December 2003 Operational Core Services Middle …siteresources.worldbank.org/.../CPAREGYPT2003.pdf · Arab Republic of Egypt Country Procurement Assessment Report December 2003 Operational

Arab Republic of Egypt Country Procurement Assessment Report

December 2003 Operational Core Services Middle East and North Africa Region

CURRENCY

Currency Unit = LE (Egyptian Pound) LE 1.00 = US$0.162 US$1.00 = LE 6.16

FISCAL YEAR

July 1 – June 30

ACRONYMS & ABBREVIATIONS AfDB : African Development Bank BOOT/BOT : Build, Own, Operate, and Transfer/Build, Own, Transfer CAO : Central Auditing Organization CFAA : County Financial Accountability Assessment CIDA : Canadian International Development Agency CPAR : Country Procurement Assessment Review CPD : Central Procurement Department DAG : Donor Assistance Group DANIDA : Danish International Development Agency ERSAP : Economic Reform and Structural Adjustment Program ESW : Economic and Sector Work EU : European Union FIDIC : Federation Internationale des Ingenieurs-Conseils FY : Fiscal Year GAFC : General Authority for Companies GAGS : General Authority for Government Services GARB : General Authority for Roads and Bridges GDP : Gross Domestic Product GNP : Gross National Product GOE : Government of Egypt IBRD : International Bank for Reconstruction and Development ICB : International Competitive Bidding ICM : Initiating Concept Memorandum IDA : International Development Association IFC : International Finance Corporation ILO : International Labor Organization IS : International Shopping KfW : Kreditanstalt fur Wiederaufbau LCOPR : Latin America and the Caribbean Operations Procurement LE : Egyptian Pounds Regional Vice-President: Christiaan J. Poortman, MNAVP Country Director: Mahmood A. Ayub, MNCO3 Director: Hasan A. Tuluy, MNACS Task Team Leader: Frederick P. Kranz, MNACS

LIB : Limited International Bidding MED : Mechanical and Electrical Department MNA : Middle East North Africa MOFT : Ministry of Foreign Trade MOF : Ministry of Finance MOHP : Ministry of Health and Population MOI : Ministry of Industry MWRI : Ministry of Water Resources and Irrigation NCB : National Competitive Bidding NGO : Non-Governmental Organization NS : National Shopping OECD : Organization of Economic Cooperation and Development OED : Operations Evaluation Department PAD : Project Appraisal Document PAS : Procurement Accredited Staff PBDAC : Principal Bank for Development and Agricultural Credit PIU : Project Implementation Units PER/PEM : Public Expenditure Review/Public Expenditure Memorandum PPMU : Project Preparation Management Unit PSR : Project Status Report QAE : Quality at Entry QAG : Quality Assurance Group SDR : Special Drawing Rights SME : Small and Medium-Size Enterprise TTL : Task Team Leader UN : United Nations UNCITRAL : United Nations Commission on International Trade Law UNDP : United Nations Development Programme US : United States USAID : United States Agency for International Development

Egypt CPAR Table of Contents

CONTENTS

Page Number ACKNOWLEDGEMENT (i) EXECUTIVE SUMMARY (ii) to (vii)

• Introduction (ii) • Key Findings of Strengths and Weaknesses (ii)

- Legal Framework (ii) - Procedures, Practices and Applications (iii) - Private Sector (v) - Summary of Key Recommendations (vi)

A. BACKGROUND

A.1 Country Background and Context 1 A.2 The Political System 1 A.3 Public Sector Procurement 2 A.4 The Donor Community 2 A.5 Non-Governmental Organizations 2

B. FINDINGS Public Sector 4

B.1. Legal Framework 4 B.1.1. Public Procurement Legal Instruments 4 B.1.2 Other Relevant Legislations 5 B.1.3 Public Procurement Process in the Law 6 B.1.4 Analysis of the Legal Framework and Recommendations 12 B.2 Procedures, Practices and Application 16 B.2.1 Public Sector Management Performance in Procurement 16 B.2.2 Framework for Audits and Oversight 18 B.2.3 The World Bank Assistance Program 19 B.2.4 Analysis of Procedures and Recommendations 25

Private Sector B.3 Private Sector Capacity 27

B.3.1 Framework for Private-Sector Operations 27 B.3.2 Small and Medium-Size Enterprises (SME) 28 B.3.3 Banking Sector 28 B.3.4 Build, Own, Operate and Transfer (BOOT) Business 29 B.3.5 Construction Contractors 29 B.3.6 Manufacturers and Suppliers 30 B.3.7 Consultants 31 B.3.8 Analysis of the Private Sector and Recommendations 31

C. RECOMMENDED ACTION PLAN 33 C.1 Basis, Explanations and Next Steps 33

Egypt CPAR Table of Contents

TABLES Table 1: FY03 Portfolio for Egypt, Year-to-Date Disbursements by 20

Disbursement Categories Table 2: World Bank On-going Projects 21 Table 3: Egypt Portfolio Commitments and Disbursements 21 Table 4: Prior Review for World Bank Portfolio in Egypt 23 ANNEXES

Annex A: Supplemental Letter - Provisions for National Competitive 38 Bidding under Bank-Financed Projects Annex B: Additional Recommendations for the Proposed National 40 Procurement Guidelines Annex C: Questionnaire on Public Procurement System; 46 Annex A of Questionnaire (Checklist comparing NCB Procedures and World Bank Policy) Annex D: List of People Met During Missions 66 Annex E: Supporting Materials for the Team’s Findings (on file) 67

Egypt CPAR Acknowledgement

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ACKNOWLEDGEMENT 1. His Excellency Dr. Medhat Hassanein, Minister of Finance, and his staff were a constant and gracious source of encouragement and cooperation during the missions of the CPAR team this past year. In particular, Mr. Abdel Moneim Shobokshy, Chairman of the General Authority for Government Services, and Dr. Doha Mounir, Advisor to the Minister, earned the Team’s appreciation for the continuity they offered, for facilitating contacts with other ministries, and for identifying resources. Mr. Shobokshy also chaired the daily work sessions between the MOF counterpart staff and the Bank’s CPAR mission. 2. In the World Bank, Mr. Mahmood A. Ayub, Country Director, and Mr. Jamal Al-Kibbi, Senior Economist, offered useful guidance throughout the process of this assessment. Among the regional ESW Team who contributed to this report were Mr. Arup Banerji, Lead Economist, Ms. Jody Zall Kusek, OPCCS, and Mr. Hisham Waly, Task Team Leader of the CFAA. The peer reviewers were Ms. Patricia Macgowan, LCOPR and Mr. Mbuba Mbungu, AFTPC. 3. The assessment reflected in this report came about as a result of interviews with the State Council, Ministry of Health, Ministry of Education, Ministry of Industry, Ministry of Trade and Supply, Ministry of Economy and Foreign Trade, Ministry of Justice, Ministry of Public Enterprise, General Authority for Roads, Bridges and Land Transport, Principal Bank for Development and Agricultural Credit, Egyptian Organization for Biological Products and Vaccines, Information and Decision Support Center and the Rural Electrification Authority. A list of the individuals we met appears in Annex D. The Team is grateful for all their guidance and support. 4. At a meeting on June 12, 2003, the team members briefed representatives of the donor community about key findings of the CPAR mission. Prior to that, the team members also discussed the draft report with Mr. Stefan Glock, KfW, Messrs. Paul Nyborg and Martin Mikkelsen, Royal Danish Embassy, and Mr. Peter Flick, Royal Netherlands Embassy. 5. The following members of the Bank’s CPAR Team prepared this report: Messrs. Fred Kranz, Task Team Leader, Badr Kamel, Senior Procurement Officer, Caroline Harper, Lead Operations Officer, Roch Levesque, Senior Legal Counsel, Noha Nabih A. Gawad, Reem El-Ansary and Conchita Castillo, Program Assistants.

Egypt CPAR Executive Summary

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EXECUTIVE SUMMARY

Introduction 1. Egypt has pursued an Economic Reform and Structural Adjustment Program (ERSAP) since the 1990s. The recent downturn in the global economy and the fallout from external factors such as the September 11, 2001 events have caused a slowdown in Egypt’s pursuit of reforms. Nonetheless, the Government is focusing on three key elements of the remaining reform agenda: (i) improvements in the business environment; (ii) liberalization of the economy; and (iii) reform of the financial sector. 2. Egypt enjoys strong support from the international donor community, particularly USAID and EU. The Bank’s portfolio of 17 investment projects, worth about US$800 million, is relatively modest for a developing country of almost 70 million inhabitants. The Bank’s strategy has been to work in partnership with other donors to support Egypt’s reforms by sharing knowledge and financial resources to reduce poverty and unemployment, while focusing on education, health, social safety net, water resources and community development. 3. In 1998, a new Law on Organizing Tenders and Bids was introduced to create a better business environment and to regulate public sector procurement and public contracts more effectively. Subsequently, various executive statutes, decrees, and “fatwas” (legal opinions) have elaborated on this law. 4. This Country Procurement Assessment Report (CPAR) revisits public sector procurement in Egypt nearly a decade after the previous Report.1 It comes after five years of experience with the new Law and it is an integral part of the Bank’s Economic and Sector Work (ESW). The CPAR takes into account relevant findings of the Country Financial Accountability Assessment (CFAA) dated June 2003, the Country Portfolio Performance Review (CPPR) dated May 2002 and the current Public Expenditure Management (PEM) initiatives. Coordination and discussions among the contributors to this ESW have identified several cross-cutting issues which, through joint pursuit with GOE, should bolster Egypt’s reform program and establish a sound basis for our future partnership. Key Findings of Strengths and Weaknesses Legal Framework 5. Egypt’s legal system is based on Civil Law. The Civil Code regulates commercial contracts. Law No. 89, which became effective in 1998, governs public contracts. A decree, issued by the Minister of Finance in the same year, provided the Executive Statutes which specify procedures for contracting, acquisition of facilities and sale or lease of movable assets. Other documents governing public contracts are decrees issued by the Prime Minister and fatwas (legal opinions) issued by the State Council at the request of a ministry.

1 The previous CPAR was prepared in 1994. Its recommendations have become largely obsolete due to the

enactment of Law No. 89 in 1998.


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6. Decentralization of public procurement is fully established by Law. Each Competent Authority, usually the appointed Minister, is responsible for the Ministry’s own procurement. However, the Ministry of Finance (MOF) and, to a certain extent, the State Council have specific oversight responsibilities for all public procurement activities. 7. Although the Law and the Executive Statutes provide important concepts for public procurement and are based on sound principles, they are broad and not always sufficiently clear for consistent application. To compensate for this lack of clarity and completeness of the written law and statutes available to them, different ministries have created their own unwritten procurement “rules.” These unwritten “rules” have become known to bidders only through application to actual cases and can vary. Consequently, discretionary decisions by the Competent Authority have become the rule rather than the exception, as for example, in the selection of the applicable procurement method or acceptance of bid modifications after the bid opening. 8. The Law and Executive Statutes provide two main procurement methods: Public Tenders and Public Practices Negotiations. Public Tenders follow the principles of open competitive bidding, using two envelopes – one each for the technical and for the financial proposal. Public Practices Negotiations is equivalent to an auction. After an initial review of the submitted technical proposals, all bidders sit at a table with the procuring entity to negotiate prices and rebates. These two main methods are used for the procurement of goods and works; in the absence of a distinct procurement method for consulting services, they also apply to those procurement processes. 9. The Executive Statutes specify a merit point system to evaluate bids for goods, works and services, without providing guidance on how to quantify the evaluation criteria in monetary terms in relation to the merit points. They also do not require a full disclosure of the evaluation criteria in the bidding documents. If questions arise during the bid evaluation process, the evaluation committee may request further information and documents from any bidder, without recording these inquiries and their responses in writing. 10. There is no independent protest mechanism in the Executive Statutes other than an appeal to the Competent Authority authorizing the procurement. Arbitration is sometimes included in contracts as a form of dispute resolution but only with the agreement of the Competent Authority. Even when it has been granted, the agreement of the Competent Authority may be voided by the State Council during contract review. Ultimately, the only available recourse for a dissatisfied bidder is to file a lawsuit. 11. Bidding opportunities are advertised in mass circulation newspapers. Large projects are advertised in foreign publications and to embassies. GOE does not have standard bidding documents or contracts. Documents containing descriptions of works and services, specifications and other information required under Article 8 of the Executive Statutes are available to bidders at their request. Procedures, Practices and Applications 12. While Egypt has a fully decentralized public procurement system in which each Competent Authority (Minister) is responsible for the Ministry’s own procurement processes, the usual advantages expected from decentralization, such as increased efficiency, are difficult to achieve in Egypt, because decision-making is burdened with too many checks and balances at every stage and


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repeated referrals to the Minister in-charge, even when there is no legal obligation for seeking the Minister’s approval. Part of this problem is very limited delegation of authority to lower levels, as much as a fear of making the wrong procurement decision, where authority has been delegated by the responsible Minister.

13. Oversight of the decentralized national procurement system is vested in MOF whose inspectors may visit any ministry at any time to carry out post-reviews of procurement. Ministries must also ensure that an MOF representative is invited to serve on their bid evaluation committee. 14. The General Authority for Government Services (GAGS), whose Director reports to the Minister of Finance, is responsible for budget-related procurement and financial control activities. As a part of its core responsibilities, GAGS generates exceptions reports that highlight lapses and irregularities in compliance with regard to specific transactions but does not analyze or comment on broader policy matters such as the efficiency of GOE procurement, management performance or the adequacy of internal controls. 15. The law also provides independent oversight of GOE expenditures by the Central Auditing Organization (CAO) and by the Parliament. The CAO, which operates under the joint authority of the President and Parliament, audits the administration of public funds and the management of public property. After the GOE’s budget has been approved, the public is not given access to budget documents or to reports on the use of allocated funds. 16. Parliament has played an important role in improving the country’s governance and accountability by raising the level of internal and external oversight and by reviewing the value-for-money achieved by ministries and the quality of their accounting records. 17. In the past three years, Egypt’s fight against corrupt activities in public service has resulted in several publicized high-level prosecutions of the responsible officials. However, Transparency International and leading economic watch groups maintain that corruption will continue among lower level civil servants who are susceptible to it as a source of additional income. 18. More than 8% of the population is in the civil service, including the ministries and state-controlled enterprises. This compares to an average of 4.7% worldwide. Overstaffing deters improvements in the delivery of public services; it causes delays in decision making on procurement and contract administration. Civil service reforms are currently deemed to be politically unfeasible. 19. The wide variations in the procurement practices and efficiency levels of GOE’s 20-plus procuring ministries and state-controlled enterprises are chiefly the result of the broad discretion of Competent Authorities in decision-making and the fact that their procurement operations can resort to unwritten ‘’rules,’’ due to the absence of guidelines to interpret the Law and the Executive Statutes more consistently. Unfortunately, this reliance on broad personal discretion in actual procurement practices detracts from the fact that Egypt’s legal framework for public procurement is based on sound concepts. It also overshadows the existence in Government of a few centers of excellence, where information technology has been instituted effectively and where a commendable transition to modern procurement operations is underway.

20. This report does not provide the usual snapshot of the country’s public procurement practices by type or method, because the CPAR Team’s requests for access to the pertinent records of procurement transactions were declined by GOE.


