UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance

Archive for May 5, 2010

Contracting with the Dubai Government: Procedures of Supply Contracts

 

 

Law No. 6 of 1997 On Contracts of Government Departments in Dubai Emirate

Article 54:

The department shall have the right to inspect and check the supplies at the place of production prior to their shipping according to the nature of the supplied materials provided that the same shall be stated in the contract.

Article 55:

If the supplier is late in supplying all or part of the required quantities at the dates fixed in the contract or fails to supply them or if they are rejected by the taking over committees, the department may, by a decision from the General Director, grant the supplier an additional grace period not exceeding thirty days and not subject to delay fine if the department has interest in granting said grace period.

  • If the supplier is late in supplying at the fixed dates, or for more than the grace period granted to him, a delay fine at a rate of 2% of the value of the delayed materials for each week of delay or a part thereof shall be imposed on him provided that the total fine shall not exceed 10% of the value of said materials and that the delayed materials shall not jeopardize utilization of all required materials otherwise the fine shall be charged on the total value of the said materials.
  • If the supplier continues to be late until the fine reaches its maximum, the department shall be entitled to take any of the following two actions without need for a notification or judicial judgment.
  1. To purchase the materials on the supplier’s account and charge him with the difference in prices further to 10% of the supplies value for administrative expenses.
  2. To cancel the contract, confiscate the performance bond and claim compensation for damages.

 

Article 56:

 Supplies shall be taken over in two stages as follows:

  1. Preliminary taking over where the following shall be observed:
  2. Supplies shall be preliminarily taken over at the date and place fixed in the contract and a preliminary taking over minutes shall be made and signed by the store-keeper if the taking over is performed at the stores or by the site manager if the taking over of the supplies is performed at the site.
  3. The store-keeper or the employee who performed the preliminary taking over shall ensure that the supplied items are in conformity with what is stated in the supply contract and also to what is stated in the supplier’s invoice with regard to the number, weight, size, bills of lading or delivery advice; and he shall mention any remarks with regard to the condition of packages or boxes and shall also state clearly in the preliminary taking over voucher that the supplied items are subject to inspection and test and shall allocate a suitable place for keeping each type of supplies delivered by a certain supplier separately pending its testing and final acceptance and the invoice together with a copy of the preliminary taking over voucher shall be sent to the Financial Division of the department.

 

Final Taking Over Where the Following Shall Be Observed:

  1. To form, under a decision from the General Director, a committee for inspection and taking over and the requesting authority shall be represented therein if the nature of the materials so requires.
  2. The said committee shall hold a meeting within seven days at most from the date of being informed by the Stores Section of the preliminary taking-over.  The supplier shall be notified of the meeting date in order to attend the inspection and final taking over process or send a representative to attend on his behalf.
  3. To inspect, test and take delivery of the supplied materials according to the conditions and specifications stated in the contract and appendixes and to verify them against the stamped and approved samples, catalogues and drawings.  The committee may seek the assistance of any specialized technical authority to ensure compliance of the items with the technical specifications, whenever necessary.
  4. To check, in presence of the representative of the insurance company, the materials imported from abroad during the period specified in the insurance contract and to verify conformity of the supplies and the approved invoice and bills of lading and also to ensure validity of the stamps and marks as well as the safety of the boxes and their contents and to register whatever damage, shortage, excess or inconformity with the specifications discovered in order to determine responsibility of the insurance company of the supplier under contract conditions.
  5. To exclude the rejected materials in preparation for returning them to the supplier.
  6. To prepare minutes of inspection and taking over and to include therein all actions taken as well as results of inspection and reasons of acceptance or rejection of all or part of the materials.  The minutes shall be signed by all members and sent to the Financial Division and other competent authorities.
  7. In the event of delivery of items under a contract concluded abroad prior to arrival of its commercial invoice and the inspection and taking over committee decides necessity of taking them over for justifiable reasons, the taking-over procedures prescribed in this law shall be applied on basis of the proforma invoice or any other documents; provided that the supplier shall be instructed to send the commercial invoice immediately.  However, in the event of discrepancy between the supplies and the proforma invoice, the taking over may be delayed pending arrival of the commercial invoice or to effect the taking over and take the actions necessary to preserve the departments’ rights.
  8. The voucher of final taking over of the supplies shall be issued by the competent employee in the light of the inspection and taking over minutes and the supplies shall be added to the stores registers or to the assets register, as the case may be.

