On 3 October 2018, a new law regulating public procurement was issued in Egypt to replace the Bids and Tenders Law No. 89 of 1998 ("Tender Law"). The new law is titled ‘Law No. 182 of 2018 Regulating Contracts Entered by Public Entitles’ (herein referred to as the “New Public Procurement Law” or the “New Law”).
The New Public Procurement Law will apply on all contracts to be entered into between the private sector and any governmental entity or public authority including the procurement as well as the implementation phases.
Scope of Application
The New Law shall apply to all supply, service and construction contracts signed by a public entity. Public entities are defined to include governmental bodies included in the state budget, units of the government, i.e., ministries, entities with independent budgets, local administration units (directorates and municipalities), and general authorities whether of service or economic nature, and funds privately owned by any of these entities, and projects financed thereby.
The New Law shall enter into force 30 days after its issuance date, i.e., as of 1 November 2018. However, transactions that have been initiated or concluded before the Law comes into force shall remain subject to the provisions of the Tender Law until its completion.
The Executive Regulations of the New Law shall be published within 6 months from the date the New Law enters into force, i.e., by April 2019.
The New Law puts clear definitions to what constitutes construction works as opposed to services, consultancy studies, and artwork.
Construction works: all works included in the classifications issued by the Egyptian Federation for Construction and Building Contractors as approved by the Minister of Housing.
Services: contracts in which a physical work is required to be done such as, maintenance, security services, facility management, mapping, satellite photographing, program development, transportation services.
Consultancy studies: works which are of an intellectual and advisory nature. Examples are engineering studies, professional, economic, financial, managerial and legal studies, including the preparation, designing, supervising the implementation, evaluation and receipt of the service.
Artworks: works of a creative nature and of a personal character like drawing, authoring and conducting researches.
Public Procurement Mechanisms
The New Law kept the methods of public procurement that existed under the Tender Law and supplement them with some new and special mechanisms such as the ‘two-stage tender’, different procurement methods for private sector initiatives, as well as different procurement methods for complex transactions and contracts of interrelated and multilateral nature.
The New Law reaffirms what was stipulated under the Tender Law that an authority may not convert one method to another during the procurement process.
A temporary bid bond is still required to be submitted as a precondition for participation in a governmental procurement process. The amount of the bid bond however is reduced from a maximum of 2% of the value of the transaction to 1.5% in case of purchase or lease of movables, construction works, procurement of services and consultancy. For purchase or lease of real estate property, the bid bond is reduced to 0.5%.
Modification of Tender Document
The administrative authority may enter modifications to the terms and conditions of the announced tender if the public interest so requires or after discussion with bidders. These modifications must be notified to all who participated in the tender. In all cases, no modifications will be allowed after the date of opening the technical offers received from the bidders.
The New Law allows the administrative authority to conduct a prequalification check for interested bidders to verify their technical, financial, administrative and human resources capabilities. Only prequalified participants will be allowed to bid.
A bidder is allowed to subcontract part of the works to a sub-contractor(s) provided that it includes the details and experience of the sub-contractor(s) and the relevant subcontracted parts of the works in its bid proposal. The main contractor shall remain solely liable before the contracting authority, and it may not change the subcontractor without getting the approval of the authority.
Egyptian Product Preference
The Law gives 15% price preference to bidders supplying products that fulfill the minimum local component percentage stipulated under Law No. 5 for 2015 on the Preference of Egyptian Products in Governmental Contracts.
The performance bond shall be paid by the winning bidder in the below value and timing:
- For purchase or lease of movables, or contracts for services, artworks or consultancy: 5% of the contract value to be paid within 10 working days as of the following day of informing the bidder of the acceptance of its bid, and 20 working days for contractors locating outside Egypt.
- For purchase of real estate: 3% of the price shall be withheld, to be repaid to the seller upon registration of the real estate or the lapse of one year from delivering the real estate to the contracting authority, whichever is earlier.
- For sale of movables: 30% of the value of the movable to be paid upon the winning the bid.
- For sale of real estate and projects: 10% to be paid of the value of the real estate or project to be paid upon winning the bid.
- For lease or usufruct of movables, real estate and projects: 10% of the total value of the contract to be renewed every three years for long term contracts.
Direct Negotiation Agreement
Direct negotiation and agreement is allowed in 7 cases, among them are urgent situations resulting from unforeseen events and which requires immediate actions to be taken. Also where there is only one source which has the required technical ability or is able to meet the contracting obligations, or has exclusive rights or monopoly over the subject matter of the contract.
The approval of the head of the administrative authority or the competent minister will be required depending on the value of the contract, while the approval of the Cabinet of Ministers will be required for transactions with value of more than EGP 10 million and construction works of more than EGP 20 million.
New and Special Procurement Methods
Two-stage tending is a new procurement method that allows bidders to submit an initial technical offer accompanied with comments on the terms and conditions of the tender documents and the proposed model contract.
The administrative authority will enter into technical discussions with the bidders relating to the initial technical offer aiming at reaching agreement on the technical and contractual framework.
The administrative authority will notify the bidders accepted at this first stage with the final terms and conditions of the tender so that they can submit their detailed technical offer as well as the financial offer in the second stage.
Contracts for Consultancy Services
Contracts for consultancy services shall be entered into through limited tendering, two-stage tendering or local tendering. The tender shall be evaluated according to the points system. The terms of the tender shall include the evaluation criteria and the minimum requirements for acceptance.
Contracts with Providers of Basic Utilities
Upon the approval of the competent authority, direct agreements could be concluded with any of the providers of the basic utilities in which the state has a controlling share. Basic services include water, gas, electricity, and any other services of a similar nature and services for which the government determine its price. Such service providers are exempted from paying the bid or performance bonds.
Contracts with SMEs
Authorities are required to consider the abilities of small, medium and micro enterprises (SMEs) when drafting the prequalification conditions or the tender documents and the evaluation criteria with the aim of encourage SMEs to take part in the tender. Authorities are required to dedicate at least 20% of its annual needs to contract with SME.
Contracts based on Private Sector Initiatives
The Cabinet of Ministers may, in case of necessity, authorize an administrative authority, for reasons related to the nature of its activity, to enter into contracts by any of the secondary tendering methods of procurement. The Cabinet may also allow certain administrative authorities to negotiate and conclude agreements directly with an Egyptian or foreign natural or legal person if such person provides a fully funded investment projects. The project must achieve the economic and development plan of the contracting authority and the state.
Contracts Between Parties Subject to the Law
Authorities subject to the New Public Procurement Law may negotiate and conclude agreements directly amongst each other upon obtaining the approval of their competent authorities. Such authorities will be exempted from abiding by the price limits or the procedures stipulated under the law. However, in no case shall they be allowed to assign any part of the awarded contract to a third party.
Transactions of Complex, Interrelated and Multilateral Nature
An administrative authority may conclude contracts of a complex, interrelated or multilateral nature, or contracts that require a special financing structure, such as the Build, Own, Operate and Transfer (BOOT), Build, Own and Operate (BOO), or Engineering, Procurement and Construction (EPC) + Finance contracts, if such contracts achieve the urgent economic and developmental objectives of the authority, or if the economic or social circumstances so require.
Such contracts must be approved by the Cabinet of Ministers, and a written guideline regulating the procedures for the contracting process will be issued by the competent ministry.
Establishment of a Registry to Register Contractors
The Law states that each administrative authority shall have a registry for the names, details and ranks of the contractors according to their financial and technical capabilities, business reputation, track record, professional licenses and the number of their bank accounts. This registry will be updated annually.
In the meantime, the General Authority for Government Services shall have a registry for those banned from dealing with any of the administrative authorities due to their bad track record.
Evaluating the Contractors' Performance
The contracting authority shall run an annual evaluation of contractors at the end of each fiscal year or at the end of the contract term. The evaluation results shall be published on the Public Procurement Portal, including the names of the contractors who have violated the terms of the contract and the penalties that have been imposed on them.
In case a dispute arises between the administrative authority and the contractor, parties shall first try to use any of the alternative dispute resolution mechanism such as mediation or reconciliation. Parties may also resort to the arbitration if it is the agreed mechanism in the contract and was approved by the competent minister.
The Public Procurement Complaint Office, affiliated to the Ministry of Finance, shall remain in charge of dealing with all complaints submitted to it in relation to the violation of any of the provisions of this Law or the Executive Regulations; where its decisions shall be binding on the parties of the complaint. The contracting authority shall then execute the decision within 7 days from receiving it without prejudicing the contractor’s right to resort to court.
Assignment of the Contract
The contractor may not assign the contract or any of its proceeds to a third party other than for the purposes of financing. The contractor will however remain liable toward the administrative authority for the implementation of the contract. The assignment will also not prejudice the rights of the administrative authority for any dues.