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21. The implementation of Bank-financed projects has been relatively satisfactory; 73% of them received a satisfactory rating for procurement. The current portfolio consists of 17 operations, mainly in irrigation/agriculture, health/social development and education. At the end of FY03, only two of the 19 projects were at risk. Three of the 19 projects had been closed and/or cancelled. The size of the portfolio has gradually decreased over the past three years from about US$1 billion to about US$800 million. Nevertheless, the portfolio is expected to undergo a significant increase with the addition of new operations in infrastructure, notably in airports. 22. Historically, PIUs have handled implementation of Bank-financed projects rather than departments within ministries, although there is a mix in Egypt. It may not be feasible at this time to mainstream further PIU activities into regular GOE operations because of the weaknesses in the civil service system and its resistance to reform. 23. In the past, it has sometimes taken up to two years for loans and credits to become effective which is an inordinate amount of time. As a result, there were lags in disbursement and repeated extensions of closing dates. However, more recently these delays have been reduced. 24. A very critical impediment to an improved portfolio in Egypt is the scarcity of experienced procurement specialists available for recruitment by PIUs and ministries. The Bank has made significant strides in the areas of training and capacity building, but more is needed for sustainable progress to increase the number of trained procurement specialists and to upgrade the skills of specialists who are already working in PIUs and ministries. MOF continues to be constrained in its oversight functions by having to rely on the same few technical experts to serve on ministerial bid evaluation committees. The scarcity of procurement specialists contributes to delays in the implementation of procurement processes, and allows incorrect applications of procurement guidelines to go unchecked. 25. Over the past six years, the Bank has gradually decentralized projects in Egypt to the Country Office in Cairo. Although the degree of decentralization varies from one sector to another, the common objective has been better responsiveness to GOE. PIU staff have voiced their appreciation of improved access to Bank staff in the Country Office. Private Sector 26. Over the past decade, the private sector’s contribution to Egypt’s GDP has grown from 61.2% to 76.4%. During the same period, the number of new companies registering with government increased tenfold. Although new legislation has been introduced to expand foreign investment and to adopt massive technological changes, this law has not yet been enacted. 27. Government has made improvements in the country’s business environment one of its most important reform objectives especially for Small and Medium–Size Enterprises (SME). SMEs provide 75% of private sector jobs. Among the barriers facing SMEs are: (i) outdated legal system; (ii) inadequate access to capital; (iii) lack of capacity; (iv) rent-seeking behavior by civil servants, especially in taxes and customs administration; and (v) bias against SME’s as serious bidders. Certainly, larger enterprises in the private sector have confronted many of these same obstacles but struggling SMEs frequently lack the resources and resilience to overcome them.


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28. Over the past decade, Egypt was among the developing countries in which the BOOT and BOT approach to bidding, contracting and operation/ownership gained in popularity. Between 1999 and 2000, GOE invested billions of dollars in BOOT/BOT projects. Special legislation permits private sector power suppliers to operate in Egypt in collaboration with the Egyptian Electricity Authority. However, more recently, the BOOT/BOT approach has turned out to be less of a panacea for development in general and public sector procurement in particular than originally anticipated. Successful BOOT/BOT bidders required payment in foreign currencies. They attempted to borrow funds from Egyptian banks to cover the financing of these projects; this practice created a drain on foreign reserves and increased lending risks. Nonetheless, GOE remains interested in the BOOT/BOT for potential mega-projects. 29. GOE controls some of the largest construction firms and the largest manufacturers of key materials for this industry. As a result, the construction business is highly stratified in size and capacity. In contrast, the majority of private construction firms are small and medium size. Egypt’s contractor registration system puts these small-and medium-size private contractors near the bottom of the classification system for Government contracts. 30. In most public procurement of goods, including those financed by the Bank, the absence of foreign bidders is conspicuous. The norm is for Egyptian manufacturers or the Egyptian agents of foreign manufacturers to submit bids. Although Egypt is a signatory to the United Nations Convention for the International Sale of Goods, the country’s import regulations require that importers appear in the Register of Importers. This registry is only open to Egyptian nationals or Egyptian-registered firms. 31. Egypt is home to the largest engineering firms with worldwide operations in the Middle East and to a significant number of small and medium-size consulting firms in engineering, architecture, and surveying. Foreign firms may be shortlisted by GOE ministries only if they participate in joint ventures or they have Egyptian subsidiaries. Due to the recent decline in construction, many medium-size consulting firms have associated themselves with construction contracting firms by establishing design-build joint ventures. Summary of Key Recommendations 32. National Procurement Guidelines. In order to provide consistent and clear interpretations of the Law and the Executive Statutes, National Procurement Guidelines should be developed covering all procurement activities from planning to contract administration. These Guidelines should detail all steps that are necessary for the efficient procurement of goods, works and consulting services. Adherence to these Guidelines should be mandatory for all ministries and state-controlled enterprises. 33. Standard Bidding and Contract Documents. While the Guidelines would detail the steps in procuring goods, works and services, new standard bidding and contracting documents would reinforce the introduction of consistent and clear methods in soliciting, submitting and evaluating bids. These standard documents would also include appropriate contract forms with provisions that are equitable, enforceable under the Law and in line with contemporary contracting practice. The UNCITRAL Model Law on Procurement of Goods, Construction and Services would be a suitable basis for developing the National Guidelines and standard documents.


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34. Public Service Standards in Procurement. Once the new Guidelines and the standard bidding and contract documents are instituted and adopted throughout GOE, the actual performance by the procuring entities under this new framework should be measured against published public service standards. MOF should be empowered to set, disseminate, monitor and enforce compliance with these standards, as part of its expanded fiduciary oversight functions. At the same time, MOF should also expand the role and capacity of GAGS as a technical secretariat for advice, training and mediation services in public procurement. 35. Procurement Training. A human resources strategy in the fiduciary areas should be developed by MOF and put into effect through a systematic training program, with the active involvement of local training providers and the donor community. This would address the critical scarcity of trained procurement specialist, as well as upgrade the skills of specialist who are currently in the civil service. 36. Annual Supply Contracts. GOE should give consideration to replacing the current practice of procuring common use goods like furniture, vehicles and computers on a piecemeal contract-by-contract, ministry-by-ministry basis through annual supply contracts based on aggregating requirements from various ministries. GAGS should estimate the aggregated quantities of common use goods on an annual basis and procure annual supply contracts competitively. These contracts should require suppliers to store the procured goods on their premises and deliver them only on-call to designated locations. A GOE supply catalogue featuring these goods would further enhance efficiency. 37. Public Procurement Assistance for Small and Medium–Size Enterprises (SME). In support of Egypt’s efforts to promote new employment opportunities, SME should be targeted by GOE as beneficiaries of a special assistance program to increase their participation in public procurement. This program would include bidding for contracts that are within range of SME capabilities, lenient financial requirements, simplified documents and training workshops.

Egypt CPAR Background

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A. BACKGROUND A.1 Country Background and Context 1. This section provides an overview of Egypt, the country’s political, economic and public sector management structures, the donor community and the Bank’s assistance program. 2. Egypt’s constitution supports the dominant role of the executive branch. It calls for a central administration and narrowly defines the functions of the legislative branch. Although the constitution defines Egypt as a socialist state, central planning of the economy has declined over the years. The President, chosen by the People’s Assembly, has the discretion to appoint or to remove the Prime Minister and the cabinet, the governors of Egypt’s 26 governorates and most other key officials. The Government comprises 34 ministries. These ministries and other Government units employ approximately six million civil servants, or 8% of Egypt’s almost 70 million inhabitants. Governorates are subdivided into 126 districts, more than 4,600 municipalities and an even greater number of People’s Councils. 3. Egypt has proceeded cautiously with reforms to open its economy; the latter including steps to privatize state-controlled enterprises, encourage private investment, and liberalize relevant policies. Reforms have hinged on two underlying principles: cushioning the poor from the anticipated effects of needed policy reforms and maintaining national stability. According to the recent Poverty Assessment, prepared jointly by GOE and the Bank, the overall incidence of poverty is 19%. Egypt’s concern for rising unemployment has slowed civil service reform and the privatization of key enterprises controlled by the state, given that the civil service and state enterprises continue to be important sources of employment. 4. During the 1990s, Egypt embarked on an Economic Reform and Structural Adjustment Program to generate sustainable growth, improve the standard of living, reduce unemployment and limit inflation to safe levels. Major reforms relevant to this Program were: (a) liberalization of the financial markets by abolishing nominal ceilings on interest rates and foreign exchange controls and by recapitalizing state-controlled banks to enhance their solvency; (b) promulgation of prudent banking regulations; and (c) adjustments in market-determined levels of key prices. The latter included energy prices, trade reforms and initiation of public sector restructuring and privatization. 5. During the second half of the 1990s, the Egyptian economy grew by 5% annually. The impetus for this rapid growth derived mainly from a domestic construction boom. However, in the last three years, the economy has slowed considerably due in part to fallout from September 11, the Iraq War and other exogenous factors. A.2 The Political System 6. Egypt’s political system recognizes three distinct authorities: Legislative, Executive and Judicial. The Legislative Authority consists of the People’s Assembly, which is made up of 444 members and the Advisory Council with 264 members. The principal role of the People’s Assembly is to propose and approve laws, and to discuss and approve the national budget and the budgets of economic authorities. The Legislative Authority monitors government performance and approves cabinet programs. The Advisory Council offers advice on proposed laws and regulations.


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7. The President heads the Executive Authority. In conjunction with the cabinet, the President issues and supervises the implementation of public policies. The cabinet prepares laws, decrees, and the national budget. 8. The Judicial Authority, independent of the other two authorities, consists of: (i) the Supreme Constitutional Court, the highest judicial body, which reviews the constitutionality of laws and regulations; (ii) the State Council which adjudicates administrative matters; and (iii) the Ordinary Court system which comprises the civil and criminal courts. A.3 Public Sector Procurement 9. A substantial percentage of Egypt’s six million civil servants deal with fiduciary tasks such as procurement and financial management, considering the fact that more than 20 out of 34 ministries, plus a large number of governorates, attend to the wide-ranging procurement needs of the country. Funds come from the national budget as well as several donors. Unofficial estimates indicate that GOE spends about 27% of GDP on public works, goods and services. This estimated percentage could be translated into an annual procurement volume of US$23 billion. Official data on the budgets or the procurement volumes of ministries and state-controlled enterprises are unavailable for public access and could not be obtained during the CPAR mission. A.4 The Donor Community 10. Egypt enjoys strong donor support from a wide variety of institutions including the World Bank Group, USAID, the EU, UNDP, AfDB, Kuwait Fund, KFW and the Islamic Development Bank. 11. Cairo houses representatives of most bilateral and multilateral development organizations (many of which operate from Egypt’s capital on a regional basis). Given its per capita GNP of US$1,200 and owing to its size and geographic importance, Egypt receives a relatively high level of Official Development Assistance (ODA). Since 1990, net ODA inflows to Egypt have been among the highest in the world. For example, at the height of ODA inflows. Egypt received nearly US$7.5 billion of ODA in FY91, or the equivalent of approximately US$150 per capita. 12. A development partner in Egypt since the 1950s, the Bank has financed more than 100 projects, totaling more than US$5 billion, plus a significant amount of grants. The US and the EU are the primary assistance providers to Egypt. Over the past decade, development assistance from the US has averaged about US$1 billion annually. However, in FY03, that amount tapered off to about US$800 million. EU assistance also amounts to about US$1 billion per year based on an aggregate of Community funds and funds provided by the EU countries’ bilateral programs. Japan and the regional development banks provide resources as well. Donor coordination occurs through the Consultative Group (CG) and the Donor Assistance Group (DAG). Given this magnitude of development assistance, Egypt has combined a strategy of making maximum use of grant funds with prudent borrowing. A.5 Non-Governmental Organizations 13. More than 15,000 Non-Governmental Organizations (NGOs) are estimated to work in Egypt. Although some of them are affiliated with religious and ethnic groups, the majority sponsor charitable services in support of civil society. NGOs operate under a legal framework dating to


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1964. More recently, a new association law (Law 84) prohibits NGOs from carrying out any political activity. This law requires the state’s prior approval before NGOs can spend foreign funds. Law 84 also gives the state the power to dissolve NGOs in violation of this law. The Ministry of Social Affairs, which exercises state control over NGOs, provides grants to some of these NGOs. Recent surveys indicate NGOs are responsible for providing health services to 70% to 75% of the poor.

Egypt CPAR Public Sector: Legal Framework

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B. FINDINGS Public Sector B.1 Legal Framework 14. This Section reviews the main regulatory documents currently applicable to public procurement in Egypt and provides an analysis of the specific provisions of the procurement law and regulations.2 B.1.1 Public Procurement Legal Instruments 15. The Ministry of Finance and to a certain extent the State Council have central oversight of public procurement which is governed by the Civil Law with Civil Code regulating commercial contracts. Public contracts are governed by: the Law No. 89/1998 Promulgating the Law on Organizing Tenders and Bids (“the Promulgating Law”) which includes the Law on Organizing Tenders and Bids (“the Law”), and by the Decree No. 1367/1998 promulgating the Executive Statutes of Tenders Law issued by the Minister of Finance (“the Decree”).3 The Decree includes the Executive Statutes of Tenders Law (“the Executive Statutes”).4 Summary of content of the various procurement legal texts

Promulgating Law Law Decree Executive Statutes • Scope of application of

the Law. • Definition of the

“Competent Authority.”

• Description of the various procurement methods.

• Description of the required steps of the bidding process.

• Purchase, sale and rental of real estate.

• Bid protest and arbitration.

• Definitions of “Administrative Quarter,” “Competent Authority,”5 and “Purchasing Department.”

• Transitional measures.

• Contracting procedures.

• General conditions. • Contract Execution

procedures. • Purchasing and

renting facilities. • Sale and lease of

movables and use of real estate.

16. Articles 668 to 673 of the Civil Code contain the provisions for Concession Agreements which are not governed by the Law on Organizing Tenders and Bids (the Law) or the Executive Statutes of Tenders Law (the Executive Statutes). The Civil Code, the Promulgating Law, the Decree and the Executive Statutes are public documents. The Civil Code is translated into French and English; there is an English translation of the four other pieces of legislation.

2 This report contains references to clauses in the UNCITRAL Model Law on Procurement of Goods,

Construction and Services which is available in Arabic on the UNCITRAL website: http://www.uncitral.org. 3 As amended by decrees 513/1999 and 2/2000 4 This review of the legal framework contains quotations from the English translation of the Promulgating Law,

the Law, the Decree and the Executive Statutes. Please note that the translation contains flaws in the use of the English language, and as such, the quotations may at times, be difficult to understand.

5 The definitions of “Concerned Authority” and “Competent Authority” are the same. The expression “Competent Authority” will be used throughout this report, in order to avoid any confusion.


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17. Other administrative documents governing government contracts are:

(a) Decrees issued by the Prime Minister explaining specific provisions of the Law or the Executive Statutes; these Decrees are mandatory for the administration and are published in the annual Arabic new edition of the Law; they are not translated into English;

(b) Decrees issued by the Minister of Finance amending and interpreting the Executive Statutes. They are published in the annual Arabic new edition of the Law; and are translated into English;

(c) Legal opinions (Fatwas) issued by the State Council at the request of a Ministry. Fatwas are not mandatory for the Administration but, in practice, the Ministry which made the request follows them. They are published in the Arabic new edition of the Law; and are not translated into English; and

(d) Fatwas issued by the upper level of State Council resolving a difference of opinion between an existing Fatwa and the Administration; the decision of the upper level of the State Council is mandatory for the Administration and they are not accessible to the public.

18. The Promulgating Law stipulates that the Law and the Executive Statutes apply to: “State’s Administrative Body Units, inclusive of Ministries, departments, bodies having special balances [having their own budget], as well as Local Administration Units, Public Authorities, whether being servicing or economic.”6 The Law also provides the specific rules applicable to the Ministry of Defense and the Ministry of Military Production.7 Although not required by the Promulgating Law, the principles of the Law and the Executive Statutes are followed by state-controlled enterprises.

B.1.2 Other relevant legislations

19. Law on the State’s Civil Servants.8 This law prescribes the general rules which apply to issues and matters associated with civil servants in the GOE’s ministries, administrations and agencies, and to workers of Public Authorities where no provision is prescribed in their own regulations. This law provides, inter-alia, for the rules applicable to appointments, promotions, wages, leaves and termination of service including infractions which encompass the violation of the “regulations and laws concerning adjudications, biddings, stores, purchases, and all financial rules,” the acceptance of “gifts, presents, remuneration, commission, or loan, for performing the duties of his position,” and the exercise of a business which has an interest in “works, contracts, or adjudications connected with the duties of his position.”9 After an investigation (recorded in writing), the Administration may impose one of 11 disciplinary sanctions;10 sanctions vary from warnings, suspensions, to reductions in wages and dismissal from service.

6 Article 1 of the Law Promulgating the Law on Organizing Tenders and Bids. 7 Article 8 of the Law on Organizing Tenders and Bids. 8 Law No. 47/1978, as amended by Laws 136/1980, 108/1981, 117/1983, 31/1983, 115/1983, 219/1991, 34/1992

and 5/200. 9 Article 77 of the Law concerning the State’s Civil Servant System. 10 Article 80 of the Law concerning the State’s Civil Servant System.


