PUBLIC SECTOR CONTRACTING

As a general rule, a public authority in Kuwait may only buy equipment and commodities, and commission works, by way of an independently administered tendering process. Public tendering is governed by Law 37 of 1964, Law 18 of 1970 and Law 81 of 1977 as amended.

Tendering procedures for most public institutions are administered by the Central Tenders Committee (CTC), though the client body (i.e. the public body requiring the service) draws up the specifications and particular conditions it requires, reviews pre-qualifying companies, and evaluates bids technically. However some public institutions have their own tendering procedures. But no matter who administers a tender, the procedures are in essence the same as CTC procedures, and all activities relating to public tenders, such as tender announcements, invitations to pre-qualify, pre-tender meetings, and amendments to conditions and specifications, are only published in Al-Kuwait Al-Youm, the official gazette.

Funding for major projects is normally provided by the government. In recent years other forms of financing, such as credit facilities supported by export credit agencies (ECAs) and build-own-transfer (BOT) type schemes, have been tried.

Eligibility & Registration
A tenderer for a public contract must be a Kuwaiti merchant who is (a) registered with the KCCI and the MCI, and (b) registered as an approved supplier or contractor.

The CTC and client bodies maintain lists of approved suppliers of equipment and materials. To get on the lists, the main requirement for suppliers is that they be Kuwaiti merchants. Application for registration is usually made to the client body.

The CTC also maintains lists of approved contractors for works. Before getting on these lists a contractor must be classified according to the size of projects he is deemed capable of undertaking. The size limit for the first three categories represents the cumulative size of all contracts being undertaken at the same time by a contractor, e.g. a category (4) contractor cannot bid for a contract worth more than KD50,000 if, at the time of his bid, he is already undertaking projects with an total value of KD200,000. Foreign companies are not classified as they must prequalify each time they bid for public sector contracts.

Pre-Qualification
Participation in some public tenders is restricted to firms who have been pre-qualified, i.e. judged capable of undertaking the particular project. To prequalify, a firm submits a standard set of documents outlining its financial and technical capabilities to the CTC. Foreign firms must prequalify each time they bid for a public contract. Their applications may only be submitted by their Kuwaiti agent and must be accompanied by an authenticated copy of the agency agreement.

Bidding Procedures
Forthcoming tenders are announced in Al-Kuwait Al-Youm as invitations to bid . To collect the documents, a written request in Arabic plus the fee (for which a receipt is given) is needed. A foreign firm must show an authenticated copy of the agreement with its local agent.
Firms who have purchased the documents may be invited to pre-tender meetings with the client body. Sometimes these are mandatory and bidders who do not attend find themselves excluded from the tender. The scope of work may be amended after the tender documents have been issued or after a pre-tender meeting. When this happens the administering committee issues a formal addendum which can only be collected on production of the original receipt for the tender documents. Notice of pre-tender meetings and tender amendments are announced in Al-Kuwait Al-Youm and tenderers are seldom advised directly.

Bid Preparation
A bid may only be submitted on the original official tender documents issued to the company making the bid. All parts must be completed in full and the documents may not be altered in any way. The bid must conform to the tender terms exactly and alternative terms are never acceptable. All prescribed supporting documentation must be appended.

The tender documents are expected to be submitted without erasures or corrections. Where alternative offers are allowed, a tenderer must buy a separate set of documents for each offer he submits, with each bid clearly marked to show that it is an alternative.

Pricing & Pricing Preferences
Contracts must usually be priced on a lumpsum fixed-price basis, though unit pricing is normal in maintenance type contracts. Most bids must be priced in Kuwaiti Dinar. Prices must be stated on a cash-basis.

Public sector contracts must by law be awarded to the bidder who offers the lowest price provided his bid conforms with technical requirements and he has adequate resources. But where a firm has submitted an artificially low bid and it appears that it will be unable to perform to the required standard, the contract may be awarded to the next lowest bidder.

Local manufacturers have a price advantage. Subject to technical acceptance, goods made in Kuwait may be priced up to 10% higher than comparable items made abroad and be deemed the lowest priced. Goods made in other GCC countries have a 5% price preference; but if the goods are not made in Kuwait then GCC goods have a 10% advantage. Local contractors for the performance of works do not enjoy any pricing advantage.

Bid Bonds
A bidder's offer must be irrevocable until the end of its period of validity which initially cannot be more than 90 days. An unconditional bank guarantee for the entire initial period of validity, issued in Arabic by a Kuwaiti bank, must be submitted with the bid. These bonds vary from 2% to 5% of the value of the bid. If a bidder is successful but refuses to sign the contract, the bond is forfeit.
Bidders are often asked, towards the end of the initial period of validity, to extend their offers. If they wish to do so then the bid bond must also be extended.

Submission of Bids
Tender documents must be signed by the bidder and stamped with his seal. If a foreign firm submits a bid directly, rather than through its local agent, both its stamp and the agent's stamp must appear on every page. Proof of the signatory's capacity to bind the bidding firm is always required and this usually takes the form of a notarised power of attorney.

If the tender documents include a bid envelope, this must be used to submit the bid. The name of the bidder may not appear on the envelope, which must be sealed with wax.

Bids must be submitted to the tender committee at the place, date and time stated in the conditions. Where the CTC is administering the tender, bids must be submitted in the CTC's office in Sharq, which is done by placing the envelope in the box designated for that tender by a notice in Arabic (only). The closing time is usually 1:00pm and the box is always sealed the very second time is up.

Evaluation & Award
Where the CTC is administering the tender, bidders may get a copy in Arabic of the list of bidders and their prices from the CTC's Sharq office, about a week or so after bidding closes, by showing a copy of the original receipt for the documents. But other tender committees do not normally provide such lists.

In most tenders a technical study, to ensure that bids comply with the required specifications, is usually carried out by the client body. During these studies, a bidder may be invited to answer queries orally or he may be sent a list of questions requiring a written reply.

Once technical studies are completed, a contract is awarded on the basis of price from among the bids that conform with the tender specifications. The administering committee notifies a successful bidder in writing, but the latter does not have any contractual rights until he has signed his contract with the client body. If the winner fails to sign the contract within a specified time of being invited to do so, he is deemed to have withdrawn.

Before signing the contract, a successful bidder must replace his initial guarantee with a final guarantee or performance bond from a Kuwaiti bank. This is typically 10% of the contract value and must be valid for the duration of the contract including a maintenance period. A contractor who fails to present this guarantee is deemed to have withdrawn.

Performance
Public sector contracts always contain penalty clauses, and minor delays and faults in execution usually result in penalties being imposed.
Contractors for the performance of works normally receive an advance of 10% to cover costs of mobilisation. Stage payments on account of work-in-progress are also made. Most contracts allow the client body to retain 10% from work-in-progress payments until the end of the contract and to recoup the advance pro-rata from work-in-progress payments, so that during the maintenance period the client body is holding a retention of 10%.

Public sector contracts normally include a maintenance period of a year, during which the contractor is liable for any faults in the equipment or works. The period is covered by a retention, in the case of works, and the performance bond.

When a project of works is completed, the contractor usually receives a provisional completion certificate which is replaced by a final acceptance certificate at the end of the maintenance period. This final certificate releases him from further liability and enables him to claim his final payment. Before he can receive his final payment, a foreign contractor must obtain a tax clearance certificate.