizational unit” of the public entity (Article/3-1 Law 49/2016), where it must study and plan the issue of procurement in accordance with the economic feasibility and the specified budget.

At this point, the public authority has to implement the general policy and procurement systems set by the Ministry of Finance. This ministry follows up on the public authorities’ implementation of these policies and systems (Article/9-A Law 49/2016).

Therefore, the public authority is not fully appreciative in the matter of study and planning for procuring, but rather it is restricted by the directions of the Ministry of Finance, and this matter is consistent with the state’s financial policy, but it may often conflict with the flexibility of the procurement process, as important tenders may stumble to develop the work of the government agency under the pretext Incompatibility with the policies of the Ministry of Finance.

· Invitation to tender, bid opening, and final award; It is one of the original prerogatives of the Central Tenders Agency in principle (Article /4 + Article /35 + Article 48 + Article 49 + Article 56 Law 49/2016).

However, this Law opened the way for the procurement committee in the public authority (Article/3 Law 49/2016) to manage procurement operations until the conclusion of the contract in the following cases:

·  Subject to the approval of the Central Tenders Agency after submitting a written request, according to one of the following two methods (Article/18 Law 49/2016):

·  Limited practices; Such as the case of a single contractor who has to provide the required purchases, substantive work that needs technical experts on their own, obtaining additional quantities, expanding the existing equipment, and others.

· Direct purchase; It is the purchase that takes place in the same cases of limited practices, according to a written contract with a written description of the entire stages of the contract.

· Without requiring the approval of the Central Tenders Agency, within the framework of the public authority’s needs whose value does not exceed 75,000 Dinars, without the possibility of dividing a deal into parts of agreements in order to reduce its value to aforementioned value (Article /19 Law 49/2016).

· Proposing contract documents; it is one of the powers of the “Procurement Committee” in the public authority requesting purchase (Article /3-D Law 49/2016), then the Ministry of Finance has the right to express its opinion on the tender forms and the drafting of model contracts (Article 9-b of the same law).

· Conclusion of contracts after awarding; It is one of the prerogatives of the public authority requesting procurement (Article /3-1 Law 49/2016), but the Central Tenders Agency is the one who manages the tender operations until the time of contracting comes, as the Authority performs the awarding, then notifies the public authority and the winning bidder, after the approval of The Court of Audit (Article /63 Law 49/2016).

· This means that the signature of the public authority requesting the purchase on the contract is just a formality, and it has only comment on the award of the tender within 10 days of being notified of the award (same article).

As a matter of fact, it appears that the essential development in Law 49/2016 lies in the exceptional cases that the legislator has removed from the scope of application of the Tenders Law or the cases in which public bodies were allowed to contract after the approval of the Central Agency or without obtaining such approval.

With the exception of these cases, it does not seem that the legal change includes the objective trend towards decentralization, as much as it is merely a change in the nomenclature, re-arranging the stages, and the imposition of more detailed rules than the old Law No. 37/1963.

International Department Team

Dr. Bader S. Al-Otaibi

Law Firm & Intl. Arbitration

Contributing Advisors