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20. Law on Public Sector Workers Regulations.11 This law applies to workers of Public Sector Companies. Its scope covers the same matters as the Law on the State’s Civil Servants. More specifically, it provides for infractions which encompass: (i) the exercise of trading activities in general and “participating in adjudications and biddings, and all other aspects of activities connected with the functions of his position;” and (ii) the acceptance of “any gifts or compensations, or commission, or any kind of loan on the occasion of performing the duties of his function.”12 The Administration may, after an investigation (recorded in writing), impose one of 11 disciplinary sanctions13 which vary from warnings, suspensions, reductions in wages and dismissal from service.

21. Labor Law.14 The Labor Law governs work relations in Egypt. It does not apply to public servants. The Labor Law, enacted in April 2003, is inspired by the International Labor Organization Conventions. Discrimination in wages because of sex, origin, language, religion or creed is prohibited. Annual paid leave is mandatory and specific provisions apply to women (i.e. maternity leave, breast-feeding). This law provides that the “employer shall not deviate from the conditions agreed upon in the individual Labor contract or the collective Labor agreement.” It also lists numerous reasons that should not be considered as grounds for termination, such as color, sex, pregnancy, religion, political opinions, and affiliation with union activity, submission of a complaint or filing an action against the employer. The rules for the employment of infants/juveniles are in line with the ILO Conventions.

22. Arbitration Law. The Arbitration Law, based on the UNCITRAL model law on Arbitration, contains principles recognized internationally. It applies to all arbitration between parties among persons of public law or private law if the arbitration is held in Egypt or abroad if the parties agree to apply the Arbitration Law. However, the second paragraph of Article 1 states: “With regard to administrative contracts litigations, agreement on arbitration shall be reached with the approval of the concerned Minister or the official assuming his powers with respect to public judicial persons. No delegation of powers shall be authorized therefore.” This is the same principle as the one stated in Article 42 of the Law. B.1.3 Public Procurement Process in the Law 23. The Promulgating Law, the Law, and the Executive Statutes state summary procurement principles and provide for decentralized procurement process, whereby each Competent Authority is responsible for its own procurement processes. The following is a summary presentation of the procurement process stipulated in the Law and the Executive Statutes.

11 Law 48/1978. 12 Article 79 of the Law on Public Sector Workers Regulations. 13 Article 82 of the Law on Public Sector Workers Regulations. 14 Law 12/2003.


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Delegation of Authority 24. Article 2 of the Promulgating Law provides for delegation of authority by the Competent Authority. In practice, however, most procurement decisions, including the selection of the procurement method, are made at the highest level, and many ministries do not delegate any part of the minister’s authority for procurement to a lower ranking official. Procurement planning 25. Pursuant to Article 36 of the Law, “Contracting shall be within the necessary and actual needs.” In accordance with the Articles 3 and 4 of the Executive Statutes, the procurement technical committee, must observe the “Egyptian Standards Specifications and the Specifications of Governmental Supplies and other specifications as issued or approved by the concerned Technical Quarters” in preparing technical specifications for the needed items, in determining an estimated price and in setting the amount of the bid security. The bid security should not exceed 2% of the estimated price.15 The bid security has to be submitted in cash, by bank check, letter of guarantee, or a deduction on amounts owed by the government to the bidder.16 Procurement Methods 26. The Law provides that the same rules apply to the “purchase of movables, or on works contracting, or transport, or for the acceptance of services, and the consultancy studies, and technical works.” It also provides for two preferred procurement methods: Public Tenders and Public Practices Negotiations. The choice of one of the methods is made “by a decree issued by the Competent Authority according to the circumstances and nature of the contract.”17

a) Public Tender is governed by detailed rules on advertisement, submission of bids, public opening of bids, bid evaluation, etc. They will be examined further below.

b) Public Practices Negotiations is announced according to the same advertisement

procedures as Public Tender; bids are submitted in the same manner as Public Tender. Technical envelopes are opened publicly and evaluated. Bidders who are technically qualified are invited to the opening of the financial envelope, which is done publicly. Then all bidders are immediately invited to a table where they negotiate their price with the procuring ministry “in public sessions to reach the best conditions and lowest prices, by observing the unification of comparison bases between the offers from all technical and financial points of view.”18 Following such negotiations, the Competent Authority (Minister) selects one of the bidders, according to the circumstances and the nature of the contract, and then issues a decree announcing the award decision.19

27. Other procurement methods which are used “exceptionally and by justified decree by the Competent Authority” include:

15 Article 17 of the Law. 16 Article 70 of the Executive Statutes. 17 Article 1 of the Law. 18 Article 45 of the Executive Statutes. 19 Article 1 of the Law.


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c) Limited Tender is used “in the cases whose nature require the restriction of participation of specified suppliers[…]”20 The bid invitation is addressed to “the largest number of contractors working in the type of activity connected with the subject of the tender and whose name has been approved by the Competent Authority [the purchasing Ministry]”21

d) Local Tender for Procurements under LE 200,000 (approximately US$32,000) are

confined to local suppliers whose activities fall within the boundary of the governorate where the contract is to be implemented.

e) Limited Practice Negotiations is used when: (i) the item is manufactured, imported, or

available only from particular entities; (ii) items whose nature or acquisition purpose dictates that they would be either selected or purchased from their production location; (iii) technical works which require, according to their nature, to be undertaken by certain experts; and (iv) national security requirements dictate confidentiality.22

f) Direct Contracting is permitted in urgent cases, provided a decree from the Competent

Authority has justified it including:

• For: “movables, service, consultancy studies, technical works or transport enterprises”23 with approval of the Head Authority up to LE 50,000 and approval of the Minister up to LE 300,000 (approximately US$8,500 and US$51,000 respectively); and

• For “enterprising contracting works”24 with approval of the Head Authority up to

LE 100,000 and approval of the Minister up to LE 300,000 (approximately US$17,000 and US$51,000, respectively).

28. A decree from the Minister of Finance states that direct contracting should not be abused and that normal procedures must be followed, except for emergencies. It also states that the government should not use direct contracting for multiple contracts with the same contractor or for multiple items.25 A Fatwa from the State Council provides for the same.26 Bidding Process for Public Tenders 29. Advertising public tenders is done twice in one or two mass circulation daily newspapers. External tenders are announced in Egypt and abroad in English and Arabic, with notifications to the embassies of foreign countries in Egypt or their consulates.27 A decree from MOF qualifies the eligibility criteria mainly for construction contracts and states that the advertisements should mention that the main contractor should be an Egyptian national and that foreign companies may participate

20 Article 3 of the Law. 21 Article 35 of the Executive Statutes. 22 Article 5 of the Law. 23 Article 7a) of the Law 24 Article 7b) of the Law. 25 Minister of Finance Decree 79/2001. 26 State Council Fatwa 629/23-11. 27 Article 2 of the Law and Article 12 of the Executive Statutes.


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as subcontractors, if no Egyptian company is available or qualified.28 No advertised pre-qualification process exists for public procurement. 30. The Bidding Documents contain the elements mentioned in Article 8 of the Executive Statutes, including:

a) the name of the Entity requesting the tender and a description of the works and services together with detailed specifications;

b) a provision specifying that the tenders shall be submitted in two envelopes: (i) a technical

envelope is to include the bid security: lump sum equivalent to 2% of the estimated price, and (ii) a financial envelope which must include, inter-alia, the bid price, the method of payment, the value of the spare parts;

c) the documents considered necessary for the “technical and financial adequacy and

ability” of the bidders including technical data about the bidder, method of work, work schedule, catalogues and sources of the materials; key staff, subcontractors, and previously completed works;

d) data on the registration of the bidder for the activity covered by the contract; certificate of

registration with the Sales Taxation Department, the Tax Card, and a statement that the bidder is a legal entity; and

e) the elements and basis of evaluation (allocation of the points).29

31. Bidders are given 30 days from the day of advertisement to prepare their bids. However, this period may be reduced to 20 days.30 A bidder must be an Egyptian national or have an Egyptian agent31 and the bids must be valid for three months. Validity may be extended with the approval of the Competent Authority “according to the nature and subject of the contract.” 32 There are no clear criteria for when extensions may occur and the limits of those extensions.

32. With respect to bidders seeking clarifications, the Law and the Executive Statutes state that the following can be requested: “whatever information, data and documents it needs, and explanations on such technical matters as found to be vague” and that it should be done “without derogations to conditions of equal chances.” There is no requirement that such communications should be in writing. There is no record of how broadly this provision has been interpreted in specific cases. 33. The tenders are to be received by “the Incoming Mail Department of the concerned Department.”33 The tender box is opened at noon on the date of the deadline for submitting tenders by a high-level “Tender Envelopes Opening Committee” comprising six to seven members, including legal, technical and financial specialists, and the director of the Purchasing Department or his

28 Minister of Finance Decree 7/2000. 29 Article 9 of the Executive Statutes. 30 Article 14 of the Executive Statutes. 31 Article 61 of the Executive Statutes. 32 Article 14 of the Executive Statutes. 33 Article 16 of the Executive Statutes.


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designee. 34 The Executive Statutes mention that when late bids are received, the date and the hour of receipt should be indicated in the late tender list.35 The Executive Statutes provide no further guidance on the handling of late bids. 34. Opening of the technical bid is to take place in one session. The mandate of the Tender Envelopes Opening Committee includes, inter-alia, recording the condition of the submitted bids, assigning a number to each bid; ensuring that two separate envelopes exist, placing the financial envelopes in the tender box, opening the technical envelopes, reading out the name of the bidder and the amount of the bid security, preparing a report, signing the report, and delivering the bid securities to the Accounting Department.36 35. By decree of the Competent Authority, a “Decision Committee” studies technical offers.37 The committee has the authority to request clarifications from bidders, but the extent of this authority in specific cases is not clear and there is no requirement that communications with bidders be in writing. 36. When the views of the Committee members differ, they record their differences in a report for a final decision by the Competent Authority. The evaluation report, including recommendations, is submitted to the Competent Authority.38 37. After the Competent Authority approves the Decision Committee’s recommendations, the bidders with technically acceptable offers are notified of the date and venue for opening the financial envelopes. All bidders may attend the public opening. 38. Disqualified bidders are not notified individually; rather the Decision Committee posts its findings,.39 This announcement must be posted at least seven days before the opening of the financial envelopes. However, a Fatwa issued by the State Council requires that disqualified bidders should also be advised by registered mail to give them enough time to object to their disqualification.40 39. According to the Executive Statutes, the Decision Committee “compares” the technical and financial results of all offers after completion of the technical and the financial evaluation. In doing so, the Committee takes into “consideration the conditions set for providing the necessary guarantees, maintenance, spare parts, and the open requisites, as well as the payment and delivery conditions, and other elements affecting the determination of the comparison value of tenders according to the conditions and nature of the subject of the contract.”41 40. Article 63 of the Executive Statutes states that the lowest bidder may amend its financial proposal after the deadline for submitting bids, as long as it is in the interest of the Administration. Furthermore, any bidder may modify its bid price by submitting an amendment after the bid opening. The Evaluation Committee may consider them, if they are favorable to the Administration. 34 Article 15 of the Executive Statutes. 35 Article 18 of the Executive Statutes. 36 Article 17 of the Executive Statutes. 37 Article 22 of the Executive Statutes. 38 Article 25 of the Executive Statutes. 39 Article 25 of the Executive Statutes. 40 State Council Fatwa 629/23-11. 41 Article 28 of the Executive Statutes.


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Contract Award & Payments 41. Article 16 of the Law states that the contract award must be to the “tender who is best at terms and conditions and least in price, after the unification of the comparison of criteria and bases between the tenders from all technical and financial aspects.”42 It also provides for a preference for local suppliers: “The tender submitted for supplies of local production or for works or services undertaken by Egyptian Entities shall be considered less-priced if the increase therein shall not exceed 15% of the value of the least foreign tender.” The Executive Statutes provide for splitting the award when two or more bidders quote the same price or when the lowest bidder mentions a delivery date that is not suitable to the Administration. 42. Upon the recommendation of the Decision Committee, the Competent Authority decides on the contract award and all bidders are notified. The award is also posted on an award notice board for a period of one week. A formal contract is signed for all procurements over LE 50,000 (approximately US$8,000). Procurements below this amount are contracted through a signed purchase order.43 43. Within ten days of notifying the winning bidder, the latter must provide a performance security of up to 5% of the value of the contract.44 The Competent Authority may extend this period by another ten days. The performance security must be submitted in cash, bank check, letter of guarantee, or a deduction on amounts that the Government owes the bidder.45 44. Article 22 of the Law and Article 69 of the Executive Statutes cover contract payments and provide for advances against approved letters of guarantee, however, no maximum amount is mentioned. GAGS mentioned that in practice, advance payments do not exceed 50%. The Executive Statutes also state that items supplied “shall be paid at the nearest possible time, not later than fifteen work days counted from the day following approval of the Examination Committee’s decision, or receipt of the result of technical examination, according to each case.” 45. GOE may rescind or nullify a contract in the following cases: (i) when the bidder awarded the contract does not supply a performance guarantee; (ii) where it is proven that the contracting party used fraud or manipulation; (iii) in case of bankruptcy and insolvency; and (iv) in case of default of the contracting party.46 46. The Executive Statutes provide that any official violating the Executive Statutes will be subject to disciplinary sanctions (pursuant to the Law on the State’s Civil Servants) without derogation to the right of filing a civil or criminal procedure.47 Protests 47. Article 41 of the Law stipulates that protests related to violations of provisions of the Law should be submitted to a certain unit in MOF. The first level of recourse offered to complaining

42 Article 16 of the Law. 43 Article 32 of the Executive Statutes. 44 Article 18 of the Law. 45 Article 70 of the Executive Statutes. 46 Articles 21, 24 and 25 of the Law. 47 Article 141 of the Executive Statutes.


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bidders is to request the Competent Authority to review the decision. When a bidder is not satisfied with the outcome of such review, the complaint may be brought to a second level, the Administrative Court of the State Council. Since many procurement “rules” used by ministries are actually unwritten practices, based on local interpretations of the Law and the Executive Statutes, it is often unclear to what extent the Law or the Executive Statutes have been violated. However, the Court would normally agree to consider the bidder’s protest, if he is dissatisfied with the review of the Competent Authority. Arbitration 48. By Law. arbitration can be used in administrative contracts. However, the Law also requires that any recourse to arbitration has to be approved by the Competent Authority.48 Upon approval by the Competent Authority of this contractual provision, arbitration has to be held at the Regional Arbitration Center in Cairo. In actual practice, the State Council reviews all signed contracts and, usually issues a Fatwa, which states that that the arbitration clause is null and void. The effect of this Fatwa on the recourse available to a contractor is that he would then have to appeal to the Courts, in order to determine, if the arbitration clause in the signed contract can be enforced. In most cases, the arbitration clause in contracts with GOE becomes unenforceable. Import Restrictions 49. The Prime Minster issued a decree in 2000 prohibiting the purchase of certain products on the international market. The following items must be purchased “from local production, whether produced by the public sector, the public business sector or Egyptian private sector companies. […]: (i) tires of all kinds of vehicles, starting from passenger cars up to tractors; (ii) electric bulbs, fluorescent lamps, and illumination materials and requirements; (iii) printing and writing paper; (iv) pipes and cables; (v) power towers; (vi) metallurgical products required for barrages and canal locks; (vii) railway materials; and (viii) any other products or items having similar Egyptian manufactured products or items.”49 Banning 50. The Law and the Executive Statutes provide for banning of companies due to fraud or manipulation. There is, however, no clear definition of what constitutes manipulation. The State Council makes the banning decision and recommends it to the Competent Authority. The Authority, in turn, requests GAGS to publicize the ban. Banning is for life, regardless of the severity of the fraud or manipulation committed by the bidder, contractor, supplier or consultant. The ban can be lifted only by a Court decision, ruling that the banned company is innocent.50 B.1.4 Analysis of the Legal Framework and Recommendations 51. The 1998 Law and the Executive Statutes provide important concepts for public procurement in Egypt and contain sound principles. Yet, their broad nature affects the transparency, consistent application and predictability of procurement processes. Since many practices flowing from these concepts and principles remain unwritten, they leave considerable room for extensive discretionary 48 Article 42 of the Law. 49 Prime Minister Decree 1664/2000. 50 Article 24 of the Law.


