Legal Considerations of Construction in Egypt-Youssry Saleh & Partners

Overview on the Legal Considerations of Construction in Egypt

Youssry Saleh & Partners   18 Jan 2021   675 Views
overview-on-the-legal-consider-Youssry Saleh & Partners

Recently, Egypt has witnessed a remarkable increase in the number of construction companies and their activities regarding infrastructure and real estate development, and Egypt has declared its need for private investment to take a larger role in this sector.

The government is working on attracting investors and empowering the private sector. This is a major step on the road towards achieving urban expansion and improving the infrastructure as per Egypt’s 2030 vision.

Therefore, both Egyptian and foreign investors are trying to be part of that profitable investment either through contracting with the Egyptian government in order to assign them the execution of the infrastructure projects or construct residential compounds/buildings.

In both cases, the investor that intends to be part of the construction environment in Egypt had to be registered in the Egyptian Federation for Construction & Building Contractors (“EFCPC”) as per the provisions of Law No.104 of the year 1992 and its Executive Regulation. According to Article 8 of the aforementioned Law’s Executive Regulation No. 205 of the year 1993:

“Whoever engages in the activity of construction and building, public works, land reclamation, installations, dredging, marine construction works and any other works of the nature of these works, whether a natural or legal person and whatever the legal system that follows it, shall apply for registration to obtain membership in the EFCPC…”.

Required documents to register in the Egyptian Federation for Construction & Building Contractors (EFCPC)

Sole proprietorship:

  1. Official extract of the commercial register that indicates capital value, provided that the activity shall be contracting (recent within 2 months);
  2. Original electronic tax card that includes the activity of contracting;
  3. Recent Criminal Records for the employer and addressed to the Federation;
  4. Lease agreement for the premises, where the activity is practiced to be reviewed by the Federation;
  5. Documented statement of the equipment (receipts or purchase contracts) owned by the applicant according to the schedules;
  6. A certificate from the bank(s) that the applicant deals with showing the date of opening the account or a previous year, whichever is less; and
  7. Certificate in the name of the company from the social insurance stating the existence of an engineer registered with the engineering syndicate and specialized in the required activity.

Partnerships – limited partnership

  1. Official extract of the commercial register that indicates capital value, provided that the activity shall be contracting (recent within 2 months);
  2. Original electronic tax card that includes the activity of contracting;
  3. Recent Criminal Records for the employer and addressed to the Federation;
  4. Original contract of the company;
  5. Lease agreement for the premises, where the activity is practiced to be reviewed by the Federation;
  6. Documented statement of the equipment (receipts or purchase contracts) owned by the applicant according to the schedules;
  7. A certificate from the bank(s) that the applicant deals with showing the date of opening the account or a previous year, whichever is less; and
  8. Certificate in the name of the company from the social insurance stating the existence of an engineer registered with the engineering syndicate and specialized in the required activity.

Joint stock company – Limited Liability Company

  1. Official extract of the commercial register that indicates capital value, provided that the activity shall be contracting (recent within 2 months);
  2. Original electronic tax card that includes the activity of contracting;
  3. Investment gazette; and
  4. Certificate in the name of the company from the social insurance stating the existence of an engineer registered with the engineering syndicate and specialized in the required activity.

Moreover, the contractor-requesting enrollment in the supplementary works shall submit all papers except the insurance policy for an engineer, which shall be replaced by a certificate from a consultant engineer supervising the works, a copy of the syndicate card of the consultant engineer and a copy of the consultant engineer’s registration certificate at the syndicate. Contractor shall submit the papers through the employer or through a general power of attorney that authorizes to deal with the governmental and non-governmental agencies or special power of attorney to deal with the Egyptian Federation of Construction and Building Contractors.

Furthermore, regarding the foreign companies’ branches that have a project or more to execute in Egypt, Law No.104 of the year 1992 and its Executive Regulation No. 205 of the year 1993 obliged the branch to register at EFCBC as a foreign correspondent representative.

