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The procurement process for public-private partnerships in United Arab Emirates

Procurement process

Relevant procedure

What procedures normally apply to a PPP procurement? What evaluation criteria are used to award a PPP transaction?

Under the Dubai PPP Law, a government entity must, before initiating a tendering process, follow the company pre-qualification procedures to shortlist private entities eligible for a PPP. The project must be announced in ‘various media sufficient time in advance’ before the bid deadline and the government entity must comply with the rules and criteria stipulated in the Dubai PPP Law and related resolutions when pre-qualifying a private-sector partner. A government entity may also hold preliminary meetings with pre-qualified partners to discuss preliminary specifications and conditions in relation to the proposed project and other relevant matters (eg, experience of the bidders).

During the tendering process, the pre-qualified partners are invited to collect the tender documents of the partnership project and submit their bids in accordance with the tender documents. Under the Dubai PPP Law, the process of selecting a project partner is subject to the principles of openness, transparency, fair competition, equal opportunity, equality and achieving the public interest. It is up to the procuring body and its advisers to prepare tender documentation and establish evaluation criteria suitable for the project in question.

Under the Dubai PPP Law, a private entity is awarded a PPP transaction if it is able to meet approved financial and technical standards, regulations and financial and technical conditions and prove that it has the capabilities and competencies required for working in its field of specialisation. The proposals are assessed by the partnership committee using the evaluation criteria set out in the tender document prepared for the specific project.

The position under the AD PPP Law details the same standards and conditions, as the partner selection process is subject to the principles of openness, transparency, freedom of competition, equal opportunities, equality, announcement of the competition and achievement of the public interest requirements. Under the Procedures Manual, a project committee must be established by the federal Minister of Finance, which will include members from the technical bureau, to announce the tender process for awarding the partnership contract. Under the Procedures Manual, the procurement method can be in the form of a public tender, closed tender or limited tender. The winning bids will be determined by the project committee following its assessment, followed by final approval of the economic and financial committee (a ministerial committee reporting to the cabinet established to assess the technical bureau’s opinion).

Consideration of deviating proposals

May the government consider proposals to deviate from the scope or technical characteristics of the work included in the procurement documentation during the procurement process, without altering such terms with respect to other proponents? How are such deviations assessed?

Neither the Dubai PPP Law nor the AD PPP Law addresses the issues of mandatory and variant bids specifically, but state that a bid must meet ‘all the technical and financial requirements and specifications stipulated in the tender documents for the project’. However, the Dubai PPP Law goes on to state that bids that do not meet such requirements and specifications will be disqualified.

The Procedures Manual sets out various contract-awarding methods, which include a ‘negotiated procedure’ whereby the bidder can submit various solutions for the required service. It is generally expected that the tender document issued will include terms on whether the government entity is expected to receive bids for the stated scope of work or is prepared to receive bids for alternative scope of work.

Unsolicited proposals

May government parties consider unsolicited proposals for PPP transactions? How are these evaluated?

The Dubai PPP Law allows a private entity to make unsolicited proposals for PPP projects and allows the government body to contract directly with such a private entity. There is no requirement for the proposals to be put out to tender. The AD PPP Law is silent on the issue of unsolicited proposals for PPP transactions.

Under the Procedures Manual, all proposals to be completed under a PPP agreement must be referred by the technical bureau to the financial and economic committee, which, in turn, must be approved by the cabinet. This indicates that a direct proposal scheme does not operate at a federal level.

Government stipend

Does the government party provide a stipend for unsuccessful short-listed proponents or otherwise bear a portion of their costs?

Under both the Dubai PPP Law and the AD PPP Law, no compensation is paid to bidders that are unsuccessful or where a tender process is cancelled. The Procedures Manual is silent on this issue but the position on compensation for unsuccessful bidders, or bid costs where a tender process is cancelled, is likely to be the same as in the Dubai PPP Law.

Financing commitments

Does the government party require that proposals include financing commitments for the PPP transaction? If it does not, are there any mechanisms during the procurement process to ensure that the applicable PPP transaction, once awarded, is financeable?

Both the Dubai PPP Law and the AD PPP Law are silent on whether the proposal should include a financing commitment, but the government entity, on approval of the Ministry of Finance, may authorise the project company to enter into financing arrangements for the project. The Procedures Manual sets out that the project committee can request details of the financing sources from the bidders and may even specify a debt-to-equity ratio for financing the project.

Generally, it is expected that the invitation to tender will include all details about the relevant project including, without limitation, financial requirements for the partnership and other requirements. In addition, it is expected that the private entities are given enough time to study tenders and submit bids, together with financial proposals. Where project finance or other forms of external funding proposals are submitted, the procuring government body will require written confirmation of funder commitment.

Legal opinion

May the government ask its counsel to provide a legal opinion on the enforceability of the PPP agreement? May it provide representations as to the enforceability of the PPP agreement?

The Procedures Manual, the Dubai PPP Law and the AD PPP Law are all recent developments in the UAE so there is little information available on whether a legal opinion on enforceability will be requested. In practice, it is uncommon for the government to ask for this. The contract documents are expected to comply with all applicable laws. Therefore, there should be no question as to the enforceability of contracts with any government department. Furthermore, it is unlikely that the PPP agreement will include any form of government warranty on its enforceability.

Restrictions on foreign entities

Are there restrictions on participation in PPP projects by foreign entities? May foreign entities exercise control over the project company?

There are no restrictions on foreign-entity participation in PPP projects in the UAE. Pursuant to the Dubai PPP Law and the AD PPP Law, a project company can be a sole proprietorship and a local or foreign company licensed to operate in the emirate of. However, there are requirements, including foreign ownership restrictions (subject to change) in order to be registered or incorporated on-shore in Dubai and on-shore in the UAE. This will depend, among other things, upon the proposed activity of that company. The most common vehicles in the UAE are as follows:

  • limited liability company (onshore in the UAE): UAE Companies Law (Federal Law No. 2 of 2015) limits foreign ownership of such a company to 49 per cent, with 51 per cent to be held by a UAE national, or a locally registered company wholly owned by UAE nationals. However, the new Federal Decree-Law No. 19 of 2018 (FDI Law), permits up to 100 per cent foreign ownership for selected activities ‘onshore’ in the UAE, subject to the ‘Negative List’ (to which the UAE Cabinet may add or remove sectors). However, the new law also introduces a ‘Positive List’ in which greater levels of foreign investment will be permitted than is currently the case. The decision on which industries can benefit from 100 per cent foreign ownership are based on satisfying numerous factors, including the ability of the investment to create jobs and transfer technology;
  • branch or a representative office (onshore in the UAE): the branch or representative office must be sponsored by a UAE national or service agent; and
  • free zone company: 100 per cent foreign ownership is possible but the company’s activities are limited to business within and between the free zones.

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