The New Public Contracts Law

On 3 October 2018, the new Public Contracts Law No. 182 of 2018 (the “Law”)[1] was published in the Official Gazette. The Law was discussed and passed by the House of Representatives last July, and comes into effect 30 days following its publication. As the new framework for regulating contracts concluded by public entities, it replaces the previous Bids and Tenders Law No. 89 of 1998.[2] It regulates with considerable detail several types of public contracts, projects, and assets and provides specific rules for the sale, purchase, or procurement of services in relation thereto. Compared to its predecessor the new Law attempts to create a comprehensive legal regime for public procurement. It provides more discretionary powers to administrative bodies down to the level of contracting departments, and expands the authority of government agencies to contract directly in several cases. The Law also pre-empts the need to exempt future laws from its scope as it carves out private sector initiatives and complex financial transactions deferring them to special rules. National security considerations trigger exemptions and the discretion to use any bidding process, including direct contracting. The use of the government’s electronic public contracts portal (“EPCP”) is echoed throughout the Law, so are provisions aimed at giving preference to Egyptian local component, and SMEs. Contracts already solicited through a bid or those already contracted prior to the new Law’s coming into effect shall continue to be governed by the Bids and Tenders Law, up to enforcement. The Minister of Finance is to issue the executive regulations of the Public Contracts Law within six months.

Background

With its sheer size and power, the government apparatus is the most crucial player in the national economy, and the manner in which it conducts its business has sizeable impact. This is why government procurement has attracted considerable international attention. In this respect, both the United Nations Commission on International Trade Law (“UNCITRAL”) and the World Trade Organization (WTO) have mandates addressing the subject. The WTO is concerned with state-to-state relations and its binding Agreement on Government Procurement (“GPA”), last updated in 2014, is aimed at harmonizing procurement laws between different markets, encouraging competition, and prohibiting discrimination against suppliers from other states. On the other hand, the UNCITRAL’s purview is private law commercial transactions including the relevant aspects of administrative and constitutional law. The UNCITRAL’s Model Law on Public Procurement, as updated in 2011, is a template available to national governments reflecting current best practices in procurement legislation for reform purposes. It is therefore more flexible, and does not impose mandatory texts as a binding convention or treaty.[3] While Egypt is not a signatory to the WTO’s GPA, the new Public Contracts Law seems to draw on several of the concepts and terminology of the UNICTRAL Model Law on Public Procurement. This is a shift from the repealed Bids and Tenders Law of 1998, which replaced a 1983 law with the same title, and was an outdated framework fraught with issues that eventually led to its application being carved out from every law that attempted to bring in some aspect of economic legislation reform.

The New Public Contracts Law

1. Scope

The Law provides the rules for entering into public contracts for the provision of (a) contractor works, (b) services, (c) artistic works, or (d) consultations (refer to Table 1) by any public body, entity, or authority which the Law collectively refers to as the “administrative body.” The administrative body includes entities operating within the state’s general budget; administrative apparatus units with separate special budgets such as ministries; municipalities; service and economic public authorities; and funds (except for social welfare funds). Transactions and contracts subject to special legal regimes—such as the Public-Private Partnership Law No. 67 of 2010, and concession laws—are excluded from the scope of this Law. The Law also provides a number of special contracts that are treated differently. Some examples include:

• Entities can directly contract basic service providers in which the state owns stakes;
• Administrative bodies are required to allocate 20% of their annual procurement to SMEs;
• For comprehensive private sector investment initiatives, Cabinet can authorize the use of any bidding process even if the criteria for its use have not been met;
• National security requirements allow the ministries of Defence and Interior to contract using limited tenders, two-stage tenders, local tenders, or direct contracting;
• Inter-governmental procurement is done through direct contracting without financial limitations;
• Complex and multiparty transactions such as BOOT, BOO, EPC, and project finance are subject to their own general framework as ratified by a ministerial committee. The Prime Minister is to issue guiding rules and procedures to govern these transactions and the relevant minister is to determine project-specific rules in consultation with the ministers of Finance and Planning.

