Selling to the Government in Egypt

An Expert's View about Government Procurement in Egypt

Last updated: 13 Mar 2011

In selling to the Government of Egypt (GOE), companies will need to deal directly with the client agency. Egyptian procurement is conducted utilizing either national budgetary funds or aid funds from USAID, the Foreign Military Fund (FMF), or other donors. USAID and the Office of Military Cooperation can answer questions about upcoming procurements directly by contacting the U.S. Embassy in Egypt.

 

Other donor-funded projects open to U.S. bidders are from the Government of Japan's United Overseas Development Assistance (ODA), or multilateral assistance from entities such as the World Bank, African Development Bank, or Arab and Islamic development funds.

 

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.

 

Tenders Law

The Tenders Law No. 89/1998 now governs GOE procurement by all civilian and military agencies (“ministries, departments, local government units, and public and general organizations”) unless they are excused from this law. It has replaced the former Law 9 of 1983. The improvement is evident mainly in these areas:

(1) No negotiation of bids after bid opening (“momarsa,” in Arabic). A tender may not be transferred into a momarsa.

(2) No cancellation of an order without reason. Moreover, rejected bids and awarded bids will contain the reasons on which the decision was based.

(3) Bid bonds will now be refunded immediately upon expiry of validity of tender.

 

The law has not changed the following features:

(1) Open competition with publication for at least 30 days;

(2) Fifteen percent price preference for Egyptian bidders. There is one exception, however. Ministry of Defense 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 an MOD procurement, regardless of funding source, they must be treated the same. If an Egyptian company receives a 15% price preference, then so does the U.S. company. Not all DOD 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 them of MOD non-compliance with this provision of the Memorandum of Understanding;

(3) A two-phase decision-making process: a bid-opening committee that convenes a public session to which all bidders are invited and bid prices are read aloud; and a decision-making (settlement) committee that reviews the technical bids and either makes a decision or, if the value is over $50,000, recommends a decision to the minister concerned;

(4) Bid bonds of one or two (generally two) percent and a performance bond by the winning firm of (generally) 5%. Preference is given to Egyptian public sector companies and Egyptian cooperatives, both of which are exempted from the bonding requirements, provided they do the work themselves and do not request an advance payment;

(5) 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;

(6) 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;

(7) 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 of the Tenders Law

There is no time limit for the decision-making committees to meet, make, or announce their decision. If a bidder withdraws its bid prior to bid opening, it forfeits the bid bond. Bidders often are "held hostage" to a government agency that stalls the bid opening for varied 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 has delayed 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 works 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 approve. 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 noncriminal matters to which the government is a party. If the government party does not honor an arbitration decision, the tender’s 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.

 

For Letters of Credit/Guarantee offered as a performance bond, it is advisable to have separate L/Cs for each procured commodity or distinct order, in order to avoid delaying the entire shipment if there is a dispute over one item. The Tenders’ Law has increased the ceiling on direct orders to LE 50,000 (approximately $9,000).

 

In the Tenders’ Law, tenders and bids are not to be transformed into “momarsa” unless otherwise explicitly mentioned in the tender advertisement. Maintenance and after-sales technical service is to be given significant consideration in deciding and evaluating offers. The job is to be given to the lowest bidder only if the requirements for technical and maintenance support are fulfilled.

 

Amendments to Dispute Settlement Law 27 of 1994 regarding contracts between public enterprises and private (domestic and international) sector suppliers allow both parties to agree to appoint any accepted legal body. In the past, the only body overseeing disputes with public enterprises was the State Council, which was taking years in some cases to settle disputes. Parliament approved these amendments in May 1997. In July 2006, the Tenders’ Law was amended to allow state property to be sold by direct agreement in cases where a public auction would be impractical. In September 2006, the executive regulations of the Tenders’ Law were also amended, to streamline contracts procedures. The changes shorten the period required for announcing tenders and evaluating bids; lower charges for tender documents; oblige clients to hold pre-bid meetings to clarify items in tenders; and include model contract terms clearly establishing rights and obligations of contractors. The amendments allow small-and medium-sized enterprises to acquire tender documents at cost, in order to help such firms win business. An amendment to the Tenders’ Law was issued in May 2006, requiring the contracting governmental entity to change the agreement value with the contractor, pursuant to the increase or decrease in cost, which took place after the date determined for opening the technical envelopes or after the date of concluding the agreement. The amendments also require the contracting entity to disburse to the contractor advance payments for work-in progress. The amendment also stipulates compensating contractors for price fluctuations that might occur during the first year of the contract.

 

The new laws correct some of the most serious flaws in Egypt’s current government procurement procedures. Egypt is also now playing a positive role in international discussions of procurement practices, including those of the World Trade Organization. You may also engage the staff of the Commercial Service in Egypt, as well as the Advocacy Center at the U.S. Department of Commerce in Washington, D.C. to advocate on your behalf for projects and in disputes. Please note that if you have retained legal counsel and began legal proceedings, the U.S. Government cannot interfere.

 

Other Practical Considerations in Selling to the Government

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 persons have much influence.

 

Government entities expect performance bonds to cover the full warranty period for the product or work in question, and drawdown proportionally to work completed are not usual. U.S. suppliers, by contrast, generally want performance bonds limited to safe delivery and/or set-up. Therein lie grounds for much misunderstanding and complaints over alleged delays in releasing performance bonds.

 

Influence peddling in procurement decisions is a much-discussed phenomenon. What is certain is that decision-makers must feel comfortable with a supplier. They will not select a low-bidder unknown to them. Personal friendships and frequent visits to decision-makers by foreign principals and their local representatives are important marketing factors. 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.

 

 

 

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Posted: 07 June 2010, last updated 13 March 2011

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