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power by ministries which can result in inconsistent decisions and loss of transparency. To compensate for this lack of rules on how to apply the Law and the Executive Statutes in actual practice, different ministries have created their own unwritten “rules’’ for procurement. Consequently, discretionary decisions based on these unwritten ‘’rules’’ by the Competent Authority have become common practice. Recognizing the GOE’s reform agenda and extensive efforts in fighting and preventing corruption, lack of transparency and procurement decisions based on unwritten ‘’rules’’ can also undermine the measures introduced to improve the business environment and public confidence. 52. Efficiency, value for money, and transparency in a decentralized public procurement environment can only be achieved through the development and monitoring of clear National Procurement guidelines and standard bidding and contract documents that can be used by all parties involved in public procurement. The main issues in the Law and the Executive Statutes are discussed below. Additional issues relative to the Law and Executive Statutes are listed in Annex B. The proposed new procurement guidelines would be an effective and widely disseminated instrument for dealing with these current issues. Furthermore, with regard to future Bank-financed projects, the relevant issues in the legal framework have been addressed in Annex A, entitled: ‘’Supplemental Letter Provisions for National Competitive Bidding (NCB).’’ This letter would be attached to future Loan Agreements and incorporated by reference.

Absence of Delegation: Even though delegation of authority is legally permitted under the law, there are no guiding principles on delegation. Lack of these guidelines in practice has directed all procurement decisions to the highest authority. This has caused delays and inefficiencies in the implementation of important programs. Development and issuance of guidelines on delegation of authority and approval thresholds can provide GOE with more efficient procurement. Procurement Planning: The law refers to use of Egyptian Standard Specifications in the preparation of the technical specifications for procurement actions. This requirement provides for efficiencies of scale in operations and maintenance of equipment used by the Government. However, Egyptian Standard Specifications are largely unavailable, and the Standards Institute of Egypt has not published anything in years. This has resulted in ad-hoc development of specifications by Technical Committees. Complete GOE standards and specifications should be developed using the existing European and international standards as models. Procurement of Consulting Services: The Law and the Executive Statutes do not acknowledge the unique characteristics of consulting services and other professional services, such as audit, training, and certain computerization assignments, etc. These services may not lead to measurable physical outputs and as such, require specific criteria for the selection of consultants and for service contracts. The rules for works and goods in the Executive Statutes currently apply equally to services, resulting in circumstances where the lowest price may be given primary consideration with much less regard for technical quality. Development of distinct rules and criteria for the procurement of consulting service contracts would ensure the use of appropriate selection methods. These could include technical quality, combined with consideration of cost; technical quality only; and technical quality within the limitations of a fixed budget.


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Procurement Methods: There are no rules or written guidance that defines the nature of each procurement method and its applicability in different procurement actions. As an example, the Law provides for choosing one of the two main procurement methods of Public Tender and Public Practices Negotiations through a decree issued by the Competent Authority according to the circumstances and nature of the contract, yet, there is no rule or written guidance on how to determine “the circumstances and nature of the contract” nor on the criteria to be used to make the final contract award decision in the Public Practices Negotiations. This ambiguity can result in loss of efficiency and lack of public confidence in the procurement process. The much more transparent Public Tender method should be adopted by GOE as the default procurement method. This would further enhance consistent practices and transparent decision-making.

Bidding Documents and Process: Uniformity in the application of Article 8 of the Executive Statutes is not assured due to the government’s lack of standard bidding documents. Although the requirements are extensive, the Executive Statutes do not provide details on the nature of the financial data required, and the criteria for the technical and commercial qualifications of the bidders. Even though the Law requires detailed information from the bidders which should be disclosed from the start and rigorously quantified in monetary terms during the bid evaluation, the Executive Statutes actually revert to a qualitative system based on merit points for the evaluation of bids.51 Use of standard bidding documents with clear evaluation criteria quantified in monetary terms (except for service contracts), guidelines on the financial data to be submitted by bidders, the technical and commercial qualifications of the bidders, and on granting time extensions lead to a transparent procurement process and objective evaluations of bids. Establishment of pre/post qualification criteria would further ensure, that the appropriate levels of quality and expertise are offered by the bidders. UNCITRAL Model Law on Procurement of Goods, Construction and Services, particularly Article 7 “Pre-qualification proceedings” details an internationally acceptable pre-qualification process.

Registration of Bidders: The existing mandatory registration of bidders is a cumbersome and ineffective procedure. Due to inadequate computerization and systematic data administration, it is also unable to keep up with changes in the registered suppliers’ and contractors’ current capabilities. This registration system should be revamped in every respect, ranging from transparent eligibility criteria to information gathering and updating. Alternatively, as mentioned above, the UNCITRAL Mode Law may obviate the need for this registration system and substitute clear and quantifiable criteria for the pre- or post-qualification of bidders on a case-by-case basis, in line with practices in countries which do not have a registration system. Bid Opening: The aforementioned guidelines should state unequivocally, that late bids shall not be accepted and shall be returned immediately to the bidder unopened. Bid Evaluation Process: According to the Executive Statutes, the lowest bidder may amend its financial proposal after the deadline for submitting bids, as long as it is in the interest of the Administration.52 Furthermore, any bidder may modify its bid price by submitting an amendment after the bid opening. The Evaluation Committee considers bid price

51 Article 9 of the Executive Statutes. 52 Article 63 of the Executive Statutes.


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amendments, if they are favorable to the Administration. As a result, the bid prices read out publicly at the bid opening are not necessarily final. This provision in essence, voids the concept of a transparent and fair competitive process and gives the opportunity to any bidder to deviate from the requirements of the bidding documents. In this situation, GOE may also face reduced bidder participation (more so with the international community) in bidding for large value contracts, where the bidders would have to invest considerable resources in the preparation of their bids, without having confidence in the fairness of the process. In order to keep the bidding process fully transparent and fair, no amendments to bid prices should be permitted after the bid opening. The new guidelines should clearly state this principle. If necessary, the Executive Statutes should be amended accordingly. Communications with bidders during evaluation: There are no clear limits on the nature of communications that can occur when bidders are requested to provide additional information during the technical evaluation. Permitting broad and unrecorded exchanges of information between the bidder and the Evaluation Committee without specific criteria and strict guidelines could affect the transparency and fairness of the bid evaluation process, even to the point of rendering an initially unresponsive bid responsive after the bid opening. Guidelines defining limits on the extent of communications, including the provision that all communications should be put in writing would ensure a transparent and fair process in line with the Article 23 of the Executive Statutes. The UNCITRAL Model Law on Procurement of Goods, Construction and Services, especially Article 28 “Clarifications and Modifications of Solicitation Documents” can be used for development of this aspect of the guidelines. Protests: The lack of an independent protest mechanism, combined with varying interpretations of the principles embodied in the Law and the Executive Statutes can result in wide-scale abuses and lack of confidence by bidders, causing major delays in the procurement process and possibly, significant cost increases. An independent protest mechanism during and after the bidding process, together with an established timeframe for the review would provide the business community with the assurance that an independent review will yield an objective response based on the merits of the protest and according to an established schedule. In some cases it, may result in the reversal of an incorrect procurement decision. Such confidence cannot be drawn from the current applicable provisions but it should be an essential part of a contemporary public procurement system. Arbitration: Even though the Law provides for Arbitration in administrative contracts, the qualifications placed on its use makes the provision essentially unenforceable. Taking into account the GOE’s reform agenda on improvements in the business environment and liberalization of the economy, the right to seek arbitration which is clearly embodied in the Law and the Executive Statutes, as well as in contracts above a certain threshold, would establish a contracting environment in GOE which is much more in line with international practice and provides for equitable and timely resolution of disputes. Community-based procurement: The Law and the Executive Statutes are silent on this issue. In order to achieve social and employment goals and a sustainable delivery of services in situations which are unattractive to private enterprises, such as small value health care contracts, agricultural extension and informal education services, considerations needs to be given to a selection method that draws on the participation of the beneficiaries in the communities. To this effect, the new guidelines should include provisions for community-based procurement and community participation to supply needed services It may not be necessary to amend the Law and Executive Statutes in order to provide for community-based

Egypt CPAR Public Sector: Procedures, Practices and Application

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procurement, because the underlying concepts and principles would be the same as for other types of procurement.

B.2 Procedures, Practices and Application 53. This section reviews how GOE carries out its procurement functions, including an examination of GOE procurement under Bank-financed projects. B.2.1 Public Sector Management Performance in Procurement GOE Procurement Expenditures 54. As a standard procedure with CPARs, the CPAR Team sought data and background information on the procurement methods used in the public sector. As noted previously, there are two preferred methods: Public Tenders and Public Practices Negotiations. Unfortunately, GOE did not provide records of its procurement transactions even after several written and oral requests from the CPAR Team and the Country Office at all levels. To obtain data on the type of procurement used in each of the ministries would have required each ministry to reconstruct its records. As a result, we are not able to provide a snapshot of the public procurement practices by type or method.53 Performance Characteristics 55. Egypt faces a major problem of a large and underpaid civil service with weak professional incentives and performance, which stands as an important impediment to improving public service delivery.54 A full two years after the most recent Country Assistance Strategy was completed, interviews with government officials in Egypt still suggest that meaningful reforms of the civil service are not considered politically feasible. A byproduct of this situation is the lack of understanding within certain ministries of the need to adhere to international agreements, such as loan agreements with the World Bank and the associated procurement guidelines. 56. With very limited delegation of decision making on procurement issues and a scarcity of staff with procurement expertise, long delays in procurement are common. There is compelling evidence that fear of making the wrong procurement decision is prevalent in the civil service, even where limited authority has been delegated by the responsible Minister. True decentralization becomes difficult to achieve because established practices require too many checks and balances at every stage in the process, including repeated referrals to the responsible minister, even when there is no legal obligation for seeking the minister’s approval. Delays also occur because of a shortage of technical experts to sit on bid evaluation committees and because of overstaffing in the Egyptian civil service.

53 The government’s reluctance to allow access to certain primary data was also an issue in the June 2001 CAS.

CAS noted the poverty analysis was “severely hampered by the absence of a rigorous and systematic assessment of poverty and the government’s reluctance to allow access to data.” However, more recently, it was noted that GOE provided much better access to data with regard to the Poverty Assessment and FSAP work carried out by the Bank.

54 International comparisons suggest that the Egyptian civil service is overstaffed, representing some 28% of total employment or 8% of the population in 1995 (vs. 4.7% world average). At the same time, however, it is underpaid, with average civilian wages equivalent to 0.8 times per capita GDP (versus 1.2 time per capita GDP in the OECD and 2 times in MNA), and below those paid in the private sector. Excerpted from the concept paper for an Economic Support Loan, 2003.


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Many bid evaluation committees suffer from excessive consultations. In addition, a preference for Egyptian goods influences bid evaluations and contract awards. The Role of MOF 57. MOF’s role in public procurement is to oversee each ministry’s compliance with Law #89. Ministries must have an MOF representative on their bid evaluation committees. MOF inspectors may visit any ministry at any time to carry out post-reviews of procurement. Since most ministries have a procurement unit, there is no compelling reason for MOF to manage any procurement process other than its own. Other ministries send their bidding documents to MOF to verify dates and compliance with the Law. MOF verifies general compliance but does not concern itself with every detail; MOF also operates a procurement training center. MOF’s oversight responsibilities are further described below. Procurement Variations by Ministries 58. Because of the lack of guidelines to interpret the Law and Executive Statutes in actual applications, ministries are able to use broad discretion and their own unwritten ‘’rules’’ in carrying out procurement processes. As a result, procurement practices vary from one ministry to another. The following examples illustrate the variations in procurement practices. 59. Ministry of Industry (MOI). The MOI’s Purchasing Department initiates procurement by obtaining specifications from its Technical Department and the cost estimate and budget from its Budget Department. The Head of the Finance Department reviews the request and the approval is sent directly to the Minister. In some cases, the approval must come from the Prime Minister if the request exceeds the Minister's approval threshold.

60. The Special Committee opens the bids received by the Purchasing Department. This committee consists of the Head of Finance and other MOI staff, and it is supported by technical and financial subcommittees (staffed from within the ministry or outside.55 Qualified bidders are invited to the opening of financial bids. Prices are announced at that time. MOI's Financial Officer keeps the financial envelopes. Financial bids usually include a lower-priced technical alternative, which is also evaluated. The Minister reviews the committee’s initial decisions and may direct the Committee to revisit its initial recommendations. 61. A separate committee awards the contract and posts both the award and the results of its evaluation on the MOI bulletin board. After consulting with Legal and Finance, the Purchasing Department notifies the successful contractor and issues a Mobilization advance. Then the Head of Finance signs the contract. Bidders may question the evaluation of any bid by filing a protest within seven days. There is wide-scale abuse of the protest system. Protests extend the bid evaluation period and keep contracts from being awarded to the lowest bidder. 62. Ministry of Foreign Trade (MOFT). The Minister has exclusive authority over all procurement decisions. In one case, it took the Minister three months to make a decision on about US$60,000 worth of computer equipment. Only then did the Central Authority give the staff the go ahead to obtain the technical specifications for the PC equipment. Of 16 bids submitted, all of them passed the technical evaluation. Envelopes containing the financial proposals were opened in front 55 The membership of the Financial Committee and Technical Committee are usually the same.


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of all bidders. All of them offered discounts. Then a second technical evaluation took place to determine if a bid with a higher technical score should be considered, even though it was not the lowest price. As a result, the whole process took a total of nine months. 63. The General Authority for Roads and Bridges (GARB). GARB’s procurement process is overly lengthy. For example, procurement for the Assuit-Sohag Desert Road took a full year from decision to mobilization of the contractor. According to GARB officials, their procurement is hampered because international contractors are not interested in bidding on contracts for which payment must be made in Egyptian pounds. GARB officials contend that only four Egyptian contractors have the capacity to handle its projects (LE 30 million and up) and all four contractors are state-owned enterprises. If it were not in violation of Law No. 89, GARB would prefer to do away with advertising. B.2.2 Framework for Audits and Oversight Auditing and Oversight. 64. GAGS performs procurement and financial control activities and inspections of central and local budget resources. Its Director reports directly to the Minister of Finance. However, GAGS is physically and functionally separate from the accounting and reporting functions of MOF. The value of its oversight varies. For example, GAGS participates in all evaluation committees and monitors compliance with applicable laws and government procedures, thereby offering continuity in procurement activities. However, GAGS’ reports focus on lapses and irregularities in individual transactions rather than assessing overall efficiency, systemic weaknesses in financial management, management performance, and/or procedures and internal controls. Limited to financial and compliance audits, these reports do not make recommendations for the improvement of systems or procedures.

65. As further detailed in the CFAA of June 2003, the Central Auditing Organization (CAO), which is the Supreme Audit Institution of Egypt, performs external oversight of government expenditures.56 Established in 1988 with the enactment of Law No. 144, the CAO was recently brought under the joint authority of the President and the Parliament; this new arrangement represents a break with tradition. The CAO audits and controls the administration of all public funds and the management of public property. The CAO also audits the budget and expenditures of Parliament, the Executive and Judicial Branches, specialized public administration authorities, the National Bank of Egypt and state-controlled commercial banks.

66. Parliament has played an important role in improving the country’s governance and accountability by enacting laws, decrees and directives to raise the level of internal and external oversight. Through the CAO, Parliament reviews the performance of individual ministries, their revenues, expenditures, outputs and outcomes, value-for-money as well as the quality of their accounting records and internal control procedures.