After obtaining membership in the EFCBC, either the company would be able to participate in construction projects related to the infrastructure improvement projects planned by the Egyptian government concerning developing or to participate in construction works related to the construction of residential compounds/buildings.

On one hand, it is worth mentioning that construction companies willing to participate in Egyptian infrastructure projects and governmental projects are subject to Law No. 182 of the year 2018 that regulates contracts and agreements concluded by the Public Authorities in Egypt. i.e. the public authority shall assign the completion of the specific project to the construction company either through General practice, tender or direct agreement; otherwise, the company will not be able to participate in the aforementioned works. 

On the other hand, regarding companies aiming to work in private sector investment, no tenders are required to be obtained in order to execute a construction work in Egypt. Once the owner assigns a contractor to build and construct a building for him, the contract will be binding for the parties, notably, there is no unified template for construction contracts as determined by the laws.

In order to ensure the public safety and health, any construction project related to public sector or private sector shall abide by the following:

  1. Unified Building Law No.119 of the year 2008;
  2. The Unified Building Law’s Executive Regulation No. 144 of the year 2009;
  3. The codes issued by Ministry of Housing, Utilities & Urban Communities regulating the buildings and constructing process; and
  4. The Internal Regulations that are issued by local units.

The execution of the contract may result in some kind of disputes between the parties; these disputes may result due to several reasons such as delaying the commencement of the work or failure to complete the project, or amending the contract’s amount. In case any dispute had arisen between the parties in either the contracts concluded between the contractor and the public entity or contracts concluded between the contractor and the private entity, the parties can resort to any mean of disputes resolution.[1]

However, there are differences between the consequences of delaying the commencement of the work or failure to complete the project either related to the public sector or the private sector, in the next few paragraphs, we will compare both cases as follows:

  1. Regarding delay of commencement or failure to complete the works of the Public Construction Projects or amending the contracts’ amount:

The construction projects related to the public works are mainly governed by the Law No.182 of the year 2018.

1- In case of any delaying of the commencement of the work,  if during the execution of the contract, a contractor fails to comply with the date stated in the time table or the term of execution cited in the contract, the competent authority may, for public interest considerations give him an extension of time to complete the contract against no delay penalty if such delay is for reasons beyond his control. Where the contractor fails to comply with the execution timetable, for reasons attributed to him, a delay penalty shall be charged from the extended date of completion of the contract, without the need to give him a notice or warning, or to take any other action. The delay penalty shall be calculated as follows:

  • For construction works, the aggregate delay penalty shall not exceed 10% of the value of the contract, if the duration of delay does not exceed 10% of the overall term of the operation. The delay penalty shall increase to 15%, if the duration of delay exceeds the foregoing threshold. However, exemption thereof shall be made by a decision of the competent authority, if it is found that the delay has been for reasons beyond the control of the contractor. Apart from that, the competent authority may exempt the contractor, in part or in whole, from delay penalty if no damage is caused. The competent authority may seek the opinion of the competent Fatwa Department at the State Council, if it deems fit. Collection of a delay penalty by the administrative entity shall not waive its right to recourse against the contractor for full compensation for any damages caused by such delay. [2]

2- In case of failure to complete the project, the administrative entity may rescind the contract, or execute it at the expense of the contractor, if he breaches any of its fundamental conditions Rescission or execution of the contract at the expense of the contractor shall be affected by a substantiated decision of the competent authority, to be notified to the contractor in question by sending him a letter by an express mail via the National Postal Organization. The mail should also be simultaneously confirmed by an electronic mail, or fax, as the case may be at the address indicated in the contract. The administrative entity may not take the two procedures provided for in the preceding paragraph for any reason. In all cases of rescission or execution of the contract at the expense of the contractor, the administrative entity shall be entitled to the performance bond, and it may also deduct all its claims of the delay penalty and the amount of any loss incurred by it from any payments due on it or would be due on it to the contractor. If such amounts are not sufficient to cover its claims, the administrative entity shall deduct the same from any claims due to him on any other administrative entity, regardless of the reason of entitlement, without the need to take any legal procedures. This shall not prejudice the right of the administrative entity to legally recourse against the contractor for the claims that it could not recover by administrative manner.[3]

