Trapped by tender
Principals in the medical machinery sector face rising freight and material costs while distributors remain locked into fixed tender prices, prompting Dr. Constantin Frank-Fahle and Marcel Trost to assess available legal remedies.
The disruption to shipping routes through the Strait of Hormuz, combined with the concurrent spike in polymer and medical-grade raw material costs, has placed a specific class of principals under acute pressure: manufacturers and exclusive suppliers in the medical equipment sector whose Gulf distributors hold long-term government supply tenders at fixed prices. The distributor is bound to the public customer; the principal is bound to the distributor. When freight costs rise 25 to 40 per cent within a single quarter, that chain transmits financial pain in one direction only — upward to the principal.
The legal question we are asked most often in this context is deceptively simple: can the principal adjust its prices to the distributor, or withhold supply until the economics are renegotiated? The answer under UAE law is uncomfortable, but it is knowable.
THE STRUCTURAL TRAP
The typical arrangement in the UAE and broader GCC medical sector involves a European or Asian principal supplying a local distributor under a long-term exclusive supply agreement. The distributor, in turn, holds the public tender — awarded by a Ministry of Health, a hospital authority, or a public procurement body — at a fixed price for a defined period, commonly two to five years. Both contracts are fixed-price instruments. Neither contains, in most cases we encounter, a price adjustment clause that responds to freight index movements.
This creates layered exposure for the principal. Even if the principal were legally entitled to reprice its supply to the distributor, the distributor cannot absorb an increase it cannot pass through. And it cannot pass through an increase to the public customer without triggering a formal variation procedure under the applicable procurement regulation — a process that requires tender committee approval, takes time, and is far from guaranteed. The commercial and legal problem is therefore not bilateral. It involves three parties, two contracts, and a public procurement framework that was designed for price stability, not for geopolitical supply shocks.
WHAT UAE CONTRACT LAW ACTUALLY PROVIDES
The UAE Civil Transactions Code (Federal Decree-Law No. 25 of 2025 which has replaced Federal Law No. 5 of 1985 as of 1 June 2026) contains two provisions that are directly relevant. Article 236 (Article 273 Federal Law No. 5 of 1985) addresses force majeure: where performance of an obligation becomes impossible due to a cause beyond the obligor’s control, the obligations are extinguished and the contract is dissolved ipso jure. Article 224 (Article 249 Federal Law No. 5 of 1985) addresses hardship: where exceptional and unforeseeable circumstances arise that render performance excessively onerous — not impossible — a court may (depending on the circumstances and after balancing the interests of both parties) reduce the obligation to a reasonable level or order the rescission of the contract.
The practical significance of the distinction is this: the principal who argues force majeure under Article 236 must show that delivery has become genuinely impossible, not merely costly. Given that alternative freight routes, albeit more expensive, remain available for most medical equipment shipments, impossibility is a difficult case to make. Article 224 hardship, by contrast, requires only that performance has become excessively onerous due to exceptional and unforeseeable circumstances — a standard that the documented scale and speed of the current logistics cost explosion, particularly for principals with thin contractual margins, can credibly satisfy.
The critical constraint is that Article 224 is not a self-help remedy. It does not authorise unilateral repricing or suspension. Only a court or arbitral tribunal can recalibrate the obligation. This means Article 224 functions, in practice, as a documented negotiating lever: the principal invokes it formally in writing, requests renegotiation, and preserves the right to litigate if the distributor will not engage.
THE DISTRIBUTOR’S POSITION IS NOT IRRELEVANT
A point that is sometimes overlooked in advising principals is that the distributor faces the mirror image of the same problem. If the public customer will not accept a price variation — and many will not, particularly within the current contract year — the distributor is being asked to absorb a cost it did not price in and cannot pass on. This shared exposure is, paradoxically, the most useful commercial fact in the renegotiation.
“The most effective renegotiations we have seen in this context are not principal-versus-distributor disputes. They are coordinated approaches by principal and distributor to the public customer, supported by documented cost evidence and a clear legal basis for seeking a variation.”
Where the distributor and principal can present a coordinated position to the public customer — supported by contemporaneous cost documentation, a formal hardship notice referencing Article 224 of the UAE Civil Code, and a specific proposed variation — the public customer’s procurement team has a process to follow. Variation procedures exist to some degree for instance under Dubai Law No. 12 of 2020 and the federal Cabinet Decision No. 122 of 2024. They are slow and require the necessary approvals, but they are available. The alternative — the principal withholding supply, the distributor defaulting to the public customer — triggers a cascade of consequences that serves no party’s interests.
SANCTIONS AND WHY UNILATERAL ACTION IS NOT THE ANSWER
Principals who are tempted to simply reprice confirmed orders or suspend deliveries while the commercial dispute runs should understand the risk profile clearly. Under UAE law and standard public procurement practice, a distributor that cannot perform its government tender obligations may face: liquidated damages typically calculated at 0.1 to 1 per cent of total contract value per day of delay; performance bond forfeiture, with bond values commonly set at 5 to 10 per cent of contract value; substitute procurement at the defaulting party’s cost; and potential blacklisting from future UAE public tenders. These consequences flow contractually to the distributor — but they flow commercially back to the principal if the supply failure originates with the principal’s repricing or suspension.
Article 249 of the UAE Civil Code (Article 287 Federal Law No. 5 of 1985) provides a partial defence: a party is not liable for damages where loss arises from an external cause beyond its control. The geopolitical escalation and disruption to shipping routes may qualify. But Article 249 operates as a liability shield, not as a source of positive rights. It does not justify suspension. It mitigates exposure if suspension has already occurred and the principal can demonstrate absence of fault and reasonable mitigation efforts.
WHAT PRINCIPALS SHOULD DO NOW
Based on our advisory experience in this sector, the sequence that best protects the principal’s position is the following. First, review every affected supply agreement and distributor contract for price adjustment clauses and force majeure definitions. Many standard-form agreements in the medical equipment sector contain force majeure provisions broader than Article 236 (Article 273 Federal Law No. 5 of 1985) — covering supply chain disruptions, geopolitical events, or government-imposed restrictions — and these should be invoked promptly, within any contractual notice window.
Second, issue formal written hardship notices to affected distributors, explicitly invoking Article 224 of the UAE Civil Code, referencing documented cost data, and requesting renegotiation within a defined timeframe. These notices serve a dual purpose: they are the starting point for a genuine renegotiation, and they are the evidentiary foundation for any subsequent legal proceedings.
Third, build and maintain a contemporaneous cost documentation file. This means supplier invoices, freight quotes and carrier communications, internal cost analyses, and any publicly available data on route closures or port disruptions. In UAE court proceedings and arbitration, the quality of the evidentiary record frequently determines the outcome of a hardship claim.
Fourth, for future contracts — both supply agreements with distributors and any new tender arrangements — insist on price adjustment clauses indexed to verifiable benchmarks, such as the Freightos Baltic Index for sea freight or the ICIS polymer price indices. The current situation has made clear that long-term fixed-price supply in a geopolitically unstable logistics environment requires contractual mechanisms that the market has historically been reluctant to include.
CONCLUSION
The Gulf logistics cost explosion has exposed a structural vulnerability in the medical equipment supply chain that neither principals nor their distributors designed into their agreements. UAE contract law provides a framework for navigating it — but that framework rewards preparation, documentation, and coordinated action, and it punishes unilateral decisions made without legal advice. For principals currently caught between rising costs and locked distributor contracts, the window for structured intervention is open. It will not remain so indefinitely.
Text by:
- CONSTANTIN FRANK-FAHLE, LL.M., founding partner, emltc (Emerging Markets – Legal. Tax. Compliance.), Abu Dhabi/Dubai, UAE
- MARCEL TROST, founding partner, emltc (Emerging Markets – Legal. Tax. Compliance.), Abu Dhabi/Dubai, UAE
