Public Sector Procurement

Procurement by the Kuwait Government and its agencies is governed generally by Law No. 37 of 1964 (modified by Law Nos. 13 and 31 of 1970 and 1977, respectively) concerning Public Tenders (the "Tenders Law"). The Tenders Law provides that any procurement made by the Kuwait Government with a value in excess of KD 5,000 (approximately $16,500) must be conducted through the Central Tenders Committee procedures in order to ensure competitive pricing.

Article 5 of the Tenders Law provides that tenderers for government contracts must:

"(1) be a Kuwaiti merchant, individual or company, registered in the Register of Commerce in the Chamber of Commerce and Industry of Kuwait;
The tenderer may be a foreigner if he has a Kuwaiti merchant acting as a partner or agent pursuant to a deed duly executed before a notary, provided the Central Trading Committee shall set down a specific regulation for the participation of the foreign company in the tenders of large works.

(2) be registered in the Classification List of Contractors and Suppliers in conformity with the following Articles."

As a result, a foreign entity may act as a government contractor only through a Kuwaiti entity in which it has an ownership interest or by acting directly but with the assistance and support of a Kuwaiti agent or commercial representative.

There are two important exceptions to the application of the Tenders Law:

1. Ministry of Defence Procurement.

The Tenders Law does not apply to the procurement of military items for the Ministry of Defence and Security Forces. "Military materials" is broadly defined by Kuwait law to include land, sea and air weapons and spare parts and military communications and detection equipment and related system ("strategic military procurement").

There are no comprehensive laws or regulations which govern Ministry of Defense ("MOD") strategic military procurement. Instead, the MOD has developed internal policies and procedures for such procurements, and such policies and procedures are not available to the public. In general, such policies are more flexible than the Tenders Law in an effort to accommodate MOD's specialized needs with respect to strategic military procurement.

Prior to the invasion of Kuwait in August 1990, the use of intermediaries or agents in connection with strategic military procurement was discouraged by MOD policy and practice. Ministry Circular No. 4A/88, dated June 8, 1972 provides that, contracts for arms, ammunition and spare parts should be concluded between the MOD and its suppliers directly without the intervention of any agent or intermediary. In practice this circular applies to all procurements by the MOD unless a specific directive is issued by the Ministry which provides otherwise. This policy against intermediaries was often incorporated directly into the contract documents with the foreign vendor.

However, after the liberation of Kuwait the MOD issued some directives specifically requesting the involvement of Kuwaiti agents in certain contracts. The directive, however, did not address the manner in which such agencies would be regulated. Furthermore, a general and vague distinction was made between strategic and non strategic equipment.

In recent years, MOD has gradually returned to its pre-invasion policy of discouraging the use of agents in connection with strategic military procurement. There were recommendations made by the Kuwait Parliament in the spring of 1994 in connection with the approval of the defense budget to the effect that intermediaries should not be allowed in connection with military procurement in order to reduce the costs of the same to the State of Kuwait. The Kuwaiti Parliament has also questioned the MOD on this issue. The Minister has assured the Parliament that the Ministry's procurements are conducted directly with the foreign suppliers.

Therefore, to conclude, no agents should be involved in military sales unless the agent can show that the specific transaction has been exempted by a specific directive to that effect.

2. Other Specialized Procurement.

In addition to strategic military procurement, it is possible for Kuwait government agencies to request permission of the Central Tenders Committee to conduct particular tenders outside the Tenders Law. Because the Tenders Law is intended to ensure competitive pricing for all procurements made by the State of Kuwait, procurements made outside the Tenders Law are relatively rare.