3- Regarding to amendment of the amount of the contracts of construction works, the same law mentioned that should any developments occur after conclusion of the contract, entailing modification of its volume, the administrative entity may amend its contracts (increase or decrease) within a threshold of 25% of the quantity of every item of contracts for construction works, and within a threshold of 15% of the quantity of every item of the other contracts on the same terms, specifications and prices. These should be contained in Request for Proposal (RFP). In order to amend the contract, the approval of the competent authority or the Cabinet of Ministers, as the case may be, should be obtained, the necessary appropriations should be readily available, and the amendment should be made during the validity of the contract, provided that such amendment should not affect the priority order of the contractor, and the term of the original contract should be amended, where necessary, to be commensurate with the volume of increase or decrease.[4]

  1. Regarding delay of commencement or failure to complete the works of the Private Construction Projects or amending the contracts’ amount:

Since there are no laws, rules or regulations governing the construction contracts and specifically the construction projects related to the private works, the Egyptian Civil Law No.131 of the year 1948 shall apply, as follows:

1- In case of any delaying of the commencement of the work, as mentioned before, since there are no laws, rules or regulations governing the construction contracts in specific, and no laws governing contracts in general, the parties go back to the provisions of the agreements signed between them.[5]

2- In case of failure to complete the project, if, in the course of execution, it is established that the contractor is performing the work in a manner that is defective or contrary to the agreement, the master may formally summon him to alter, within a reasonable period fixed by him, the manner in which he is performing the work. If after the expiration of such a period the contractor fails to adopt the proper manner of working, the master may either demand reciliation of the contract or the handing over of the works to another contractor at the cost of the first contractor.

Immediate reciliation of the contract may, however, be demanded without it being necessary to grant any delay, when rectification of the defective manner of performance is impossible.[6]

Moreover, in case of non-performance by the debtor of an obligation to do something, the creditor may apply to the court for an order to carry out the obligation at the cost of the debtor, if this is possible.
In a case of urgency, the creditor may carry out the obligation at the cost of the debtor without an order from the court.[7]

3- Regarding the amendment of the construction contracts’ amount, when a contract is concluded on a lump sum basis according to a plan agreed on, the contractor has no claim to an increase of price, even if modifications and additions are made to the plan, unless such modifications or additions are due to the fault of the master, or have been authorized by the master and the price thereof agreed with the contractor.

The contractor has no claim to an increase of price on the grounds of an increase in the price of raw materials, labor or any other item of expenditure, even if such increase is so great as to render the performance of the contract onerous.

When, however, as a result of exceptional events of a general character which could not be foreseen at the time the contract was concluded, the economic equilibrium between the respective obligations of the master and of the contractor breaks down, and the basis on which the financial estimates for the contract were computed has consequently disappeared, the judge may grant an increase of the price or order the reciliation of the contract.[8]

Finally, any investor intending to enter the Egyptian Construction/Real Estate investment field, has to determine the type of projects he intends to engage in and the parties he will contract with in order to begin his investments in Egypt, which will determine the laws and rules governing such investment. As previously mentioned, it is not permissible to apply the laws designated for public contracts, on private contracts and vice versa.

[1] Article 91 from the Law No. 182 of the year 2018,  Article 1 from the Law No. 27 of the year 1994,

[2] Article 48 from the Law No. 182 of the year 2018;

[3]  Article 51 from the Law No. 182 of the year 2018;

[4]  Article 46 from the Law No. 182 of the year 2018;

[5] Article 147/1 from the Law No. 131 of the year 1948;

[6] Article 650 from the Law No. 131 of the year 1948;

[7] Article 209 from the Law No. 131 of the year 1948;

[8] Article 658 from the Law No. 131 of the year 1948;