 

Article 57:

The inspection and taking over minutes shall be submitted to the Tenders and Negotiations Committee or Purchasing Committee, as the case may be, to decide on the following cases:

  1. Occurrence of dispute between supplier and Inspection and Taking Over Committee.
  2. Occurrence of Dispute between Inspection and Taking Over Committee and its technical member or members.
  3. If the Inspection and Taking-Over Committee accepts alternative materials whose specifications are congruent or similar to those stated in the contract and such acceptance satisfies the contract requirements, the Tenders and Negotiations Committee or the Direct Purchasing Committee, as the case may be, shall decide to accept them, either at the same original value of the materials as stated in the contract or at a lower value according to its discretion.

 

Article 58:

In case of unacceptable materials, the following shall be observed:

  1. The store-keeper shall keep the rejected materials separately pending handing them over to the supplier.
  2. The Contracts and Purchasing Division or the competent section of the department shall inform the supplier by a counter signed registered letter of the rejection of the materials and its reasons and to request their withdrawal and supply of the alternative within a period to be specified in the letter, pointing out the consequences of his refusal or refrainment.
  3. In case of supplier’s refrainment or refusal to take over the rejected materials at the expiry of the period specified in the letter addressed to him, a weekly storage fine equal to 1% of the value of said materials shall be imposed on him provided that the total fine shall not exceed 5% of said value in addition to the prescribed delay fine.  If he continues to refuse or refrain, the department shall have the right to sell the materials at a public auction, deduct all expenses and fines and pay the balance to the supplier.
  4. In case the supplier requests repetition of analysis and technical test for the rejected materials, the ensuing expenses shall be on his account unless the analysis and test results are in his favor in which case the department shall bear all expenses provided in which case the department shall bear all expenses provided that it has approved the test and analysis authority beforehand.

 

Article 59:

Materials, which by nature do not require an exact technical test, may be finally taken over by the store-keeper provided that their value shall not exceed (25) thousand Dirhams and the procedures prescribed in the foregoing Articles regarding inspection and taking over shall be followed in respect of whatever amounts in excess of that.

Dubai Government Contract Execution Procedures

 

 

Law No. 6 of 1997 On Contracts of Government Departments in Dubai Emirate

General Provisions:

The fixed period for execution of supply and service contracts shall commence as from the day following the contract signing unless otherwise stated and in work contracts, it shall commence from the date of handing the site over to the contractor.  If the contractor or his representative fails to attend to take delivery of the site on the fixed date, minutes of the same shall be made and notified to the contractor by a copy thereof and such date shall be deemed the date fixed for commencement of execution.

Article 48:

  1. The department shall have the right to amend the quantities of the contract by increase or decrease within 30% of the total contracted value before or during execution or upon extension of the execution period.  However, the setting-off shall not be made between the increase and decrease processes whatever the date of performing it may be.
  2. The amendment may exceed the extent mentioned in the foregoing paragraph provided that the necessary allocations are made available and the contractor agrees not to increase the prices stated in the contract if such prices are still suitable and do not exceed market prices.
  3. The amendment may include addition of new items, works or services not stated in the contract but are related to its subject matter and they can be directly agreed upon with the contractor.
  4. All amendments shall be subject to submission to the committee to take a decision thereon and shall refer it to the competent authority for approval.  An appendix to the contract containing the approved amendments shall be made and signed by the contract parties.

 

Article 49:

The contractor shall execute the contract according to the conditions and rules stipulated therein specially avoiding delay in execution, or otherwise he shall be subject to imposition of penalties and fines prescribed in the contract and this law.  If such delay occurs due to unforeseen circumstances or force majeure or for reasons pertaining to the department, he shall submit a request for exemption from penalties and fines attaching evidence of occurrence of said unforeseen circumstances, force majeure or reason within thirty days from its occurrence.  The request shall be referred to the committee for its study and to verify correctness of the information stated therein and take its exemption or non-exemption decision which shall not be enforceable except after being approved by the General Director.             

Non submission of said request by the contractor during said period shall be considered a declaration by him that there are no reasons forcing him to breach the execution terms and conditions and his right of object shall be waived.

Article 50:

The contract may include a text permitting payment of amounts on account within the limits and under the conditions prescribed in this law and in the contract itself. In all cases, payment on account shall be made against a bank guarantee in the same amount and currency.

Article 51:

The contract shall not be assigned or executed by sub-contractors employed by the original contractor except after the approval of the General Director according to a recommendation from the committee.  In all cases the original contractor shall be held jointly responsible with the assignee or subcontractor before the committee for any breach to the contract execution terms and conditions.