56 CFAA of June 2003, para. 3.1.3.


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Measures of Transparency in Egypt 67. In GOE, there is limited transparency in public sector transactions, including the procurement processes of GOE units and state-controlled enterprises. There is no tradition of making budget documents widely available to the general public. After parliament approves the budget and allocates resources to individual ministries for specific purposes, the budget document is not available to the general public. Furthermore, even within Government, portions of the document are circulated on a need-to-know basis only. Without public disclosure, it is not possible to determine whether expenditures are consistent with the approved budget.57 The CFAA of June 2003 recommends that GOE should consider developing a more detailed document on budget estimates, which should be made available through the MOF website. Anti-Corruption Initiatives 68. In the past three years, the government has signaled its intolerance for corrupt activities by publicizing its pursuit of several high-level corruption cases and prosecution of responsible officials. Despite these positive steps, the latest Transparency International rating on governance ranked Egypt 70 out of 133. 58 In addition, leading economic watch groups believe that corruption will continue, particularly among civil servants at the lower levels of the bureaucracy who are most susceptible to corruption as a source of additional income. B.2.3 The World Bank Assistance Program 69. The current portfolio of 17 projects, one of the largest in the MNA Region, encompasses three sectors: Irrigation/Agriculture, Health/Social and Education. The Bank also administers projects financed by the Global Environmental Facility and the International Fund for Agricultural Development. (see Tables 1 and 2). 70. Over the years, gross commitments from IBRD loans and IDA credits have fluctuated considerably. For example, US$550 million was committed in FY99, the final year of IDA availability, compared to US$50 million during the two subsequent fiscal years. This fluctuation reflects Egypt's changing financial needs as well as the availability of sizable grants from other development partners. The Bank is not a major development partner in Egypt. USAID and the EU outrank the Bank. Demand for Bank lending services has declined considerably in recent years, with just one or two new projects added annually on average. Except for two large infrastructure projects which GOE recently requested, the Bank’s portfolio in Egypt is expected to decline further. The focus of the Bank’s current assistance program is: the alleviation of poverty and areas where the Bank can offer exceptional technical experience or transfer know-how from other countries to guide Egypt's structural reforms. 71. Demand for the Bank's knowledge-based non-lending services has increased. These requests include: supporting GOE's efforts to develop an effective poverty-reduction strategy; bringing structural reforms to the financial sector; improving the management of public expenditures and the development of mortgage markets; and helping with gender issues and early childhood education. GOE has also sought the Bank’s technical support for the Nile Basin Initiative. 57 CFAA of June 2003, para. 3.1.3. 58 Transparency International Corruption Perceptions Index for 2003.


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TABLE 1

FY03 Portfolio for Egypt - Year-to-Date Disbursements by Disbursement Categories

Project Goods* Works* Consultants* Schistosomiasis 22 - 1.0 Private Sector Tourism - 55 - Basic Education 3.5 37.5 2.6 Matruh Resource Management 5.0 5.2 4.8 Irrigation Improvement 14 56 0.1 Population 0.4 - 1.2 Education Enhancement 12.9 22.4 4.4 Pollution Abatement 35 - - Health Sector Reform 28.7 39.1 13 East Delta Agricultural Services 3.6 7.4 1.8 Sohag Rural Development 2.0 5.7 1 Third Pumping Stations Rehabilitation 109 - 0.5 Secondary Education Enhancement Program

27.7 7.4 4.4

Social Fund III - 50 - Private Sector Agricultural Development - - 21.1 Social Protection - 3.2 0.5 Second National Drainage 17.5 29.5 0.1 Higher Education Enhancement 23 4.5 16 Total 304.3 322.9 72.5 *Figures in US$ million. Total disbursement through 2003. Second Matruh Resource Management Project is not listed because no disbursement has been recorded under this project.


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TABLE 2

World Bank On-going Projects

Project Approval Date

Closing Date

Loan Amount US$mil

Disbursed Amount

US$million

Primary Sector

East Delta Agricultural Services 11/04/97 06/30/04 15.00 2.10 Agriculture National Drainage II 06/15/00 06/30/07 50.00 9.59 Agriculture Irrigation Improvement 12/22/94 12/31/04 80.00 52.93 Agriculture Pumping Stations Rehab III 08/06/98 02/28/05 120.00 31.69 Agriculture Private Sect. & Agr. Dev. 06/22/99 12/31/06 32.92 3.41 Agriculture Sohag Rural Dev 08/27/98 06/06/05 25.00 5.67 Agriculture Matruh Resource Mgt. II 03/06/03 12/31/09 12.40 0.00 Agriculture Basic Education Improvement 03/25/93 12/31/03 55.50 49.05 Education Education Enhancement 12/24/96 12/31/04 75.00 38.16 Education Higher Education Enhancement 04/16/02 12/31/07 50.00 2.00 Education Skills Development 07/31/03 06/30/08 5.50 0.00 Education Sec. Education. Enhancement 04/15/99 06/30/06 50.00 11.70 Education Pollution Abatement 12/16/97 O3/30/05 35.00 19.03 Environment Population 03/21/96 12/31/03 17.20 6.15 Health, Nutrition. &

Population. Health Sector 05/21/98 O6/30/04 90.00 6.18 Health, Nutrition. &

Population. Soc Protection Init. 06/29/99 12/31/04 5.00 0.54 Social Protection Social Fund III 06/01/99 12/31/04 50.00 8.60 Social Protection Total 768.52 246.79

1/ As of September 9, 2003 Source: “OUTREACH” World Bank Quarterly Newsletter, September 2003.

TABLE 3 Egypt Portfolio - Commitments & Disbursements

FY99 FY00 FY01 FY02 FY03 Number of Projects 23 22 18 18 19 Commitments1/ 1,542 1,453 1,083 1,012 763.8 Disbursements Total (in $US million)2/ 76 78 49 51 71 1/ Commitments in FYO3 are for active projects only. Source: Monthly Portfolio Management Report – end of June 2003. 2/ Source: Integrated Controller’s Systems.


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Procurement under Bank-Financed Projects

72. 73%59 of Bank-financed projects in Egypt were rated satisfactory on procurement, compared to a Bank-wide average of 89%.60 This percentage is significantly lower than the Quality Assurance Group’s Quality at Entry in FY02 (QAE5) of 95%.61 The current portfolio comprises 17 projects and is of medium strength. At the end of FY03, two projects were at risk.62 73. Based on measures developed by OED, sustainability and institutional development resulting from Bank operations have been below Bank-wide averages. One of the contributing causes is the fact, that the Bank is not a significant donor in Egypt. Compared to USAID and EU, its assistance program in Egypt has more limited effect on sustained, long-term institutional development.63 74. Signing and enacting credits and loans takes an inordinate amount of time, up to two years in some cases. Since loan agreements have to be submitted to Parliament, reviews and approvals are tied to the parliamentary cycle which may contribute to delays, depending on when the loan documents arrive. Multiple extensions of closing dates are also common, due to project implementation delays, which in many cases can be traced back to the aforementioned lengthy procurement processes in GOE ministries and insufficient procurement planning.64 More recently, these delays have been reduced.

75. Overall from start to finish, procurement takes longer in Egypt, compared to other countries in the Middle East and elsewhere in the Bank. Despite MOF’s commitment to take steps towards solving this pervasive problem, an analysis of Egypt’s current portfolio shows that in several cases, procurement, i.e., implementation, was delayed for more than a year beyond the original Closing Date. 76. Historically, PIUs have managed implementation of Bank-financed projects instead of departments within line ministries. This arrangement, coupled with improved compensation, has been necessary to attract and retain staff with the qualifications and experience to undertake project implementation, including procurement. Until civil service reform is put into effect, it may not be feasible to transfer PIU activities to regular GOE units. Prior and Post Review 77. International Competitive Bidding (ICB) accounts for 82% of contracts subject to prior review. However, the data for FY03 show a significant increase in contracts subject to ex-post review; because of a general decline in the percentage of ICB procurement; this decline can be attributed to the predominance of human and community development projects, as well as the stagnant condition of the Egypt portfolio. In order to improve the performance of ex-post reviews in

59 Drawing from the most recent PSR ratings for the active projects in the Egypt portfolio as of June 30, 2003. 60 Drawing from Annual Review of Portfolio Performance, Statistical Appendix 3.18 Portfolio Risk Factors

FY97-02. 61 Quality at Entry in FY02 (QAE5), Quality Assurance Group, April 8, 2003, para. 27. 62 MNC03 - Monthly Portfolio Management Report-end of May 2003 63 Country Assistance Strategy, June 5, 2001, para. 78. 64 Country Assistance Strategy, June 5, 2001, para. 80.


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general, the MNA Region conducted an extensive region-wide post-review exercise in FY02, including 12 projects in Egypt.65 It showed mixed performance on procurement subject to ex-post review among PIUs of different sectors. The main shortcomings were lack of familiarity with the procurement requirements in the applicable credit/loan agreements and inadequate contract administration. In some cases, PIU procurement staff made the mistake of interpreting National Competitive Bidding (NCB), as defined in the credit/loan agreement, as procurement according to Egypt’s Law No. 89/1998 and local procedures. In other cases, contracts and related documentation were either unavailable or incomplete.

TABLE 4 Prior Reviews for World Bank Portfolio in Egypt

(US$ million)

Method FY2000 FY2001 FY2002 FY2003 Totals DIR 0.93 11.52 2.64 - 15.10 INDV - - - 0.06 0.06 ICB 33.68 23.18 74.94 17.33 149.14 ISH - 0.80 4.76 - 5.56 NCB - 1.12 1.23 3.92 6.27 NSH 0.06 - 0.55 - 0.61 QCBS - 1.49 1.13 1.76 4.38 QBS - 0.19 0.12 - 0.30 CQ - - - 0.08 0.08

SSS - 0.04 0.25 0.00 0.29 TOTALS 34.67 38.33 85.63 23.17 181.80

Annual Disbursements 77.72 49.09 50.78 70.33

Data on procurement extracted from World Bank database on procurement. Data on annual disbursements extracted from LAS. NOTES: DIR=Direct Contracting; INDV=Individual; ICB=International Competitive Bidding; ISH=International Shopping; NCB=National Competitive Bidding; NSH=National Shopping; QCBS=Quality and Cost Based Selection; QBS=Quality Based Selection; CQ=Selection Based on Consultant Qualification; SSS=Single Source Selections). Overview of the Procurement Aspects of Portfolio Performance 78. The CPPR of May 2002 found that the performance of Bank-financed projects was relatively satisfactory.66 However, as of the end of FY03, only 11 of the 19 projects were rated satisfactory for the procurement aspect of performance.

79. Among the projects which were particularly successful in procurement, the PIU in the education sector achieved good results in several ways because of the retention of trained procurement and disbursement staff from previous projects. This made it possible to sustain a high 65 MNA FY02 Post Review Report, November 2002. 66 Reducing Effectiveness Delays: Egypt Country Portfolio Performance Review, May 2002, page 4.


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level of procurement performance. In the Ministry of Water Resources and Irrigation (MWRI), which does not use the PIU approach to implement Bank-financed projects, interest income from the Special Accounts was used to support procurement training of the Mechanical and Electrical Department where procurement under Bank-finance projects is managed for MWRI. On the other hand, projects in the health sector had difficulties with implementation after the award of the contract. Often, there was no follow-up on the delivery of goods or the completion of construction. To correct this problem, the PIU has created a new contract manager position. The contract manager will work closely with the PIU’s procurement and financial management staff. The Pumping Station Rehabilitation II Project has taken a similar approach and hired a construction manager to oversee the works.

80. Based on a review of the Project Appraisal Documents (PADs) for the 19 active projects in the portfolio, six PADs did not includes a procurement capacity assessments of the implementing agency. Two of the six projects received an unsatisfactory rating for procurement in the CPPR. In the other four cases, the PIU procurement staff had been retained from previous Bank-financed projects. Since more than a year can elapse in Egypt between appraisal and parliamentary approval of the loan, experience shows that agency capacity assessments are subject to many changes during the intervening period and therefore, they may not always be reliable indicators of the future performance. Rather, they offer an opportunity for the Bank and GOE to conduct a realistic assessment of time and resource requirements to implement a project. Procurement Training

81. The most common implementation problem noted in all Bank-financed projects in Egypt is related to procurement personnel, namely, the difficulty in hiring trained procurement specialists or providing adequate and timely training for procurement staff employed on the project. According to a recent ex-post review report, the PIU of a project showing unsatisfactory performance had no procurement officer and was found to apply procurement practices which were not in accordance with the loan agreement. In some cases, procurement staff may have received training, but such training was provided, after the project went into effect. As a result, procurement activities and documentation were unsatisfactory during the critical period following project start-up. To improve the training of GOE staff, the Bank offered a 6-day capacity-building seminar in May 2002 in which more than 70 procurement and financial management staff from several GOE units attended lectures, practice exercises and tutorials. Additionally, Bank procurement specialists have offered workshops at project locations and participated in project launch activities. 82. Another training problem involves the evaluation committees. As previously mentioned, there must be one representative from the MOF and one from the State Council on each committee for bid tenders above a certain limit. The list of MOF and State Council representatives is limited to a few qualified individuals. The same technical experts are often called upon to participate in several evaluation committees concurrently, which is usually not possible. This problem can be resolved with additional specialized training, in order to expand the list of representatives. 83. The slow rate of disbursements which is pervasive throughout the Egypt portfolio reflects a lack of planning, allowing insufficient time for the delivery of goods or the completion of works under the contract before the Loan Closing Date. As a result, procurement activities are either started too late or left uncompleted. Procurement planning is very critical to project implementation, i.e., the satisfactory achievement of project milestones. Special training in this area of procurement would be particularly beneficial to most GOE units, where it is not currently practiced.


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Decentralization of Bank’s Fiduciary Functions

84. In the six years since the Bank’s decentralization initiative began, some of the envisioned benefits of delegating fiduciary functions have been realized; although in Egypt, there are considerable variations among sectors. In the Egypt Country Office in Cairo, the procurement staff comprises one Senior Procurement Specialist and one Procurement Accredited Staff (PAS). Six of the 10 TTLs working on projects in Egypt are stationed in Washington; three of them are accredited in procurement. Informal surveys have indicated that PIU staff prefer the decentralized mode of project supervision, particularly, because it speeds up reviews and clearances of procurement transactions and provides for quicker responses from the Country Office rather than from Bank Headquarters. On the other hand, the CPPR shows that there is no obvious correlation between the quality of procurement on a project and the location of the TTL. This may be due to many other variables which can influence procurement quality, such as the aforementioned presence of qualified procurement staff in the PIU. B.2.4 Analysis of Procedures and Recommendations 85. Public procurement operates as a fully decentralized system but, as stated earlier, without uniform guidelines to provide a consistent interpretation of the Law and the Executive Statutes. MOF’s role is essentially limited to monitoring and evaluation of procurement carried out in the ministries. Although it carries out this function competently with limited resources, MOF’s authority to intervene and to enforce the Law, when it has been breached, is very limited. MOF participates actively on all ministerial bid evaluation committees and reports each case in terms of compliance with the Law. There is practically no public access to data on procurement budgets, procurement methods employed and results achieved by procuring entities. The performance of procuring entities cannot be assessed due to the absence of GOE performance standards, and corrective measures are introduced only to fix particular cases. 86. Considerable risk for all participants in public procurement permeates this decentralized system. The main risk components are the unpredictability of the system, the weak enforcement regime and the deficient capabilities of procurement staff who are assigned to handle procurement tasks. 87. With regard to Bank-financed projects this risk has been mitigated for decades, by setting up and perpetuating the existence of a large number of PIUs. However, most of the time, PIUs conduct procurement according to Bank guidelines and under the auspices of loan agreements which are accorded precedence over the Law and the Executive Statutes. They are also in a position to offer attractive salaries to qualified procurement specialists. 88. By eliminating the unpredictability risk which bidders overcome currently by inflating their bids, GOE could benefit from lower prices, fewer disputes and timely implementation of projects. It would also raise the status of Egypt in the international context, as a country with a well-functioning and contemporary procurement system. The following improvements are recommended to achieve this objective:

Public Service Standards in Procurement. Decentralized procurement systems serve many countries with effective results. Decentralization has provided Egypt with considerable agility to achieve progress on several fronts, without being affected by the common


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‘’bottleneck’’ of central tender boards in other countries. However, the current oversight function assigned to MOF circumscribes its effectiveness as an overseer of a decentralized system and is insufficient to assure quality control and adequate public service in procurement. The Law, the Executive Statutes and eventually, the new guidelines proposed in this report can provide a framework for uniform procedures, more consistent application of judgment by decentralized decision-makers and much more predictability vis-à-vis bidders and the general public. To be assured of these benefits, however, actual performance by responsible units under this framework should be measured periodically against published public service standards. MOF should be empowered to set, disseminate, monitor and enforce compliance with these standards. Consideration should be given to publicizing these MOF compliance reports. A corollary function to be assumed by MOF should be serving as a technical secretariat for advice, consultations and training. Part of this secretariat function could be structured as a mediation service to facilitate the resolution of disputes between bidders and ministries.

