Describes how major projects are secured and financed. Explains activities of the multilateral development banks in and other aid-funded projects.
Selling the Government
It is the experience of this office that, notwithstanding the letter of the law as described in the following paragraphs, the Ministry of Defense, the Ministry of Interior, the Egyptian Intelligence Service and State-owned Enterprises affiliated with these government bodies are not required to comply with procurement rules that apply to Civil Ministries. Over recent years, Civil Ministries have increasingly turned to the “power” Ministries to manage procurements on their behalf. These purchases are not conducted according to the requirements of Egypt’s Tenders Law.
In selling to the Government of Egypt (GOE), companies will need to deal directly with the client agency. Egyptian government procurement is conducted using national budgetary funds, via the U.S. Foreign Military Sales (FMS) program or funds from other donors. In the case of FMS, information can be obtained on Federal Business Opportunities at https://sam.gov/content/home. For questions about upcoming procurements, contact the Office of Military Cooperation (OMC) via the U.S. Embassy in Egypt.
Other projects open to U.S. bidders may come from donor-funded bilateral projects such as the Government of Japan’s United Overseas Development Assistance (ODA) and from multilateral assistance such as the World Bank, the African Development Bank, and the European Bank for Reconstruction and Development. The following information pertains to contracting directly with the GOE. It is also relevant for donor-financed projects, to the extent that Egyptian law applies to them.
The Tenders and Bids Law 89 of 1998 (the “Tenders & Bid Law”) governs all the Governmental procurement of goods, services and construction from the private or public sectors subject to all the procedures and regulations therein. The following regulations must be adhered to by the Governmental entities.
Procurement must be concluded through a public tender or public negotiations;
In the following cases, the Governmental Entity may recourse to a limited tender or limited negotiations, irrespective if the contractor is located in Egypt or abroad, if:
- The nature of the contract requires specific types of suppliers, contractors, consultants, technicians or other experts;
- The items manufactured are only available from certain contractors or production locations; or
- National security dictates confidentiality.
Local tenders may be used where all contracts up to a value of EGP 200,000 are confined to local suppliers or contractors; or direct contracting (in extraordinary cases).
There is no standard Government contract with each Ministry or Government Agency using its own form of contract pursuant to the provisions of the Law. Public tenders and negotiations must be advertised in a widely read daily newspaper locally or abroad depending on the nature of the contract to ensure equal opportunity and free competition.
Although a government contract must be awarded based on the most qualified and lowest bid, Egyptian domestic contractors shall be accorded priority if their bids do not exceed the lowest foreign bid by more than 15%.
Similarly, the Law of Preference of Egyptian Products in Governmental Contracts (Law 5 of 2015) provides that all Governmental and Administrative Entities (including Public Companies and Public Law Enterprises) must set as a standard specification in their tenders that the Egyptian component must represent no less than 40% of the project’s estimated value. This condition applies to all Governmental procurements of goods, services and construction, except in the following cases:
- If the products meeting the Egyptian component condition do not meet the certified standard specifications;
- If the products meeting the Egyptian component condition are not available;
- If the price of the product meeting the Egyptian component condition exceeds the price of its competitive product by 15% or more; or
- If the public interest dictates otherwise and upon the issuance of a Ministerial Decree.
As aforementioned, the Egyptian component condition applies to governmental procurement agreements except the following:
- Agreements concluded by the Ministries of Defense, Interior, Military Production and General Intelligence Agencies;
- Agreements that are confidential for national security considerations (a Ministerial Decree is required); and
- Agreements of Private-Public Partnerships.
Each tender must be accompanied by the payment of a bid bond of up to 2%, which shall be refunded to unsuccessful tenderers. A final deposit of up to 5% must paid by the winning bid within 10 days of their tender being accepted and will be released after execution of the contract and the lapse of the guarantee period. If the final deposit is not paid, the governmental entity shall be entitled to cancel the contract or use the next bidder whilst recovering any losses directly incurred.
A maximum fine of up to 10% of the value of construction contracts and up to 3% of the value of supply or consultant contracts may be levied on contractors for late performance or late delivery.
The Public Tender Law permits Government entities to terminate contracts where the bidder has acted fraudulently, declared bankruptcy or induced Government officials to act contrary to the provisions of the Public Tender Law.
Tenders may be rejected upon receipt due to:
- Non-compliance with the technical specifications;
- If only one tender was submitted; or
- If the lowest tendered price exceeds the estimated value of the contract.
