Ban on Using Local Agents in Tender Contracts

According to the explanatory memorandum for Legislative Decree No. 2026/94 amending certain provisions of Public Tenders Law No. 2016/49, the objective of its issuance is to simplify procedures, address difficulties and issues arising from practical realities, and enhance the flexibility of relevant entities in dealing with actual circumstances, thereby serving the interests of work and ensuring that public tender procedures are implemented swiftly, efficiently, transparently, and fairly. Among the provisions amended is Article 31, which imposes a ban on foreign bidders using local agents or commission agents in all contracting procedures. This provision warrants the following observations.

The amendment to Article 31 adopts an entirely unsatisfactory legislative formulation. The reason lies in the legislator’s use of the term “agents” in the plural and in a general sense, implying that the legislator intended to comprehensively and absolutely prohibit foreign bidders from employing all types of commercial agents explicitly stipulated in the Commercial Law, namely contract agents, distributors, and commission agents. This interpretation is based on the fundamental legal principle that “the absolute is applied as absolute until it is restricted.” Subsequently, within the same article and without a clear rationale, the legislator specifically singled out “commission agents” for the ban, as if considering commission agents to belong to a separate category of commercial agencies, independent in their own right, and unrelated to the general legal concept of commercial agency. This is one aspect.

On the other hand, in our view, the amendment to the aforementioned article will not be significant, neither in providing additional protection for public funds by ensuring they are not burdened with extra costs, nor in negatively or positively affecting the willingness of foreign companies, which are already inclined to participate in public tenders in Kuwait, nor even in achieving the objective stated in the explanatory memorandum, for the following reasons:

First, Law No. 1996/25, which remains in force after three decades, governs the disclosure of commissions offered in contracts concluded by the State valued at 100,000 Kuwaiti Dinars or more. It criminalizes the failure to disclose and submit a written declaration within the specified period regarding details of any amounts paid under any designation by foreign bidders to their local agents. This provision itself provides substantial protection for public funds, as government entities owning the projects will have full knowledge and sufficient awareness of any amounts paid by foreign bidders to their local agents in this capacity.

Second, the ban on foreign bidders using local agents or commission agents in all contracting procedures will absolutely not mean:

- The invalidity of commercial agency contracts, of any kind, currently in force between foreign bidders and their local agents.

- A prohibition on concluding commercial agency contracts, in any form, between Kuwaiti companies and foreign companies wishing to participate in public tenders in the future.

- The complete and under all circumstances elimination by foreign bidders of the need to engage local companies, in any capacity, whether as commercial agents, independent contractors, or even partners in a joint venture, when submitting bids or executing tender contracts in Kuwait.

- A radical change in the traditional scope of local agents’ duties, which practically, in most cases, is limited to administrative arrangements solely to facilitate foreign bidders’ submission of their bids, followed by the execution of tender contracts in Kuwait.

- It should result in or lead to ensuring that foreign bidders do not incorporate the fees or commissions of their local agents into the pricing of their bids, particularly since this information is valuable to them in advance, and thus become a component of the total value of the tender contracts, and/or - a change in the legal status of the Kuwaiti agent and his principal, the foreign bidder. Thirdly, I believe that the sole benefit of imposing a ban on foreign bidders’ use of local agents in contracting procedures is the inability to involve these agents in disputes and lawsuits arising between foreign bidders, who are project implementers, on the one hand, and their owners, on the other, thereby avoiding the burden of expenses arising from such disputes. Attorney Anwar Fahad Al-Zaman