Procurement Training. The difficulties in hiring trained procurement specialists are affecting not only well-paying PIUs of Bank-financed projects but even more acutely, the GOE ministries in charge of procuring the country’s overall needs for goods, works and services. Egyptian universities and vocational schools are not offering directly relevant courses and the Government in-house training in procurement is confined to the very limited capacity of MOF’s training center. Occasional procurement seminars by the Bank and other donors can upgrade skills but are not a viable substitute for professional education in the fiduciary fields. This critical shortage of professionals should be addressed systematically through a human resources strategy in the fiduciary areas. Its key output should be a comprehensive civil service training program in fiduciary subjects. Local training providers, such as universities and vocational schools should be consulted and involved in this shaping this program from a pedagogical standpoint. The donor community should be approached with requests for twinning arrangements with public service training centers in industrialized countries, secondments of experienced instructors, exchange programs, financial support, etc., based on their expressed interest in strengthening GOE’s capacity in the fiduciary areas.

Transition to Electronic Procurement (e-Procurement). Areas of deficiencies in public procurement and centers of excellence seem to coexist throughout GOE, albeit, in a relationship that is still too disproportionate to have a pervasive beneficial effect. For example, procurement in some state-controlled enterprises follows a regime that is fully up to contemporary standards in terms of computerization and a near mirror image of the Egyptian private sector. Similarly, the Information and Decision Support Center (IDSC) uses cutting-edge technologies to improve operations such as GOE’s inventory and management of movable assets. These centers of excellence demonstrate the feasibility of replicating and expanding the use information technology in procurement throughout GOE, in parallel with systemic improvements in more conventional areas. For example, increased use of e-Procurement to solicit and evaluate electronic bids from national and international suppliers would result in more competitive pricing and speed up the acquisition process. Eventually, e-Procurement would also help facilitate a much needed transition in records management from the vast reams of paper that are a visible characteristic of most ministries to accessible procurement databases.

Egypt CPAR Private Sector

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Private Sector B.3 Private Sector Capacity 89. This section reviews the capacity of the domestic private sector to participate in the public procurement of works, goods and services. It examines the conditions under which the private sector conducts business with Government from bidding to contract implementation. B.3.1 Framework for Private-Sector Operations 90. Over the past decade, the contribution of Egypt’s private sector to GDP has grown from 61.2% to 76.4%. The share of the private sector in the country’s overall investments rose from about 50% to 70%. During that same period, there was a ten-fold increase in the number of new companies registered with the General Authority for Companies (GAFC). Currently, there are approximately 2,000 registered companies in Egypt, representing a capitalization of well over LE 60 billion.

67

91. To accelerate the integration of the country’s private sector into today’s global economy, GOE has embarked on several reforms to improve the business environment. One of the main objectives is to create a business environment that supports private investment, especially from abroad. To achieve this objective, GOE has introduced legislation and taken steps to liberalize foreign investment and adopt changes in technology. 92. Over the past decade, the Bank has been Egypt’s partner in introducing these reforms. Reforms have encompassed a credit to the financial sector, a joint task force on business environment, an increase in IFC activities in manufacturing and infrastructure and considerable analytical work over the past two years on various structural reforms. 93. Until the reforms become fully effective, the private sector expects to be constrained by uncertainties, including the tax system, the commercial legal system and customs administration. The tax system suffers from excessive use of discretion by GOE officials. Their discretion governs most decisions, often in arbitrary ways, which is caused by the absence of a published and regularly updated tax code. Furthermore, the commercial legal system is outdated. It suffers from critical gaps and is cumbersome to apply. This is particularly critical in common commercial transactions and settling commercial disputes. Customs administration frequently causes significant delays and adds to the cost of compliance or tolerates its evasion. In addition, state-protected enterprises continue to dominate certain sectors.68 The forthcoming submission to Parliament of the new Income Tax Law, the launch of the Model Customs and Tax Center (MCTC) which streamlines the administration of tax and customs procedures signify that progressive steps are being taken by GOE in these areas.

67 Source: “ Investing in Egypt,’’ Ministry of Economy and Foreign Trade, 2001. 68 In September 2003, MOF established a Model Tax and Customs Center as a one-stop-shop for investors to deal

with tax and customs payments. This initiative is supported by Law No. 430. Additional centers will be opened in other cities.


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B.3.2 Small and Medium-Size Enterprises (SME) 94. SMEs provide 75% of private sector employment opportunities. In a more nurturing business environment, SMEs would have the potential to become the most significant force in the economy for creating jobs. The GOE and large private entrepreneurs tend to regard SMEs as unqualified bidders who are not to be taken seriously. This attitude hampers SMEs’ ability to grow and compete. 95. Access to financing is an acute problem for SMEs whose access to credit is generally restricted to four state-controlled banks. These banks tend to charge excessive interest rates; they also impose collateral requirements for securities that are disproportionate to the norm for bidding and contracting. When SMEs participate in public sector bidding opportunities as prime bidders or subcontractors, they have little choice but to pass on these intermediation costs to GOE in their bid prices, with the resultant effects on their competitiveness. 96. Recently, MOEFT developed a framework and an outreach program to ensure that GOE resources foster the development of SMEs. The latter includes credit guarantees, eliminating regulatory constraints and publicizing procurement opportunities to attract participation by SMEs. B.3.3 Banking Sector 97. Despite a decade of reforms, the state continues to dominate banking. The so-called Big Four state-controlled banks are the Bank of Alexandria, Banque du Caire, Banque Misr and the National Bank of Egypt. These banks control 52% of the banking sector’s total assets, 55% of loans, and 60% of deposits. Additionally, the state holds a sizable stake in most private-sector banks that have retail banking locations in Cairo and Alexandria. Private enterprises outside these two cities generally do not have access to retail banking services.69 The Central Bank of Egypt controls the general market climate through interest rate ceilings, the foreign exchange supply and liquidity criteria. 98. Lack of alternatives for many enterprises, particularly SMEs, allows the state to control most lending practices through these massive banks, which employ more than a million people. Approximately 40% of loans by the Big Four are to state-controlled enterprises; the terms are comparatively lenient. In contrast, loan applications by private enterprise receive extensive scrutiny by bank officials. Consequently, many of these enterprises do not have the lines of credit and bank guarantees necessary for bidding in the public sector. Occasionally, foreign joint-venture partners can fill this void. But often the conditions are less favorable to the domestic enterprise. 99. The demand for reforms by the business community has also brought changes to the banking sector; these improvements are slowly taking hold. For example, a law passed in 1998 allows private ownership of public banks. Eventually, this law may lead to the sale of the Big Four to private operators. Joint ventures between large foreign banks and Egyptian banks have also emerged.

69 Source: “Egypt Almanac,’ 2003 Edition, Egypto-file, Ltd.


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B.3.4 Build, Own, Operate, and Transfer (BOOT) Business 100. Over the past decade, Egypt was among the developing countries in which the BOOT and BOT approach to bidding, contracting and operation/ownership has gained in popularity. The assumption was: (1) the private sector would be more efficient and yield superior results; and (2) the public sector would do a better job of delivering such services as health and education. The Bank supported GOE strategically and financially in this endeavor. In the 1990s, Egypt invested billions of dollars in BOOT/ BOT projects. 101. Given the country’s large energy resources and its need for power-generating plants and the infrastructure to go with them, several private enterprises formed consortia to finance, build and operate these multi-million dollar installations for a specified period of time. Making a return on their investment before transferring them back to GOE appealed to the leadership and to the public. Special legislation enabled private sector power suppliers to collaborate with the Egyptian Electricity Authority.70 102. Unfortunately, the BOOT/BOT approach to bidding and contracting on mega-projects turned out to be less of a solution for public sector procurement than originally expected. As stipulated in the bidding documents, the successful BOOT/BOT bidders required payment in foreign currencies. They tried to borrow the necessary funds from Egyptian banks. There was concern about a continued drain on Egypt’s foreign currency reserves. The problem was: Egypt would collect revenues in its own currency, then it would have to convert them to pay the BOOT/BOT operator. Despite these drawbacks, there is still interest in applying the BOOT/BOT approach to other mega-projects, namely airport construction, container seaports and water supply projects.71 B.3.5 Construction Contractors 103. Construction represents about 6% of GDP or approximately LE 17 billion (US$3 billion) annually in business activity.72 Until the recent global economic recession, construction grew at an annual rate of 20% for the better part of a boom decade. This impressive growth in construction trickled down to engineering and manufacturing of building materials. Besides foreign ventures, most of the domestic growth occurred in housing, infrastructure and tourism. Due to sharply lower demand, the construction business is suffering from stagnation and losses caused by projects their owners had abandoned. 104. In the highly stratified construction business, the state controls some of the largest construction contracting firms. Among them is the Arab Contractors firm that dominates the public sector construction market for large infrastructure projects; this firm has more than a 40% market share. Arab Contractors reportedly lost LE 25 billion because of projects they completed long ago for GOE; these projects are in arrears. Apparently, this company is not in a position to demand that GOE pay the money it owes.

70 Amendments to Law Nos. 3, 12, 100, and 229 deal with various BOT/BOOT concepts for public utilities and

private sector operators. 71 Note discussion of future additions to Bank project portfolio in section on Public Sector. 72 Source: “A Record of Achievements – 1981/82 – 2000/2001,’’ The Cabinet Information and Decision Support

Center.


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105. With some exceptions, most of the construction firms participating in public sector procurement in Egypt are small and medium size. As a prerequisite to bidding, these contractors must be registered according to the official classification system.73 106. Foreign contractors have succeeded in competing against Egyptian contractors on large domestic construction projects with or without an Egyptian partner. This practice is commonplace in privately-financed projects; however, the Contractors Association opposed it on public sector projects and demanded enforcement of the so-called domestic priority provision in the Tender Law. The Association has appealed to GOE to protect the domestic market from foreign competitors. B.3.6. Manufacturers and Suppliers 107. The production of Portland cement is a leading industry in Egypt. An oversupply from manufacturing plants undergoing privatization is enough to satisfy the domestic demand as well as exports. Nevertheless, despite the arrival of private sector producers, GOE continues to set cement prices through the High Council for Cement. Recently, that changed due to the decline in construction. Now global market forces determine the price of Portland cement. This development has reduced price distortions in bids on private and public construction projects. 108. The other construction material is steel reinforcing bars. One giant state-controlled manufacturing company, National Iron and Steel Company, dominates this market with a 70% share; the balance are small private manufacturers. Like Portland cement, the demand for reinforced steel in the construction field has declined. 109. Despite its lack of lumber and a lack of modern industrial machinery, Egypt has a thriving furniture manufacturing industry made up of small and medium-size companies. Skilled craftsmen produce over US$16 million in furniture exports and an estimated US$100 million annually for the domestic market. Imported furniture carries a 40% tariff; this tariff discourages foreign manufacturers from competing against domestic suppliers in public sector bidding. Many other imported products come fully assembled or as components, e.g., several desktop computers and other electronic equipment are assembled in Egypt from imported components. 110. Although Egypt is a signatory to the United Nations Convention on Contracts for the International Sale of Goods, the country’s import regulations require that importers appear in the Register of Importers. This registry is open only to Egyptian nationals.74 Consequently, public sector bids for goods tend to attract Egyptian bidders who are prime manufacturers or authorized agents of foreign manufacturers. 111. There have been reports of additional requirements imposed on successful bidders by government officials, requirements which were not stated in the original documents and for which the contractors received no extra compensation. For example, officials may require a supplier of electronic equipment to install power outlets to operate the equipment. Furthermore, since there is no standard GOE contract, its terms and conditions are largely subject to the discretion of the responsible ministry.

73 The Classification System is on file. 74 According to Law No. 121 of 1982.


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B.3.7 Consultants 112. Egypt is home to the largest engineering firms in the Middle East. These firms, which operate worldwide, are highly competitive because of their full service technical capabilities and their relatively low payroll costs. However, these engineering firms report that their interest in public sector contracts is limited to large infrastructure projects. On average, these government contracts constitute less than 5% of their annual revenue. The majority of their work comes from the domestic private sector and from international clients; the latter are willing to make contract payments in foreign currency. These firms can afford to pay salaries in foreign currencies; as a result, they are able to recruit top university graduates. 113. Many small and medium-size firms offer consulting services in engineering, architecture, surveying and other fields. Many individual consultants and small consulting firms have full-time faculty positions at universities or are in the civil service. Private firms resent the competition from professors and civil servants who use publicly-owned facilities, equipment and graduate students in their role as “consultants.” Furthermore, GOE ministries tend to put these individual consultants on the same shortlist as private firms. 114. Advertisements for expressions of interest occur when donor funds bear the expense or the assignment is large and complex. Shortlists are routine in soliciting proposals from consultants on public sector projects. Firms also market themselves directly to responsible ministries. The opportunity for foreign firms to be shortlisted by GOE ministries is limited to joint ventures and to Egyptian subsidiaries of foreign firms. B.3.8 Analysis of the Private Sector and Recommendations 115. The Egyptian business environment is the subject of two Bank reports entitled: ‘’Egypt - Action Plan for Improving the Business Environment and ‘’Egypt – Reform Investment Administration and Strengthen Investment Servicing.’’ These reports address a full range of steps that should be undertaken by GOE to encourage domestic and international investors, as well as to reduce the cost and complexity of doing business in Egypt. Discretionary abuses of authority by Government officials and the unpredictable outcome of Government procedures in many areas of private and public sector interaction are among the main issues in these reports. This was widely confirmed by business leaders during interviews with the CPAR mission, who also recounted various schemes to cope with the current business environment. It is commendable that Government has fully recognized how essential these improvements are to the future growth of the country and made them a cornerstone of its reform agenda. 116. For SMEs to grow and create jobs requires a business environment in which Government is prepared to offer hands-on assistance. GOE’s annual procurement planning should identify shares of works, goods and services which are: (i) commensurate with SME capabilities at different levels; (ii) deliberately set aside as SME bidding opportunities; and (iii) announced in advance to enable potential SME bidders to gear up to those needs, including joint-ventures to strengthen capabilities. SMEs also need to improve their knowledge of the procedural, technical and quality requirements of GOE bidding processes. This particular challenge could be met in three ways: (i) simplified bidding and contracting documents; (ii) lenient financial requirements and access to lines of credit; and (iii) workshops to teach and bid preparation to SME bidders.


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117. Egypt enjoys all the advantages of industrialized countries when it comes to the range and sophistication of its construction contractors, goods suppliers and consulting firms. Despite these unique advantages, Government still procures common use goods like furniture, vehicles and computers on a piecemeal contract-by-contract, ministry-by-ministry basis. Economies of scale based on aggregating requirements from various ministries could save money and time. The resulting standardization of common use goods would also help simplify maintenance, availability of spare parts and asset management. Besides striving for economies of scale, GOE should also consider contracting out government procurement services to the private sector. To achieve this objective, GAGS should estimate the aggregated quantities of common use goods on an annual basis. Once these estimates are in place each year, a competitive bidding process administered by GAGS could follow to receive and evaluate bids for annual supply contracts. These contracts should require suppliers to store the procured goods on their premises and deliver them only on-call to designated locations. A GOE supply catalogue featuring these common use goods for purchases by ministries would further enhance efficiency.

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C. RECOMMENDED ACTION PLAN C.1 Basis, Explanations and Next Steps 118. This section summarizes the recommendations of the CPAR Team for change in public procurement. Details for each recommendation are identified in the cross-referenced sections of the Report. The three major areas addressed in these recommendations are: Legal Framework, Procedures, Practices and Application and Private Sector. The most critical items for change in public procurement have been ranked as ‘’high priority,’’ suggesting that they should be addressed in the first six months after agreement has been reached on this action plan. The other two priority categories are: medium term (within the first year) and long term (beyond the first year). 119. The assignment of responsibility for each recommended action is based on the notion that public procurement in Egypt is decentralized, albeit, with MOF providing a centralized oversight function and the State Council interpreting the Law and the Executive Statutes. 120. The Bank has already awarded an Institutional Development Grant in the amount of US$400,000 to MOF for the specific purpose of capacity building to support an integrated framework for Government stock control and asset management. Other potential areas in which GOE may require technical assistance in procurement have been discussed with the Bank, e.g., competitively bid annual supply contracts for common goods, based on the aggregated requirements of all ministries, and a corresponding Government supply catalogue from which ministries could place orders for their needs. Similar discussions on technical assistance are anticipated as part of reaching agreement on this action plan. 121. It is difficult to estimate the approximate cost to carry out the recommended actions, because GOE could implement many of the recommendations without incurring significant costs. For example, such items as drafting the proposed National Procurement Guidelines and preparing the standard bidding and contract documents could be accomplished through coordinated action within GOE, with the aid of readily available international models and under MOF’s leadership. These Guidelines and standard documents would consolidate the recommended changes relative to specific issues. However, the critical time factor in this regard would be reaching consensus in GOE on corresponding amendments in the Executive Statutes, where this step may be a prerequisite to issuing the Guidelines. 122. The CPAR Team recommends wide dissemination of the Report within GOE and the donor community in Egypt which has already been given a preliminary briefing on the major findings; at this briefing, the representatives expressed interest in providing assistance to effect the recommended changes. The CPAR Team further suggests that the first step be a detailed briefing of all interested parties by the Team, especially, the MOF counterpart team which will most likely be assigned to take the lead in implementing the recommended actions. This briefing should be conducted under the auspices of H.E., the Minister of Finance.


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ACTION PLAN

RECOMMENDATIONS FOR CHANGE IN PUBLIC PROCUREMENT

AREA

ISSUES/ REFERENCE TO DETAILS IN REPORT

RECOMMENDED ACTION

RESPONSIBLE ORGANIZATION

HIGH PRIORITY (FIRST SIX MONTHS)

MEDIUM TERM (WITHIN FIRST YEAR)

LONG TERM (BEYOND FIRST YEAR)

B1. Legal Framework

Procurement methods.

Use only Public Tendering; eliminate Public Practices Negotiations.

All GOE procuring entities, overseen by MOF. Include in National Procurement Guidelines (NPG).

X

Evaluation criteria.

Quantify all evaluation criteria in monetary terms – eliminate point system.

All GOE procuring entities, overseen by MOF (NPG).

X

Two-envelope system.

Technical & financial bids to be opened at the same time.


X

Delegation of approval authority.

Develop guidelines for delegation of authority in procurement.

MOF/ State Council (NPG)

X

Communications with bidders.

All communications to be in writing - develop guidelines.

MOF (NPG) X

Amendment of financial proposal.

No amendment to a bid price after bid opening.


X

Banning of bidders.

Develop & disseminate rules for banning.

MOF/State Council X

Independent protest mechanism.

Expand MOF’s secretariat role to include a mediation service for disputes between bidders and ministries.

MOF/State Council (NPG)

X

Procurement of consulting services.

Develop guidelines for the selection of consultants to fill gap in Executive Statutes.


X

Community- based procurement.

Develop guidelines for community participation in procurement.


X


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GOE technical

standards & specifications.

Either develop full set of GOE standards & specifications for goods or adopt European model.

Standards Institute of Egypt, GOE engineering units. MOF to provide overall guidance.

X

Limited practice negotiations.

Eliminate this non-competitive method.

MOF/State Council X

Direct contracting.

Develop clear guidelines for direct contracting.

MOF (NPG) X

Decree restricting bidding for construction contracts to Egyptian contractors.

Since such restriction is not mentioned in the Law & Executive Statutes, it should be rescinded.

MOF X

Bidding & contract documents.

Develop standard bidding & contract documents & qualification criteria for bidders to be used by GOE procuring entities.

MOF (NPG) X

Prequalification of bidders for large works.

Develop standard prequalification procedures & documents.

MOF (NPG) X

Bid validity extensions.

Develop rules for requesting bid validity extensions.

MOF (NPG) X

Seeking clarifications from bidders.

Develop rules for seeking clarifications from bidders.

MOF (NPG) X

Bids submitted late (after deadline).

Develop clear guidelines for dealing with late bids; they should be returned to bidders unopened.

MOF (NPG) X

Appeal following bid disqualification.

Expand appeal procedures in Executive Statutes to permit appeal to MOF mediation service.


X

Bid evaluation. Develop clear guidelines for bid evaluation by Decision Committees.

MOF/State Council (NPG & standard documents)

X


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Preference for

Egyptian goods, works & services.

Develop rules for establishing eligibility for preference.

MOF (NPG) X

Splitting of contracts awards.

Eliminate the practice of splitting contract awards instead of awarding to the lowest evaluated bidder.

MOF X

Purchase orders. Develop standardized purchase order form & guidelines for use.

MOF X

Performance security.

Avoid undue contractual burdens by coordinating performance security & retention of money.

MOF (Standard documents)

X

Max. period for payment approval.

Amend Executive Statutes to limit approval period to 30 days from receipt of invoice.

MOF/State Council (Standard Documents)

X

B.2 Procedures, Practices and Applications

National Procurement Guidelines (NPG) & Standard Bidding and Contract Documents (SBD).

MOF should lead the development of the NPG & SBDs , issue copies to all GOE procuring entities and private sector and offer workshops.

MOF/State Council (for amendments to the Executive Statutes

X

Public Service Standards in Procurement.

Expand MOF’s oversight role to set, disseminate, monitor and enforce compliance with public service standards in procurement.

Prime Minister/ Parliament

X

Procurement Training.

Develop human resources strategy and training program in fiduciary subjects; implement through local providers.

MOF X


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Transition to Electronic Procurement (e-Procurement).

Expand use of information technology in conventional areas, including records management and also introduce e-Procurement.

All GOE procuring entities, supported by MOF and IDSC.

B.3 Private Sector

Nurturing Small and Medium-size Enterprises SME.

Develop simplified bidding documents, more lenient financial requirements for bidders and SME training workshops.

MOF/MOEFT X

Contracting-out GOE procurement services.

Estimate required annual quantities of common goods, bid out annual supply contracts & engage private sector more fully in warehousing, delivery and servicing.

MOF X

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ANNEX A

SUPPLEMENTAL LETTER

PROVISIONS FOR NATIONAL COMPETITIVE BIDDING (NCB) UNDER BANK-FINANCED PROJECTS

Bidding procedures for goods and works procured under NCB shall comply with the following requirements: 1. Any prospective bidder from a World Bank member country who offers goods produced in, or works or services supplied from any such country shall be eligible to bid for contracts under NCB procedures. 2. Qualification criteria such as: i) experience and past performance on similar contracts; (ii) capabilities with respect to personnel, equipment, and construction or manufacturing facilities; and (iii) financial position shall be stated in the in the bidding documents. 3. “Public Tendering’’ as defined in Egypt’s Law 89/1998 and the Executive Statutes shall be the only permitted bidding method under NCB. 4. Bidding opportunities shall be advertised in local publications, with not less than 30 (thirty) days allowed for bid preparation. Bidding documents shall be provided to all prospective bidders at their request. A record of prospective bidders who received bidding documents shall be maintained by the procuring entity. 5. Any extension of the time period to prepare bids, shall be granted no later than five working days before the scheduled bid opening date mentioned originally in the bidding documents and all bidders who requested the bidding documents shall be advised in writing concerning the new bid opening date. 6. Government-owned enterprises shall be eligible, provided they are legally and financially autonomous, operate under commercial law, and are not selected or hired by the same supervising or reporting authority to which the procuring entity belongs. They shall be subject to the same bid and performance security requirements as other bidders. 7. No preference of any kind (price, or other terms and conditions of contract) shall be given to any government-owned enterprise or a state-controlled company. 8. Bidders may deliver bids, at their option, either in person, or by courier service or by mail. Bids may also be delivered at the bid opening location up to the time set for bid the opening.

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9. Bids shall be opened in public; that is, bidders or their representatives shall be allowed to be present at the place where bids are to be opened and both envelopes, if two are submitted, shall be opened simultaneously. The time for the bid opening shall be the same as for the deadline for receipt of bids or immediately thereafter; and shall be announced, together with the place for bid opening, in the invitation to bid. Minutes of the bid opening shall be prepared, signed by all the bidders attending the opening and sent free of charge to all bidders. 10. A prospective bidder requiring any clarification of the bidding documents may do so only by writing to the address stated in the invitation for bids. The response from the procuring entity shall similarly, also be in writing only. Written copies of the request for clarification (without identifying the source of inquiry) and the response shall be sent to all prospective bidders who have received bidding documents. 11. Bids shall be evaluated based on price and on evaluation criteria, as disclosed in the bidding documents and quantified in monetary terms. No provision for preferential treatment for domestic companies or domestically manufactured goods shall be applied in the bid evaluation. 12. During the evaluation of bids, the evaluation committee may ask any bidder for clarifications. The request for clarifications and the response from the bidder shall be in writing. No change in the price or substance of a bid shall be sought, offered or permitted as part of the clarification process during the evaluation of bids. 13. The contract shall be awarded to the successful bidder whose bid has been determined to be substantially responsive and determined to be the lowest evaluated bid, provided further that the procuring entity also has determined that the bidder is qualified to perform the contract satisfactorily. The contract price, unit prices and other terms and conditions of the contract shall not be negotiated with the bidder. 14. Until standard national bidding documents become available for NCB, the Arabic translation of the Bank’s Standard Bidding Documents, suitably modified for NCB shall be used.

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ANNEX B

Additional Recommendations

for the Proposed National Procurement Guidelines

1. Two-envelope system: Bids are submitted in two envelopes, but only the technical envelope is opened at the bid opening.75 This system deprives the process of the benefits expected from a public bid opening. Recommendation: Technical and financial bids should be submitted in either in separate envelopes, which are in turn, enclosed and sealed in an outer envelope, or, both bids should be submitted in the same single envelope. If there are two envelopes, they should be opened at the same time. The price of each bid should be read aloud and noted in the minutes of the bid opening. All members of the Tender Envelopes Opening Committee and the representatives of the bidders attending the opening should sign the minutes. Copies of such minutes should be made available free of charge to all bidders. 2. Time periods: In many cases, time periods may be reduced or extensions granted without clear criteria for when extensions may occur and the limits of those extensions. For example: since the rules are vague, the time period to submit a bid may be extended on the date and at the time of submission of bids. The rules on minimum time periods for the preparation of bids and other processes are not specific. Recommendation: Typical procurement processes include a deadline: the minimum time period for bid preparation is defined. Extensions should be granted when necessary but according to rules that permit reasonable notification to all bidders. 3. Banning: The Law and the Executive Statutes provide for banning of companies due to fraud or manipulation. There is no clear definition of what constitutes manipulation. The State Council makes the banning decision and recommends it to the Competent Authority. The Authority, in turn, requests GAGS to publicize the ban. Banning is for life, regardless of the severity of the fraud or manipulation committed by the bidder, contractor, supplier or consultant. The ban can be lifted only by a Court decision, ruling that the banned company is innocent.76 Recommendation: The rules for banning should be more precisely defined; the sanctions should be in line with the severity of the fraud or manipulation committed. The rules for banning should be made available to the general public. 4. Limited Practice Negotiations. This is the recommended procurement method when: (i) the item is available only from particular suppliers; (ii) the nature of the item or the purpose of the acquisition dictate that it would be either selected or purchased from its production location; (iii)

75 Article 17 of the Executive Statutes. 76 Article 24 of the Law.

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involve technical works which require, according to their nature, to be undertaken by certain experts; and (iv) national security requirements dictate confidentiality.77

Recommendation: Limited Practice Negotiation should be eliminated.. Procurement involving adherence to standards of existing equipment , proprietary equipment available from a single source, procurement of special items from a particular supplier (when such items are an integral part of a design), and procurement in case of natural disaster should be carried out through direct contracting under procedures to be defined in the procurement guidelines. The guidelines should also determine the appropriate authority for approving direct contracting in particular cases.

5. Procurement in Response to Emergencies. At present, procurement in response to emergencies may be accomplished through direct contracting, provided it has been approved by the Competent Authority and is within the following parameters:

a) For: “movables, service, consultancy studies, technical works or transport enterprises”78 with approval of the Head Authority, up to LE 50,000 and with approval of the Minister, up to LE 300,000 (approximately US$8,500 and US$51,000, respectively);

b) For “enterprising contracting works”79 with approval of the Head Authority, up to LE 100,000 and with approval of the Minister, up to LE 300,000 (approximately US$17,000 and US$51,000 respectively); and

c) A decree from the Minister of Finance mentions that direct contracting should not be abused and that procedures must be followed for emergencies only. It also states that the government should not use direct contracting for multiple contracts with the same contractor or for multiple items.80 A Fatwa from the State Council provides for the same.81

Recommendation: Procurement in response to emergencies requires much more specific guidelines for the procedures to be used and for the thresholds pertaining to direct contracting. 6. Pre-qualification of bidders. No pre-qualification process is mentioned in the Law and Executive Statutes, not even for major civil works. Limited Tender could be deemed by the Competent Authority as a quasi substitute for pre-qualification in major civil works but it lacks the essential element of open advertising for prequalification. Prequalification would ensure that invitations to bid are extended only to those who have demonstrated adequate capabilities and resources in their application for prequalification. Since bidding on major civil works involves substantial costs, some bidders may be discouraged from participating without the assurance of an open prequalification process which follows predisclosed criteria. Recommendation: A pre-qualification process should be established in the procurement guidelines as a first step in soliciting bids on major civil works. Please refer to the UNCITRAL Model Law on Procurement of Goods, Construction and Services, particularly to Article 7 “Pre-qualification proceedings.” Article 7 details an internationally acceptable pre-qualification process.

77 Article 5 of the Law. 78 Article 7a) of the Law. 79 Article 7b) of the Law. 80 Minister of Finance Decree 79/2001. 81 State Council Fatwa 629/23-11.

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Article 7. Prequalification proceedings

(1) The procuring entity may engage in prequalification proceedings with a view towards identifying, prior to the submission of tenders, proposals or offers in procurement proceedings conducted pursuant to Chapters III, IV or V, suppliers and contractors that are qualified. The provisions of article 6 shall apply to prequalification proceedings.

(2) If the procuring entity engages in prequalification proceedings, it shall provide a set of prequalification documents to each supplier or contractor that requests them in accordance with the invitation to prequalify and that pays the price, if any, charged for those documents. The price that the procuring entity may charge for the prequalification documents shall reflect only the cost of printing them and providing them to suppliers or contractors.

(3) The prequalification documents shall include, at a minimum:

(a) The following information:

(i) Instructions for preparing and submitting prequalification applications;

(ii) A summary of the principal required terms and conditions of the procurement contract to be entered into as a result of the procurement proceedings;

(iii) Any documentary evidence or other information that must be submitted by suppliers or contractors to demonstrate their qualifications;

(iv) The manner and place for the submission of applications to prequalify and the deadline for the submission, expressed as a specific date and time and allowing sufficient time for suppliers or contractors to prepare and submit their applications, taking into account the reasonable needs of the procuring entity;

(v) Any other requirements that may be established by the procuring entity in conformity with this Law and the procurement regulations relating to the preparation and submission of applications to prequalify and to the prequalification proceedings; and

(b) (i) In proceedings under chapter III, the information required to be specified in the invitation to tender by article 25 (1) (a) to (e), (h) and, if already known, (j);

(ii) In proceedings under chapter IV, the information referred to in article 38 (a), (c), and if already known, (g), (p) and (s).

(4) The procuring entity shall respond to any request by a supplier or contractor for clarification of the prequalification documents that is received by the procuring entity within a reasonable time prior to the deadline for the submission of applications to prequalify. The response by the procuring entity shall be given within a reasonable time so as to enable the supplier or contractor to make a timely submission of its application to prequalify. The response to any request that might reasonably be expected to be of interest to other suppliers or contractors shall, without identifying the source of the request, be communicated to all suppliers or contractors to which the procuring entity provided the prequalification documents.

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(5) The procuring entity shall make a decision with respect to the qualifications of each supplier or contractor submitting an application to prequalify. In reaching that decision, the procuring entity shall apply only the criteria set forth in the prequalification documents.

(6) The procuring entity shall promptly notify each supplier or contractor submitting an application to prequalify whether or not it has been prequalified and shall make available to any member of the general public, upon request, the names of all suppliers or contractors that have been prequalified. Only suppliers or contractors that have been prequalified are entitled to participate further in the procurement proceedings.

(7) The procuring entity shall upon request communicate to suppliers or contractors that have not been prequalified the grounds therefore, but the procuring entity is not required to specify the evidence or give the reasons for its finding that those grounds were present.