The Law defines the type of works that fall under its scope as follows: Table 1: Types of Public Works falling under the new Public Contracts Law

2. Institutional Hierarchy

• Competent Authority

Defined under the previous law as the relevant minister, governor, or head of the authority in question, the “competent authority” is the entity in charge of the application of the new Law. Whereas the previous law prohibited the competent authority from delegating its powers except to the directly lower-ranking officer, the new Law broadens it to include fund heads and any person with equivalent powers to the competent authority at the level of the administrative body.

• Administrative Body

The administrative body is responsible for laying out a plan, ratified by the competent authority, of its annual needs at the time of presenting its budget to the Ministry of Finance. Upon budget allocation, the plan must be modified and ratified by the competent authority again then published on the website with the beginning of the fiscal year. An exception is made for projects or plans involving national security.

• Contracting Department

The Law also provides for the establishment of a contracting department at every administrative body to enforce the Public Contracts Law. The department must contain qualified personnel and is in charge of laying out a plan for annual procurement needs, taking measures to contract according to these needs, and following up on the performance of signed contracts.

3. Methods of Contracting

Under the old law, there were two main methods of contracting for public works which the new law has maintained: public tender and public negotiation (mumarsa). The difference is that the price offers made under the former are final at submission, whereas in public negotiation the price of the service or good is lowered to reach the least price with the best conditions. The new Law also allows the use of a limited, two-stage, or local tender, a limited negotiation, a public, limited, or local auction and direct contracting, based on a number of factors such as the nature of the procurement and whether the administrative body is the acquirer of the property or service or is the seller. Table 2: Methods of Public Procurement when the Administrative Body is the Purchaser or Lessee  Table 3: Methods of Public Procurement when the Administrative Body is the Seller, Lessor, or Assignor of Usufruct Rights In addition, the new Law grants the administrative body the power to use any of the above contracting methods to reach a framework agreement where there is need for a continuous supply or performance of services. Framework agreements require a decree from the relevant minister or the Cabinet, after consultation with the ministers of finance and planning. The new Law also regulates the purchase, sale, and lease of real property or projects abroad.

4. Procurement Process

A contract must not be split with the aim of avoiding procurement regulations, and the procuring entity must ensure the sufficiency of budget allocations prior to undertaking procurement measures. A contract could be entered for a period that is longer than the fiscal year on the condition that it does not increase the entity’s financial duties. Procurement is prohibited during the final month of the fiscal year (except in undefined exceptional cases and upon the competent authority’s approval) and the purpose for procurement may not be to extinguish financial allocations for a given year.

• Pre-tendering

A special technical committee prepares the criteria and performance standards for a required contract along with a detailed description of the subject matter. The competent authority then forms a committee to conduct market studies and determine initial financial assessments, taking into consideration previous contracts signed by the administrative body in question or those signed by similar entities. The contracting department then prepares a memorandum to the competent authority for approving tendering initiation. Following that, the administrative body prepares a conditions booklet in accordance with a form provided by the General Authority for Government Services. The booklet contains bidding requirements, the manner of contracting, the technical framework, copy of the contract, place of performance, the timeline, payment, complaint procedures, evaluation techniques, penalties, and violations.

• Tendering
• Advertising/Invitation to Submit Bids

All tenders must be announced on EPCP. In addition, the following advertising rules apply depending on bidding process: Table 4: Advertising Rules Administrative bodies must notify the Committee for the Preferential Treatment of Egyptian Products in Government Contracts of tender and contracting documents for projects of estimated value ranges between EGP 1 million and 10 million (as per Law No. 5 of 2015),[4] at least five days prior to initiating advertising procedures. Projects that exceed EGP 10 million must disclose to the Committee at least 15 days prior to initiating advertising procedures. The Committee must then review submitted documentation and make its comments within 15 days, during which the administrative body may not conclude the contract.

• Temporary Security Deposit

Every bidder must pay a security deposit with their bid to prevent elimination. The competent authority determines the security deposit which ranges between 0.5% to 1.5% depending on whether the contract is for movables, services, or real estate in the event that the administrative body is the purchaser or receiver of a service. In the event that the administrative body is the seller, then the competent authority determines the security deposit according to the nature and importance of the tender. A bidder’s withdrawal from the process prior to the opening of technical envelops means their forfeit of the deposit. Bidders with rejected technical bids must receive their deposits as soon as the procedures for determining technical bids are over.

• Bidding

Bids are submitted through a two-envelop system: a technical proposal and a financial one. The Law mandates the bidders to submit with their technical offers proof of maintaining social insurance for their employees. Bidders are allowed to assign parts of their contracts to subcontractors in which case the bid must contain the subcontractors’ data, qualifications, and the portions of the contract to be assigned to them. Any modification to this requires the administrative body’s prior approval and the main contractor remains responsible for the performance of the contract vis-à-vis the administrative body. Employees and personnel of entities subject to the Public Contracts Law are prohibited from submitting bids in their own right or through others. Bids are open for the period that is determined in the tendering document, which may not in any event be less than 45 days and may not exceed 90 days from the date of the opening of the technical envelops, unless with respect to exceptional circumstances which are undefined in the Law.

• Post-tendering
• Bidding Committees

Committees are formed by the competent authority to handle the different stages of contracting. They comprise technical, financial, and legal expertise depending on the nature of the contract in question, and they are resolved once they perform their task. Separate committees handle opening the envelops and making a decision on the bid, unless the value of the bid does not exceed EGP 300,000, in which case the two processes are performed by one committee. If the estimated value of a bid in a tender or negotiation exceeds EGP 1 million, there must be a representative from the Ministry of Finance on the bidding and contracting committees. A State Council representative is added if the bid exceeds EGP 2 million. The same is true for committees of sale, lease, or assignment of usufruct rights. For the purchase, lease, or sale of real estate concluded abroad, a Ministry of Finance representative must be present on the committee whenever the base price or the estimated value exceeds EGP 8 million, and a representative of the Ministry of Housing must be present for any purchase or leasing of real estate.

• Direct Contracting Committee

The purchase or leasing of movable or real property, contractor works, services, technical works, or consultations through direct contracting is handled through a committee that is formed by the competent authority. The committee is comprised of the appropriate legal, technical, and financial experts according to the nature of the contract and they bear the responsibility and discretion of assessing the technical aspects of the project, appropriate price in comparison to the market, and determining the lowest bid. The committee’s work is ratified by the competent authority.

• Evaluation

The Law defines a new point-based evaluation system rather than leaving the matter to the determination of the competent authority as has been the case. The point-based system assesses technical and financial aspects together by assigning weights to each assessment element.

• Contracting

The administrative body bears the responsibility of discerning whether the supplier satisfies technical capacity requirements, financial standing, and good reputation. A bidder may not, in their own right or through participation with others, submit more than one bid for the same project, except where the bidder is a shareholder in an entity that is also bidding where the former’s share allows them no influence with respect to related decision-making. In the event of violation, the administrative body must disregard the bids in question and forfeit the security deposit while notifying the Competition Authority. Bids that do not satisfy solicitation requirements are eliminated. Bids that are also suspiciously low in price in a manner that could create problems in enforcement are eliminated. All eliminations must be based on grounds that are clarified in the elimination decision. The same is true for award decisions: reasons for selecting the given bid must be stated. Awards are either given to the bidder with the best terms and least price (highest price in auctions) or with the highest points in the point-based system. In line with the Law 5 of 2015 on the Preferential Treatment of Egyptian Products in Government Contracts, a bid for supply that satisfies the Egyptian industrial component criteria (containing 40% local component) will be considered the lowest bid if it exceeds the lowest bid that does not satisfy said component within a range of 15%. With respect to services and technical works, an Egyptian bidder will be considered the lowest bidder if their bid exceeds a foreign bid within a range of 15%. A tender, negotiation, or auction must be cancelled by the competent authority prior to a decision being made:

• If there is no longer any need for it or if there is an overriding public interest concern;
• If the Committee on Preferential Treatment of Egyptian Products determined a violation of Law 5 of 2015 or the Public Contracts Law in the solicitation document or terms;
• In the event of collusion among the bidders, corruption, or monopoly;
• If there were errors in the solicitation documents.
• Other than the above, cancellation is optional in certain events such as where only one bid is submitted or one remains, if all or most bids were made with reservations, or if the lowest bid exceeds the estimated value.
• Announcement of Results

The contracting department must notify bidders of committee decisions—of award, elimination, or cancellation—by express mail in addition to e-mail or fax. A bidder has the right to submit a complaint for seven days following the date of notification. The winning bidder is notified within two days after the lapse of the seven-day period. Results are also announced on EPCP and must contain the grounds for the decisions, the final value of the project and the value of the Egyptian component if any, and the place of origin of the products that were awarded the contract.

• Security Deposit to Guarantee Enforcement

The winning bidder must pay a final security deposit as guarantee for enforcement of the contract, which ranges between 3% (for the purchase of real estate) to 30% (for the sale of movables) depending on contract and transaction type. This is returned upon the lapse of the guarantee period which also varies depending on contract and transaction type; for instance, in the case of purchasing real estate, the 3% deposit is returned upon registration or the lapse of one year from the date of delivery. The Law mandates that the administrative body reimburses an awardee with the bank expenses for renewal of Letters of Credit and the cost of financing or interest in the event that there is a delay in the return of the security deposit. Failure to pay the security deposit may result in the cancellation of the award.

• Enforcement

The Law makes it optional for the administrative body to pay a down payment. The price of delivered goods or services is paid within 30 days from the date of inspection and acceptance of delivery. For contractor works, payment is incremental in accordance to performance. Each increment is paid within 60 days from the date of submitting proof of completion that is acceptable to the administrative body. Violation of these time periods subjects the administrative body to reimbursements of financing costs for the period of the delay with respect to the increment in question. Delays in the performance of a contract not attributable to factors external to the contracted party will subject them to fines ranging from 10% to 15% for contractor works, depending on the size of the delay. Delays in the performance of other contracts give rise to fines ranging between 3% and 5%. The power to waive or reduce delay fines rests with the competent authority.

• Contract Amendment and Price Adjustments

An administrative body has the right to amend the size of a contract up or down according to new circumstances within a 25% range for contractor works and 15% for other types of contracts. This is as long as the solicitation document contains this information. Contract amendment requires approval by either the competent authority or Prime Minister. For contractor works exceeding six months, the administrative body must adjust the contract price in accordance to increase or decrease every three months. The administrative body must determine clauses that will be subject to variations in the conditions booklet and the contractor must include treatment terms in their technical proposal. A contract which fails to follow this procedure is considered void.

5. Complaints Mechanism

Similar to the case under the repealed law, the Office of Public Procurement Complaints under the Minister of Finance handles any complaints in relation to the violation of the provisions of the new Law. The Office’s decisions are binding to both parties and must be enforced by the administrative body within seven days from being notified. The contracting party must first resort to the Complaints Office prior to litigation and the Prime Minister is to issue the regulations pertaining to the Complaints Office.   [1] Law No. 182/2018 on the regulation of contracts that are concluded by public entities, Official Gazette, Issue 39 (bis) (d), 3 October 2018. [2] Law No. 89/1998 on the regulation of bids and tenders, Official Gazette Issue 19 (bis), 8 May 1998. [3] European Bank for Reconstruction and Development, “Public Procurement International Standards”, available through this link. [4] Law No. 5/2015 on giving preference to Egyptian products in government contracts, Official Gazette Issue No. 3 (bis), 17 January 2015.