Article 52:

The Department shall have the right to cancel the contract in the following cases:

  1. In the event of cheating, manipulation, or bribery by the contractor, the performance bond shall be confiscated and the execution shall be carried out on the expense of the contractor and the right for claiming compensation for damages shall be preserved.
  2. In case of contractor’s bankruptcy or insolvency, the performance bond shall be confiscated and the right for claiming compensation shall be preserved.
  3. In the event of the contractor’s demise, the department shall then be entitled to cancel the contract and return the performance bond to the successors or keep the contract valid and permit the successors or part of them, in their personal capacity, to continue the execution under the contract provisions and charge them with all obligations arising from it specifically guaranteed to be submitted by them.

 

Article 53:

The General Director shall form the committees necessary for follow-up of contracts execution in all stages.  The decision issued in this respect shall include the duties of said committees and the organization of their works as well as preparation of inspection and handing over minutes, follow-up reports and all that is required for contracts execution.

Jurisdiction and Contract Terms in relation to Dubai Government Contracts

 

 

Law No. 6 of 1997 On Contracts of Government Departments in Dubai Emirate

Article 83:

Without prejudice to the instruction issued on 2/7/1991 regarding Government lawsuits, the courts of the Emirate of Dubai shall have the jurisdiction to look into any dispute arising between any department and parties who enter in contracts therewith with regard to contracts made according to the provisions of this law.

Article 84:

The Director of Finance Department shall issue the optimum form for all contracts mentioned herein as well as the general conditions for them in agreement with its provisions; and all department shall adhere to said form and conditions.

Article 85:

The Director of Finance Department shall issue the decisions and instructions necessary for implementation of the provisions of this law.

Selecting a Contractor Through Competition in the Emirate of Dubai

 

 

Law No. 6 of 1997 On Contracts of Government Departments in Dubai Emirate

Article 46:

Competition is a special contracting method applied with regard to preparation of studies, designs, or technical drawings for a certain project or purpose according to the following rules and procedures:

  1. The department shall determine the project’s objectives, scope, and specifications in details further to rewards, remunerations, and compensations to be given to the successful participants.  However, property of successful and unsuccessful reports, studies, designs, and drawings and any other conditions deemed appropriate by the department.
  2. The invitation for participating in the competition shall be made either by a notice published in the information media or through a direct invitation extended to entities having the high skills and experience required for the subject project.
  3. A judging committee shall be formed by a decision from the General Director comprising a number of persons specialized in the subject matter of the competition, to study and evaluate the required reports, studies, designs, and drawings.  The said committee shall have the right to call the participants and hold discussions with them regarding their entries.
  4. The judging committee shall states its procedures in minutes mentioning the submitted offers, opinion and criteria followed by it in making preference among the tenders and its recommendation regarding selection of the successful offer and the order of the subsequent offers and said minutes together with the offers shall be filed to the competent authority for issuing of the decision.
  5. The judging committee may decide to deprive a participant from the rewards, remunerations, or compensations if it is of the opinion that the submitted offers are not in the required technical standard.

Selecting a Contractor Through Direct Agreement in the Emirate of Dubai

 

 

Law No. 6 of 1997 On Contracts of Government Departments in Dubai Emirate

Article 44:

Direct Agreement is an exceptional method of selecting a contractor and is followed in the following cases:

  1. Monopolized materials, services, or works where the application of the public tendering, closed tendering, or negotiation methods are impossible.
  2. Materials, services, or works where extreme necessity requires them to be extended, provided that the agreement shall be restricted to the minimum extent required by the work.
  3. Materials, services or works governed by mandatory prices or fixed tariffs.
  4. Materials, services, or works provided by any department or company where the Government holds at least 51% of its capital shares.
  5. Services requiring highly specialized qualifications and competence.
  6. Books, periodicals and audiovisual tapes as well as computer software and sophisticated technical equipment.

 

Article 45:

The contractor who is to be appointed by direct agreement shall be selected by any of the following methods:

  1. The Direct Purchasing Committee shall request submission of quotation/quotations from a supplier/contractor or several suppliers/ contractors if the estimated value of the supplies, works or services exceeds (100) one hundred thousand Dirhams and in such case the supplier/contractor shall be requested to submit a performance bond in preparation for conclusion of the contract.
  2. The purchasing committee mentioned in the foregoing paragraph shall request a quotation or several quotations for items, services or works of a value ranging between (10) ten thousand Dirhams and  (100) one hundred thousand Dirhams provided that the decisions of the said committee shall be approved by the competent authority and thereafter a purchasing order determining the items or an assignment order determining the items or an assignment order determining the required works or services, their prices, period of delivery or execution, penalties and any other conditions shall be issued.
  3. Direct assignment by the Director of the Department or whoever is authorized by him for purchasing of items, execution of works or provision of services whose value is less than (10) ten thousand Dirhams and to submit an invoice in the value to the Financial Division accompanied with documents as per purchasing procedures.  It is preferable to seek guidance of quotations whenever possible.

