Background About the Law
Egypt’s Public Procurement and Tendering Law («the Law») was issued ten years ago, in May 1998 as Law Number 89 of 1998. It is the main framework that governs all purchases, procurement, tendering and contracting by the Government and its entities with the private sector and is therefore of the most important laws in terms of business environment. This is mostly a procedural law, and accordingly the Law itself came in only 42 Articles, while its Executive Regulations (issued by decree of the Minister of Finance Number 13767 of 1998 in May 1998) came originally in 141 Articles. Moreover, numerous amendments were introduced in the Executive Regulations over the years, the most important one during 2006. The Law and its Executive Regulations are further complemented by «Circulars» issued by the Chairman of the Government Services Authority, which is the governmental entity established in accordance with the Law and entrusted with monitoring its application. Unfortunately, most of the circulars issued by the Authority go unnoticed by the business community and this constitutes a gap in the information available about the Law by most of those affected by it.
Over this summer, some key amendments were introduced in this legal framework. One was introduced in the Law itself (Law Number 191 of 2008 issued in June 2008), and two were introduced into the Executive Regulations (Decisions of the Minister of Finance respectively Number 374 of 2008 issued in June 2008 and 528 of 2008 issued in August 2008). The combined amendments introduce a number of key – extremely positive and welcome – changes in the Law.
Price Adjustment Clause
Article 22(i) in the Law prior to its amendment stated that contracts with more than a one year duration, the contractor should at the end of each six months adjust the contact price upward or downward according to changes in prices of key items in the contract and on the basis of terms previously agreed upon. The new amendment in the Law in fact uses the same approach and language but shortens the contract term for eligibility from one year to six months. In other words, contracts with more than six months duration – instead of previously one year – will now benefit from the price adjustment mechanism.
Moreover, instead of the price revision taking place every six months, it will now be conducted every three months. In spite of the fact that the law so far would seem to be merely introducing minor changes in duration, there are two reasons for looking at this change as a more significant one, i.e. a change that will actually result in a shift in practice: the first reason is that the new amended Article (22/i) adds at the end that
«.. any agreement to the contrary will be null and void». This means that contractual agreements that may preclude the application of the price adjustment mechanism will not be admitted. The second reason is that with recent Government announcements about paying contractors for losses incurred over the last few years as a result of price escalation point to a seriousness in applying this principle on the Government side.
Other Changes
The other changes introduced by the latest amendments in the Law and the Executive Regulations are the following:
- The threshold for conducting «local tenders» is increased from LE 200,000.p (Two Hundred Thousand Egyptian Pounds) to LE 400,000.p (Four Hundred Thousand Egyptian Pounds). Local tender – according to the Law – is the one which may be offered only to suppliers and contractors within one Governorate. Although the intention of local tenders is to encourage local producers and contractors, the new threshold does not go far enough to ensure this.
- One of the various types of tenders covered by the Law, is the tender to rent (or have a license, or a right of usufruct) real estate properties owned by the State for providing a certain service.
An example of this is the right to use or rent cafeterias in public buildings or otherwise owned by public entities. The Executives Regulations state – as they previously did- that the maximum contract duration is for three years, but certain exemptions could be made by ministerial authority. This authority has now been extended to cover longer duration; twenty five years be decision of the competent Minister alone, seventy five years by joint authority of the competent Minister and the Minister of Finance, and up to ninety nine years for «projects of a special economic nature which require large investments in order to be completed and exploited» (Article 131 of the Executive Regulations). This is relevant to business in so far as it allows longer term agreements to be entered into for the use of real estate assets owned by public entities. Clearly the intention of this amendment is not merely cafeterias and beach houses but more significantly large land for agriculture, and other «projects of a special economic nature».
Background About the Law
Egypt’s Public Procurement and Tendering Law («the Law») was issued ten years ago, in May 1998 as Law Number 89 of 1998. It is the main framework that governs all purchases, procurement, tendering and contracting by the Government and its entities with the private sector and is therefore of the most important laws in terms of business environment. This is mostly a procedural law, and accordingly the Law itself came in only 42 Articles, while its Executive Regulations (issued by decree of the Minister of Finance Number 13767 of 1998 in May 1998) came originally in 141 Articles. Moreover, numerous amendments were introduced in the Executive Regulations over the years, the most important one during 2006. The Law and its Executive Regulations are further complemented by «Circulars» issued by the Chairman of the Government Services Authority, which is the governmental entity established in accordance with the Law and entrusted with monitoring its application. Unfortunately, most of the circulars issued by the Authority go unnoticed by the business community and this constitutes a gap in the information available about the Law by most of those affected by it.
Over this summer, some key amendments were introduced in this legal framework. One was introduced in the Law itself (Law Number 191 of 2008 issued in June 2008), and two were introduced into the Executive Regulations (Decisions of the Minister of Finance respectively Number 374 of 2008 issued in June 2008 and 528 of 2008 issued in August 2008). The combined amendments introduce a number of key – extremely positive and welcome – changes in the Law.
Price Adjustment Clause
Article 22(i) in the Law prior to its amendment stated that contracts with more than a one year duration, the contractor should at the end of each six months adjust the contact price upward or downward according to changes in prices of key items in the contract and on the basis of terms previously agreed upon. The new amendment in the Law in fact uses the same approach and language but shortens the contract term for eligibility from one year to six months. In other words, contracts with more than six months duration – instead of previously one year – will now benefit from the price adjustment mechanism.
Moreover, instead of the price revision taking place every six months, it will now be conducted every three months. In spite of the fact that the law so far would seem to be merely introducing minor changes in duration, there are two reasons for looking at this change as a more significant one, i.e. a change that will actually result in a shift in practice: the first reason is that the new amended Article (22/i) adds at the end that
«.. any agreement to the contrary will be null and void». This means that contractual agreements that may preclude the application of the price adjustment mechanism will not be admitted. The second reason is that with recent Government announcements about paying contractors for losses incurred over the last few years as a result of price escalation point to a seriousness in applying this principle on the Government side.
Other Changes
The other changes introduced by the latest amendments in the Law and the Executive Regulations are the following:
- The threshold for conducting «local tenders» is increased from LE 200,000.p (Two Hundred Thousand Egyptian Pounds) to LE 400,000.p (Four Hundred Thousand Egyptian Pounds). Local tender – according to the Law – is the one which may be offered only to suppliers and contractors within one Governorate. Although the intention of local tenders is to encourage local producers and contractors, the new threshold does not go far enough to ensure this.
- One of the various types of tenders covered by the Law, is the tender to rent (or have a license, or a right of usufruct) real estate properties owned by the State for providing a certain service.
An example of this is the right to use or rent cafeterias in public buildings or otherwise owned by public entities. The Executives Regulations state – as they previously did- that the maximum contract duration is for three years, but certain exemptions could be made by ministerial authority. This authority has now been extended to cover longer duration; twenty five years be decision of the competent Minister alone, seventy five years by joint authority of the competent Minister and the Minister of Finance, and up to ninety nine years for «projects of a special economic nature which require large investments in order to be completed and exploited» (Article 131 of the Executive Regulations). This is relevant to business in so far as it allows longer term agreements to be entered into for the use of real estate assets owned by public entities. Clearly the intention of this amendment is not merely cafeterias and beach houses but more significantly large land for agriculture, and other «projects of a special economic nature».