The system of signing contracts and financial commitments of the state: Key takeaways

Ever since it was first enacted in 1976 as Royal Decree 48/1976, Oman’s Law on the Signing of the Internal and External Financial Transactions has only been amended once, almost 27 years ago, through Royal Decree 23/1997. The agenda to meet the current administrative and financial practices is the main intention for the replacement of the outdated Royal Decree 48/1976 with the newly issued Royal Decree 59/2024, establishing the System for Signing Contracts and Financial Commitments of the State (the Law).  

The Law was published in the Official Gazette and became effective on 25 December 2024. The Law provides an updated, modern and complete framework for financial contracting by Oman's state administrative units and public legal entities. The new system aims to ensure transparency, accountability, and compliance with fiscal allotments in government contracts. This article highlights the changes required by the new system for signing contracts by the state.

Customary Provisions and Exemptions

Contracts with foreign governments, international organisations, private groups (Omani or foreign), and others that place financial strain on the public budget are governed by the new system. The state budget must be reflected in all contracts, otherwise, the contracts are null and invalid, and the State is not financially responsible. The Financial Law, Tender Law, and other relevant laws, such as those governing conflicts of interest, must all be adhered to in the contracts. The Law places a requirement of mandatory review for contracts priced above OMR 5,000,000 or if it involves borrowing.  These contracts must be first reviewed by the Ministry of Justice and Legal Affairs of the Sultanate of Oman.

The new system makes a point to exclude certain contracts and obligations. The Law reiterates that this new system does not apply to contracts (i) signed or delegated by HM, the Sultan, (ii) that the military, security agencies, and Central Bank of Oman are a party to, (iii) that are made by public institutions, or (iv) are exempted under a law or Royal Decree. A government body can now sign a contract or any financial commitment with a foreign government, an international organization, or a private natural or legal person in Oman or overseas by following the procedures outlined in the Law.

The Law states that any contract that does not adhere to the Law's provisions will not be enforceable against the government, so contractors who sign contracts with government ministries that are subject to its provisions must ensure that the government entities sign the contracts in accordance with the Law. Therefore, the contractors have an additional risk, since the Law also requires financial appropriations to have been made for the project in question and only then is such contract enforceable. However, this relates to the government’s internal working which the contractors will not have the means of checking. To add to this difficult situation, the Law makes a statement that the signing of government contracts in compliance with the Law’s provisions, is confirmation enough that the financial appropriations have been made.

Appropriate Authority for Signing

Royal Decree 48/1976 required that the Ministry of Finance of Oman sign any deal costing more than OMR 5,000,000 in addition to the ministry in charge of the contract. The Law eliminates that requirement, making it easier to execute government contracts. Apart from Oman Investment Authority’s investments, the Ministry of Finance's signature is now only required for government bonds, guarantees and investment projects linked to the economic development of Oman.

The Law sets out categories of contracts and their relevant signing authorities, as follows:

• signatures from the head of the relevant government body are needed for construction projects and associated services;
• contracts valued at OMR 3,000,000 or more are to be signed by the authorised official i.e., the head of the relevant government body;
• contracts valued in the range of OMR 1,000,000 and OMR 3,000,000 are to be signed by the undersecretary, the secretary-general or the competent director-general at the relevant government body;
• contracts worth less than OMR 1,000,000 are to be signed by the director-general of the relevant government body or by delegation to another director-general or a person of similar status; and
• the Law provides that the contracts stipulated in Article 2 like business contracts, purchase of property, supply of goods contracts, issuance of bonds or guarantee contracts are to be signed by the Minister of the relevant government body or by the person the Minister delegates to.

Government Guarantees and its Rules

The Law sets out the general guidelines that government guarantees must adhere to.  It also states that the Ministry of Justice and Legal Affairs must review them, and that the Ministry of Finance has the power to make decisions regarding the terms of government guarantees. The Law also clarifies the fact that the regulations outlined in the Banking Law and the Commercial Law which governs the granting of guarantees by commercial banks will not apply to such government guarantees.

Conclusion

To conclude, we believe that the Law is a positive step forward since it rationalises and streamlines the process for government bodies to sign contracts including government guarantees which were previously unregulated. 

This article was prepared with the assistance of Devawrat Bane, paralegal in CMS Oman.