A contract may be terminated by the Government entity at any time if the contracting party defaults (e.g., material breach) any losses incurred may be recovered.
In cases of late or non-performance the concept of force majeure is recognized in accordance with principles of the Egyptian Civil Code under which certain types of hindrances must be clearly stated in the contract if they are to be considered force majeure, e.g., the unavailability of materials, strikes and shipping delays.
The Tenders Law No. 89/1998 governs GOE procurement by all civilian and military agencies (“ministries, departments, local government units and public and general organizations”) unless they are specifically exempted from this law. A few key principles include:
- No negotiation of bids after bid opening or “momarsa” (“auction” in Arabic), referring to a common Egyptian business practice for determining a fair price for goods and services – sometimes called a Dutch auction, in which the price of an item is lowered until it gets the opening and winning bid. A tender may not be transferred into a momarsa;
- No cancellation of a purchase order won through a competitive bid without reason. Moreover, rejected bids and awarded bids will contain the reasons on which the decision was based;
- Bid bonds will be refunded immediately upon expiration of tender;
- Publication of bid and open competition for at least 30 days;
- Fifteen percent price preference for Egyptian bidders. The Tenders Law 89 of 1998 requires the government to consider both price and best value, however, the law contains preferences for Egyptian domestic contractors, who are accorded priority if their bids do not exceed the lowest foreign bid by more than 15 percent. There is one exception, however: Ministry of Defense (MOD) tenders are treated differently due to the Reciprocal Defense Procurement Memorandum of Understanding. This rule allows Egyptian companies to compete as U.S. companies on DOD procurements and U.S. companies to compete for MOD tenders as Egyptian companies. If a U.S. company is competing with an Egyptian company on a MOD procurement, regardless of funding source, it must be treated the same. If an Egyptian company receives a 15% price preference, then so does the U.S. company. Not all Department of Defense procurement committees are aware of this requirement. In the event of a dispute, please contact the U.S. Embassy’s Office of Military Cooperation to inform it of MOD non-compliance with this provision of the Memorandum of Understanding;
- A two-phase decision-making process: in the first phase, a technical committee reviews submission. Upon acceptance of a bid, it may require further discussions and/or samples from the bidder. During the second phase, a financial committee reviews prices as well as the terms and conditions. In some cases, a bid-opening committee convenes a public session, to which all bidders are invited and bid prices are read aloud; the committee either decides or, if the value is over USD 50,000, recommends a decision to the relevant ministry;
- Bid bonds of one or two (generally two) percent are required; and a performance bond by the winning firm of (generally) ten percent. Preference is given to Egyptian public-sector companies and Egyptian cooperatives, both of which are exempt from the bonding requirements, provided they do the work themselves and do not request an advance payment;
- Fraud, bribery (“either personally or through a third party, directly or indirectly”), or bankruptcy by the contracting party annuls the contract and allows any outstanding bid or performance bond to be confiscated;
- Sole-source decisions are permitted in special instances: monopoly sources of supply; goods whose import is monopolized; specialized products or services; and goods and services needed urgently; and
- Advance payments are permitted, against a letter of guarantee. U.S. standby letters of credit (which can be insured for political risk by the U.S. Overseas Private Investment Corporation) are acceptable in Egypt.
Practical Problems related to the Tenders Law
There is no time limit for the decision-making committees to meet, make or announce their decision. If a bidder withdraws a bid prior to bid opening, the bid bond is forfeited. Bidders often are “held hostage” to a government agency that stalls the bid opening for various reasons, including running out of funds for the project. Costs of extending bid bonds are borne by the bidders. If a winning firm withdraws from a project before beginning or completing a project, its performance bond similarly will be confiscated. This has happened when a client delays the start-up because of budget shortfalls, expecting the contractor/supplier to carry the burden of maintaining the performance bond.
Government agencies often delay giving the “final acceptance” of goods or work projects. This holds up final payment and final retirement of the performance bond. There are no time limits for making payment from the date of acceptance of a bid, nor any provision for implied or automatic acceptance of a supplied good or service. The client must explicitly acknowledge “final acceptance” before the contractor can receive final payment and retire the performance bond. If award decisions are delayed beyond the validity date specified by a bidder, extra costs incurred by the delay cannot routinely be passed on. If the client adds new requirements to an ongoing contract, any extra monies requested by the supplier/contractor must be endorsed by a special “price study committee,” which sometimes takes years to issue approval. In the meantime, of course, the supplier/contractor is expected to fulfill the revised contract without delay or complaint.