Negotiation Method in Selecting A Contractor in the Emirate of Dubai

 

 

Law No. 6 of 1997 On Contracts of Government Departments in Dubai Emirate

Article 41:

Negotiation is a special method of selecting a contractor and shall be performed in the following cases:

  1. If the specifications of required materials, works or services are difficult to be exactly determined and require technical expertise and specialization.
  2. If the need for the materials, works or services is too urgent to wait for tendering procedures or that their value is not commensurate with the cost of tendering.
  3. If materials, works or services have been previously tendered and no one participated or if unacceptable tenders or a sole tender were submitted for it and the need for it does not permit re-tendering.
  4. In the event of supply of materials, execution of works or provision of services on behalf of a contractor whose contract has been revoked.
  5. If the contract’s subject matter calls for carrying out of researches and experiments requiring certain execution method which is not commensurate with tender method.
  6. If the contract’s subject matter is purchasing of real estate, insurance, shipping, or clearance.

 

Article 42:

Contracting by negotiation shall be performed within the financial limits mentioned in Article 6 hereof and the following procedures shall apply to it:

  1. The contracts and purchasing division or the competent authority shall invite the suppliers, contractors, or service providers to submit their offers and the invitation shall include description of the required materials, works or services, their specifications as well as all conditions, periods, dates, and places governing the contract.
  2. Negotiable offers shall be submitted during the period specified in the invitation and signed by the tenderer, stamped with his seal and accompanied with all required documents and papers.
  3. The committee shall hold a meeting at a date fixed for tender opening and shall ensure availability of the conditions required to be met by the tenderers and exclude those who fail to satisfy said conditions.  Then the name of every tenderer shall be called over together with the total value of his offer.
  4. The committee shall prepare minutes of the procedures followed including the prices and names of those negotiated with as well as its recommendation determining the successful bidder.  The minutes shall be accompanied with all offers submitted and it shall be filed to the  competent authority for approval of the result.

 

Article 43:

Without prejudice to the provisions of Article 41 and 42, the negotiation shall be subject to the general rules of the public tender to the extent and limits which do not contradict with the nature of the negotiation and the special circumstances that necessitated it in respect of contracts whose value exceeds (100) one hundred thousand Dirhams; but if the value is less than that and the delivery of the items, works or services is to be made within 15 days, it shall be sufficient to obtain a written declaration from the contractor ensuring his commitment to execute the subject matter of the negotiation and in this case he shall be exempted from the performance bond.

Closed Tender in the Emirate of Dubai

 

 

Law No. 6 of 1997 On Contracts of Government Departments in Dubai Emirate

Article 39:

The closed tender is the one where suppliers, contractors, or service providers who are approved to be dealt with due to their competence and specialization in the subject matter or the announced tender, shall be invited to participate; and the procedures and rules applying to the public tender shall be applied to it except for the notice.

Article 40:

The invitation to approved suppliers, contractors and service providers shall be extended according to the record stated in Article 10 and 11 hereof.  However, others not registered in said record may be invited if the department has interest in the same.

Drawing Up of the Contract After Successful Tender in the Emirate of Dubai

 

 

Law No. 6 of 1997 On Contracts of Government Departments in Dubai Emirate

Article 35:

The contract shall be made by the department inclusive of all points of agreement, namely the following:

  1. Tender Number, contract date, contract parties, their representatives and their selected place of residence.
  2. Contract subject material together with brief description of contracted materials, works or service.
  3. Execution period, date of commencement, decided date of delivery and place of delivery.
  4. Provisions pertaining to incidental variations to the contract with increase or decrease.
  5. Punitive procedures and penalties applied in case of delay in execution, withdrawal or suspension of execution for any reason.
  6. Financial value of contract, terms of payment, advance payment and the various guarantees.
  7. Bills of quantities, rates of supplies and works and details of services.
  8. Conditions and cases of subcontracting and conditions of assignment of contract.
  9. Provisions governing resolution of disputes between the parties and courts of jurisdiction.
  10.  Book of General Conditions.
  11.  Book of special conditions if any.  The contract shall be signed by the competent authority of the department and the contractor; and by the contractor subsequent to his submission of the required performance bond.

