May 20, 2010
Defense contractors accustomed to working with sales agents paid on a commission-basis in Korea may need to re-evaluate how they conduct business there. On April 26, 2010, the Korean Defense Acquisition Program Administration (“DAPA”), issued a directive prohibiting the use of commission agents by foreign companies in most sales to the DAPA, the Korean Program Management Agency, the Contract Management Agency and the Korean Helicopter Project Group.
According to the Directive, foreign companies must interact directly with the Korean government on projects with a contract value of US$2 million or more. Bid notices will reflect this requirement and bidders must certify that they have not involved commission agents in the bid process. The DAPA will grant exemptions from this requirement if the foreign company submits a written request, or the project isn’t subject to the direct transaction requirement. However, even if a foreign company is permitted to use a commission agent, the agent’s scope of work is now limited to (i) acquiring various purchasing information; (ii) maintaining contacts with foreign companies; (iii) providing services related to warranty and indemnification; and (iv) acquiring quotations. The directive does not apply to projects for which invitations for bids or requests for proposals were issued before April 26th or to contracts signed before April 26th. A copy of the Korean directive can be found here.
A number of countries restrict or regulate the use of third parties in transactions with the government. Greece caps commissions on sales of military products at 3 percent; the use of commission agents on sales to the Ministry of Defense in Egypt is prohibited; and companies are required to retain local agents on government sales in Qatar and a number of other countries in the Middle East. TRACE maintains a library of local law summaries regarding the use of third parties on the TRACE Resource Center. For more information please contact TRACE at [email protected].