The Tenders Law makes no reference to dispute resolution, which therefore must be negotiated prior to contract signing. Arbitration in Egypt or abroad (the latter can include foreign law and foreign arbitral procedures) is preferred to the court system, although enforcement of arbitral awards is not assured because the losing party can appeal Egyptian or foreign arbitral decisions in Egyptian courts. If no specific dispute settlement procedure is mentioned, any future dispute with a government party will go to the government’s Council of State. This is a government agency that both reviews the constitutionality of proposed laws and regulations and functions as a court for all non- criminal matters to which the government is a party. If the government party does not honor an arbitration decision, the Tenders Law does not permit the winning party to use the arbitration settlement documents to settle claims with other government entities (customs, tax, social insurance, etc.).
There is no provision allowing the supplier to delay work if payments are delayed. There is no provision to reduce the performance bond progressively according to the rate of completion of the work.
Recently, the Ministry of Defense (MOD) has been involved in many procurement decisions, especially national projects. The government views the military’s efficiency, high standards, discipline, and promptness in implementing projects as justification for its involvement in procurement decisions. The MOD has awarded several infrastructure projects from the Ministries of Health, Transportation, Housing and Youth. Furthermore, the MOD has also concluded agreements with numerous foreign corporations.
For assistance with Egyptian tenders, you may engage the staff of the U.S. Commercial Service in Egypt, as well as the Advocacy Center at the U.S. Department of Commerce in Washington, DC.
Other Practical Considerations in Selling to the Government:
Egyptian commercial agents are required for foreign firms to bid on most government tenders. By contrast, commercial agents cannot be used to bid on military tenders, although use of Egyptian “consultants or representatives” may be allowed if the arrangement is properly structured. Commercial agents are optional when bidding on tenders issued by the petroleum companies, or when selling to the private sector.
Poorly written specifications may force bidders to guess what the customer wants. U.S. firms must stay in close touch with client agencies to minimize doubts and uncertainties. Do not assume the “best” is desired, since superior features may not be understood, or the price may be too high. The law is silent about who writes tender specifications and neither encourages nor discourages hiring of consultants to do so. Foreign firms that are trusted by government officials often voluntarily propose tender specifications to prospective bidders, which give them a chance to determine the specifications. In the decision-making committee, the technical representative (typically an engineer) must concur in the award decision. Such qualified specialists have considerable influence.
An important element in conducting business in Egypt is establishing a relationship with decision-makers via frequent visits of foreign principals and their local representatives. Decision-makers must feel comfortable with a supplier and will generally not select a low-bidder who is unknown to them. However, while “sweetheart deals” are known to take place, many Egyptian sources affirm that the majority of decisions are openly competitive and straightforward. While the decision-making process may seem opaque, details of bids are readily obtainable through informal channels.
Government entities expect performance bonds to cover the full warranty period for the product or work in question, and drawdowns proportional to work completed are not usual. U.S. suppliers, by contrast, generally want performance bonds limited to safe delivery and/or set-up.
U.S. companies bidding on Government tenders may also qualify for U.S. Government advocacy. A unit of the U.S. Commerce Department’s International Trade Administration, the Advocacy Center coordinates U.S. Government interagency advocacy efforts on behalf of U.S. exporters bidding on public sector contracts with international governments and government agencies. The Advocacy Center works closely with our network of the U.S. Commercial Service worldwide and inter-agency partners to ensure that exporters of U.S. products and services have the best possible chance of winning government contracts. Advocacy assistance can take many forms but often involves the U.S. Embassy or other U.S. Government agencies expressing support for the U.S. bidders directly to the foreign government. Consult Advocacy Center for Foreign Government Contracts and for additional information.
Financing of Projects
Multilateral Development Banks
The Commercial Service maintains Commercial Liaison Offices in each of the main Multilateral Development Banks, including the European Bank for Reconstruction and Development, the African Development Bank and the World Bank. These institutions lend billions of dollars to developing countries on projects aimed at accelerating economic growth and social development by reducing poverty and inequality, improving health and education, and advancing infrastructure development. The U.S. Commercial Service Liaison Offices in these banks help American businesses learn how to get involved in bank-funded projects and advocate on their behalf to win bids. Learn more by contacting the Advocacy Liaison for World Bank, the Advocacy Liaison for African Development Bank or Advocacy Liaison for European Bank for Reconstruction and Development