 

Article 36:

No contract where Dubai Government or any of its departments is a party shall contain a provision for arbitration outside Dubai Courts or to any laws or rules other than the laws, rules, and regulations prevailing in the Emirate of Dubai and any text to the contrary shall be considered as invalid and not binding.  As an exemption where public interest requires, the Government or any of its departments, establishments and authorities may be exempted from conforming to said provision.

Article 37:

The contract shall not provide for adherence to the conditions of the International Contract (FIDIC) or any of said conditions whether only by reference thereto or by appending it to the contract, except for exceptional reasons provided that a prior written approval is obtained from the Ruler.

Performance Bond Payable by Successful Tenderer in the Emirate of Dubai

 

 

Law No. 6 of 1997 On Contracts of Government Departments in Dubai Emirate

Article 32:

  1. The successful tenderer shall pay an interest-free performance bond equal to 10% of tender value in the form of an unconditional irrevocable letter of guarantee from a bank operating in the country to be submitted on a special form prepared by the concerned department and shall be valid for a period of 90 days after termination of the contract period with regard to supply and service contracts and after completion of the final handing over for work contracts unless the committee decides otherwise.
  2. The value of the performance bond shall be determined as a lump sum in contracts where its financial equivalent cannot be determined exactly.
  3. The performance bond shall be increased if the value of supplies, works, and services exceeds the value fixed in the contract.  If the tenderer fails to complete the performance bond, the department shall be entitled to deduct the value of the required completion from his dues.
  4. The value of the performance bond may be gradually decreased in divisible supply contracts according to the percentage of progress in the contract execution provided that the said performance bond shall not be less than 10% of the value of the outstanding portion o the subject contract but decrease of value shall not be permitted in work and service contracts and indivisible supply contracts.
  5. Submission of performance bond may be exempted if the supply period in the contract does not exceed (15) days from the date of contracts signing provided that the validity period of the performance bond shall be extended for a period not less than thirty days from the date of final handing over  and this shall be stated in the contract.
  6. Submission of performance bond may be exempted for foreign contracts regarding supply of materials and services which do not have agents in the country if the supplier refrains from submission of said bond and the department is in dire need for such supplies.  The exemption shall be made with the approval of the General Manager.
  7. Public establishments or authorities and companies where the government holds at least 50% of their capital shall be exempted from submission of both bid and performance bonds.

Selecting the Successful Tender in the Emirate of Dubai

 

Law No. 6 of 1997 On Contracts of Government Departments in Dubai Emirate

Article 30:

In selecting the successful tender, the committee shall observe the following:

  1. To select the lowest tender provided that it is in conformity with the conditions and specifications.  However, the committee may accept highest tender provided that the decision is reasoned and taken in the light of the study prescribed in Article 17 and what is contained in Article 27 hereof.
  2. If prices and specification are equal in two tenders, the committee may divide the quantities between the tenderers who submitted the equal priced offers if such division is possible and in the interest of the work.  However, the committee may negotiate with a view to obtain lowest prices. 
  3. If the lowest tender has one or several reservations and the second lowest tender has none, the lowest tenderer may be approached to waive his reservations, but if he refuses, the committee may award the tender to the second lowest tenderer or cancel the tender if such decision realizes the interest.
  4. The committee may, on tender award, give price priority within the limit of 10% to national industrial products if they achieve the required purpose and have similar quality as foreign products.
  5. The committee may cancel the tender if all submitted prices are high as compared to the study prescribed in Article 17 hereof.
  6. If any member of the committee is involved in conflict of opinion with the other members, such conflict shall be stated in the committee minutes.  However, if the disagreeing member is the technical member, the committee chairman shall refer the subject to a specialized technical committee for its advice.
  7. All prices must be calculated on a standard basis as regards to net weight, weight unit and size or measurement or place of delivery taking in consideration the rates of exchange of foreign currencies on the day of opening of envelopes for comparison between local and foreign traders.
  8. The committee shall mention the procedures carried out by it in official minutes stating its comments and recommendations and it shall be signed by the chairman and all members of the committee and shall be accompanied with all tender documents and offers.

 

Article 31:

  1. The committee after completing its works and determining the successful tender shall file its recommendation to the competent authority according to what is stated in Article 6 hereof for approval.
  2. Granting approval to the committee’s recommendation shall be considered as award of tender to the successful tenderer and he shall be notified with a counter signed registered letter.  However, award of the tender and notification of successful tenderer shall not entail any rights for him towards the department in the event of reversing the award decision for any reason and the department shall not be considered liable except from the date of signing the contract.
UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance