Law for Compensation of Contractors and Suppliers in Governmental Projects

Law no. 84/2017 (the “Law) was issued on 9 July 2017 to compensate contractors who work for government projects and were adversely affected by the recent economic legislation adopted by the Government during 2016; such as the decision to free float the Egyptian currency, the increase in customs taxes, removal of the fuel subsidies and the imposition of the Value Added Tax.

The Prime Minister Decree issued on 23 October 2017 determined the percentages upon which the compensation amount will be calculated for each contract. The equation for calculating the compensation amount is as follows:

A Supreme Committee for Compensation was established to be responsible for setting out the criteria, conditions, and percentages of the compensation. The Committee is headed by the Minister of Housing and includes in its membership representatives of, inter alia, the Ministry of Finance, the General Union for Chambers of Commerce, the Egyptian Industries Federation, the Central Agency for Public Mobilization and Statistics (CAPMAS) and the Egyptian Federation for Construction and Building Contractors (EFCBC).

Compensation Criteria

On the 1st of October 2017, the Prime Minister ratified the criteria for granting the compensation to be as follows:

  • Contracts to benefit from the Law are construction, supply and service provision contracts concluded between a private party and a governmental entity or a government-related company.
  • The application of the Law is limited to contracts which were executed in whole or in part during the period from 01/03/2016 to 01/12/2016.
  • Contactors, suppliers and service providers who delayed or failed to abide by the implementation schedule agreed in the contracts for reasons attributed to it solely will not benefit from the Law.

Procedures to Request Compensation

To benefit from the Law, an aggrieved party shall submit a compensation request to the relevant governmental entity stating all information about the concerned contract, outlining the damage suffered from the economic legislation and explaining how it disturbed the economic and financial equilibrium of the contract. The request must be accompanied with all supporting documents to substantiate the claimed damage. The applicant shall also state, from its perspective, the value of the compensation amount.

The governmental entity shall review the request, calculate the compensation amount according to the stipulated rates and equations and prepare an evaluation report to be referred to the competent authority to issue its final decision on the matter.

Each governmental entity is required to allocate a portion of its annual budget to fulfill its obligations under the Law and to take the necessary procedures to ensure that the compensation amounts be paid within 90 days from the date of submission of the request by the aggrieved party.

A request for compensation shall not be accepted in the following cases:

  1. If the concerned contract is the subject of an ongoing dispute in court or arbitration.
  2. If the governmental entity was considering withdrawing or terminating the contract due to a breach attributed to the claiming party solely and not to the economic legislation referred to in the Law.

Posted in News on Oct 26, 2017