(8) The procuring entity may require a supplier or contractor that has been prequalified to demonstrate again its qualifications in accordance with the same criteria used to prequalify such supplier or contractor. The procuring entity shall disqualify any supplier or contractor that fails to demonstrate again its qualifications if requested to do so. The procuring entity shall promptly notify each supplier or contractor requested to demonstrate again its qualifications as to whether or not the supplier or contractor has done so to the satisfaction of the procuring entity. 7. Bid preparation period and validity. Under the Executive Statutes, bidders are given 30 days from the day of the advertisement until the deadline for submission of bids to prepare their bids. However, this period may be reduced to 20 days.82 Bids are valid for three months. However, validity may be extended with the approval of the Competent Authority “according to the nature and subject of the contract.” 83 No details are provided on the process for requesting bidders to extend the validity of their bids or for how long

Recommendation: Except in emergency cases, where bidders could be given 20 days to prepare their bids, the normal time period for bid preparation should not be less than 30 days. The procurement should provide detailed guidance for requesting bidders to extend their bid validities. 8. Seeking clarifications from bidders. The Law and the Executive Statutes do not provide any guidance on seeking clarifications from bidders after the bid opening. However, in practice, the Competent Authority may request to meet with one or several bidders at any time, in order to seek clarifications of their bids. Recommendation: This unwritten process should be formalized in procurement guidelines; it may be useful to refer to the UNCITRAL Model Law on Procurement of Goods, Construction and Services, especially to Article 28 “Clarifications and modifications of solicitation documents.”

82 Article 14 of the Executive Statutes. 83 Article 14 of the Executive Statutes.

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Article 28. Clarifications and modifications of solicitation documents

(1) A supplier or contractor may request a clarification of the solicitation documents from the procuring entity. The procuring entity shall respond to any request by a supplier or contractor for clarification of the solicitation documents that is received by the procuring entity within a reasonable time prior to the deadline for the submission of tenders. The procuring entity shall respond within a reasonable time so as to enable the supplier or contractor to make a timely submission of its tender and shall, without identifying the source of the request, communicate the clarification to all suppliers or contractors to which the procuring entity has provided the solicitation documents.

(2) At any time prior to the deadline for submission of tenders, the procuring entity may, for any reason, whether on its own initiative or as a result of a request for clarification by a supplier or contractor, modify the solicitation documents by issuing an addendum. The addendum shall be communicated promptly to all suppliers or contractors to which the procuring entity has provided the solicitation documents and shall be binding on those suppliers or contractors.

(3) If the procuring entity convenes a meeting of suppliers or contractors, it shall prepare minutes of the meeting containing the requests submitted at the meeting for clarification of the solicitation documents, and its responses to those requests, without identifying the sources of the requests. The minutes shall be provided promptly to all suppliers or contractors to which the procuring entity provided the solicitation documents, so as to enable those suppliers or contractors to take the minutes into account in preparing their tenders. 9. Bids submitted late. According to GAGS, tender boxes in the procuring ministries are opened at noon on the date of bid submission and stay open until the time that was indicated as the deadline for bid submission. However, the Executive Statutes mention that when a bid is submitted after this deadline, the date and hour of actual receipt are recorded in the ‘’late tender list.’’84 No further guidance is provided on the handling of late bids. It has been reported that late bids are sometimes opened along with the other bids. Recommendation: The procurement guidelines should state clearly that late bids shall not be accepted under any circumstances and shall be returned to the bidder unopened. 10. Performance security. Within ten days of notifying the winning bidder, the latter must provide a performance security of up to 5% of the value of the contract.85 The Competent Authority may extend this period by another ten days. The performance security must be paid in cash, bank check, letter of guarantee, or a deduction on amounts that the government owes the bidder.86 The 5% performance security should be seen in relation to the penalty provisions in most contracts; such penalties allow the deduction of sums from retention money due the contractor, in case of deficient performance.

84 Article 18 of the Executive Statutes. 85 Article 18 of the Law. 86 Article 70 of the Executive Statutes.

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Recommendation:: Double penalties discourage participation in bidding and encourage disputes during contract implementation. The proposed standard contracts should avoid this situation and clearly differentiate between penalties, retention and performance securities. 11. Contract payments. The Executive Statutes mention that items supplied “shall be paid at the nearest possible time, not later than fifteen work days counted from the day following approval of the Examination Committee’s decision, or receipt of the result of technical examination, according to each case.” There is no maximum time period for the Examination Committee’s approval to trigger the 15 day time period for payments. Bidders report that payments are often late and waiting periods of several months are common. Recommendation: The proposed standard contracts require a maximum period of time for approval by the Examination Committee; normally it should not exceed 30 days from receipt of the invoice. 12. Import Restrictions. The Prime Minster issued a decree in 2000 prohibiting the purchase of certain products on the international market. The following items must be purchased “from local production, whether produced by the public sector, the public business sector or Egyptian private sector companies. […]: (i) tires of all kinds of vehicles, starting from passenger cars up to tractors; (ii) electric bulbs, fluorescent lamps, and illumination materials and requirements; (iii) printing and writing paper; (iv) pipes and cables; (v) power towers; (vi) metallurgical products required for barrages and canal locks; (vii) railway materials; and (viii) any other products or items having similar Egyptian manufactured products or items.”87 Recommendation: These import restrictions should be reviewed periodically to prevent them from being applied to areas not specifically targeted in the Prime Minister’s Decree and where circumstances may have undergone significant changes since the decree was issued.

87 Prime Minister Decree 1664/2000.

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ANNEX C

Questionnaire on Public Procurement System

Section A – Legal Framework

General Features

1. Identify predominant legal system (i.e. Common/Civil Law; Socialist; other). Civil Law legal system. 2. Identify form of government (i.e. federal or centralized) Centralized government. 3. Does the Constitution (if there is one) contain any provision directly bearing on public sector procurement? (If so, describe.) No 4. Is the country a signatory (or planning to become one) to the Agreement on Government Procurement of the World Trade Organization? Egypt signed one part of the agreement in 1946. The State Council mentioned that the second part of the agreement on TRIPS is to be signed but with restrictions related to projects and Egyptian products. 5. Does the basic contract law contain any provision directly bearing on public sector procurement? (If so, describe.)

The general contract provisions are in the Civil Code. It contains clauses applicable to all contracts, including public contracts such as Articles 668 to 673 contain the provisions for Concession Agreements which are not governed by the Law on Organizing Tenders and Bids or the Executive Statutes of Tenders Law. The rule is that the Law on Organizing Tenders and Bids apply to all public procurement. The State Council mentioned that, it is possible to have contracts governed by the civil law. In such a instances, in case of conflict, the Law on Organizing Tenders and Bids governs. 6. Is there a separate body of law which regulates public sector procurement, or is it governed by regulations issued under an organic finance act?

The Law No. 89/1998 Promulgating the Law on Organizing Tenders and Bids (“the promulgating Law”) which includes the Law on Organizing Tenders and Bids. (“the Law”)

Decree No. 1367 for the Year 1998 Promulgating the Executive Statutes of Tenders Law (“the Decree”) is issued by the Minister of Finance. It includes the Executive Statutes of Tenders Law. (“the Executive Statutes”) There is no regulatory body. The Ministry of Finance is responsible for the supervision of the implementation of the above mentioned Law and Executive Statutes.

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7. Is the system clear, comprehensive and consistent? Does it cover all essential aspects with no unduly complicated, unnecessary, conflicting or outdated regulations? Are rules found in various distinct sources or within a well coordinated legal framework?

The Law and the Executive Statutes mentioned above contain only the main procurement rules. The main aspects are clear but the criteria on their applicability are often non-existent. There is a need to better define the rules and provide guidance. Some rules remain unwritten (ex. Clarification meetings). There is no conflict with outdated regulations. It is difficult to find all the rules since in addition to the Law and the Executive Statutes, there are Prime Minister Decrees, Minister of Finance Decrees, and Fatwas (legal opinions) issued by the State Council. These documents are published in the Arabic annual edition of the Law but are not translated into English. 8. Is the hierarchy of the sources of procurement rules well established?

There is the Law and the Executive Statutes.

The Prime Minister may issue Decrees explaining specific provisions of the Law; these Decrees are mandatory on the Administration. The Minister of Finance also issues Decrees explaining the Executive Statutes. These Decrees are binding.

The State Council may issue Fatwas (opinions) at the request of a Ministry; in such cases, Fatwas are not mandatory on the Administration. The upper level of State Council may also issue Fatwas when there is a difference of opinion between a Fatwa and the government; the decision of the upper level of the State Council is mandatory on the Administration There are unwritten rules and guidelines which complement the Law and the Executive Statutes. 9. What is the scope of coverage for the procurement legal framework? Does it cover sub-national government? Does it include coverage of all government procurement including security and military procurement?

Article 1 of the Promulgating Law mentions that it applies to: “State’s Administrative Body Units, inclusive of Ministries, departments, bodies having special balances (having their own budget), as well as Local Administration Units, Public Authorities, whether being servicing or economic.” Article 8 of the Law provides the specific rules applicable to the Ministry of Defense and the Ministry of Military Production. 10. Are there separate procurement rules established for Government-owned enterprises? Describe. There are no specific rules for Government-owned enterprises. Government-owned enterprises follow the Law on Organizing Tenders and Bids although is not applicable to them, unless they have a specific statute. Commercial companies follow the normal commercial rules applicable to them. 11. Is the procurement function decentralized? If so, describe basic structure, name the main decentralized procuring entities and indicate their role, rights, and responsibilities.

The procurement system, according to the law, is decentralized, each Competent Authority being responsible for its own procurement. The minister responsible for the specific Department or Agency approves all contracts. There is a centralized oversight of procurement by the Ministry of Finance, and the State Council to a certain extent.

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12. Is there an entity(ies) with oversight responsibilities for procurement functions throughout public administration (e.g., with primary regulatory powers, responsible for harmonization of rules and monitoring of compliance)? If so, identify and describe responsibilities and structure. The Minister of Finance issues the Executive Statutes. The Ministry of Finance supervises the enforcement of the Law and the Executive Statutes. The State Council does some post reviews. 13. Is there a Central Tender Board or a similar institution? What are its duties and responsibilities? No 14. Does the system allow/facilitate the introduction of new and innovative techniques and contracting practices without compromising basic principles? The system could allow for new and innovative techniques but it is not done. 15. Are there rules/procedures regarding bidder suspension and debarment?

Article 24 of the Law and Article 6 of the Executive Statutes provide for “banning.”

The specific authority (department or agency) presents the case to the State Council who decides if there was fraud or manipulation. When the State Council decides there is fraud of manipulation, it advises Central Authority to ban and provides a Fatwa. Then, the Central Authority issues the ban. The ban is normally indefinite. In some specific cases, there could be a ban for a specific bid only. There are no specific guideline mentioned. 16. Is the country a member of regional trade/customs agreements? (If so, specify) It is a member of COMESA, an African Agreement. It has bilateral agreements with other Arab countries. There is a project of Arabian Union Market underway. 17. Are there primary/secondary boycotts? (Specify) No. However, there are import restrictions: The Prime Minster issued a decree in 2000 prohibiting the purchase of certain products on the international market. The following items must be purchased “from local production, whether produced by the public sector, the public business sector, or the Egyptian private sector companies. […] (i) tires of all kinds of vehicles, starting from passenger cars up to tractors, (ii) electric bulbs, fluorescent lamps, and illumination materials and requirements, (iii) printing and writing paper, (iv) pipes and cables, (v) power towers, (vi) metallurgical products required for barrages and canal locks, (vii) railway materials, and (viii) any other products or items having similar Egyptian manufactured products or items.” 18. Are there provisions regarding preferences for particular categories of suppliers of goods, works and services? (Specify)

Yes. Article 16 of the Law provides for a preference of 15% for supplies of local production or for works or services undertaken by Egyptian entities.

One of the procurement method mentioned in the Law is “local tender” (Article 4) it restricts participation to the bidding process to the “suppliers and contractors whose activity falls within the boundary of the governorate wherein the implementation of the contract shall take place. A Decree from the Minister of Finance mentions that advertisement for procurement (mainly for construction contracts) must mention that the main contractor be an Egyptian national and that foreign companies be sub-contractors if no Egyptian company is available or qualified.

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19. Are there arbitration rules applicable to procurement contracts? Are they consistent with international rules such as those embodied in the UNCITRAL Model Law on Arbitration? (Highlight major differences) Yes. They are based on the UNCITRAL Model Law on Arbitration UNCITRAL Model Law on Arbitration. However, arbitration must be approved by the concerned Minister. 20. Are there laws or regulations governing policies and procedures for awarding concessions/contracts for private sector provision/operation of power, water or other infrastructure facilities? (BOO, BOT, etc.) Do any general conditions of contract apply as a matter of law or regulation? Not yet. However, the State Council mentioned that since Egypt will adhere to the GATT in 2005, there are international opinions that Egypt should adopt such laws/regulations.

Basis of Transparency

1. Is there a legal or regulatory requirement for public disclosure of procurement legal texts?

The Laws and Executive Statutes are public documents published in the Official Journal. An English translation exist. The Prime Minister Decrees, the Minister of Finance Decrees, and the Fatwas are published only in the Arabic annual edition of the Law. 2. Are there mandatory requirements for maintaining written records of procurement? To what extent are they available to the general public? Yes but they are not available to the general public.

3. Are requirements for advertisement of contracting opportunities adequate? Does the country have a national gazette (or other similar publication) published in a timely fashion? Is it easily available to the general public? Advertising public tenders is done twice in one or two mass circulation daily newspapers. External tender is announced in Egypt and abroad in English and Arabic. The Embassies of foreign countries in Egypt or their consulates are notified.

Advertisement could be improved. Public tenders should also be published in the Official Journal. E-advertisement should be considered. 4. Are requirements regarding public bid opening, if any, appropriate? There are requirements for public bid opening. However the bid price is not read since only the technical envelope is opened. 5. Are negotiations after bid opening or award selection allowed? Do the rules on negotiated procurement, if any, provide the basis for a fair and transparent process? Negotiations are permitted in public practice negotiation. The rules on negotiated procurement are not clear. 6. Are conditions for use of various procurement methods clearly established? Is there an explicit requirement that open competitive bidding is the preferred or default method?

The requirements for use of various procurement methods are established but they could be clearer. There is no explicit requirement that open competitive bidding is the preferred or default method. Actually, there are two preferred methods: public tenders and public practices negotiations.

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7. Is there a requirement for public notice of contract awards? Article 31 of the Executive Statutes of Tenders laws mentions that the decisions of award are posted on the notice board. We understand that the notice board is at the entrance of the General Authority for Government Services. 8. Are there clear and appropriate requirements for bid and contract securities?

There are requirements for bid and contract securities but they could be clearer.

9. Are qualification requirements for bidders, if any, fair and appropriate for the purpose of the contract? National classification of contractors sets thresholds for specific works. When bidding documents are issued for a specific work all bidders registered under the specific national classification threshold can provide a bid. 10. Do requirements for bid examination and evaluation provide the basis for a rational and fair process? No since the bid evaluation is made on a point system and not on monetarily quantifiable criteria. 11. Are summaries of information about public procurement published (e.g. number of bids received, number of contracts awarded, names of successful bidders)? If so, describe scope and frequency.

No 12. Does government hold regular meetings with the business community to discuss public procurement issues? No 13. Is there a conflict of interest policy in effect? (If so, describe its essential features). No. But the Law concerning the State’s Civil Servants System addresses the issue. 14. Are there laws on bribery of government officials and are they enforced? Do Government bidding documents and contracts contain anti-bribery and anti-corruption conditions?

The provisions are in the Criminal Code. Contracts

Basis of Accountability

1. Are government employees expected to follow a published code of ethics? If so, describe its basic features.They have to abide to the provisions of the Law concerning the State’s Civil Servants System. 2. Is there an accessible and secure process for bidders to report bribes by others and solicitation/extortion of bribes by government officials?

They can report any such occurrence to the competent Authority or to the office of the Attorney General. 3. Do bidders have adequate access to administrative or judicial review/appeal? They have access to an administrative review process but it is not independent from the government. 4. Are there measures/initiatives to curb/control corruption, e.g. anti-corruption statutes and/or bodies, whistle-blower statutes, comprehensive reforms of the civil service/judiciary, regional initiatives, provisions in the criminal law, anti-bribery provisions, etc.? (If so, describe) A draft anti-corruption law is in process.

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Section B - Trade/Customs Practices

1. Are foreign firms engaged in trade with the country required to use a local agent?

Yes pursuant to Article 61 of the Executive Statutes. 2. Is there evidence of any trade malpractice affecting public sector procurement? Yes, there are import restrictions on certain products that are also produced locally. In some cases, these local products are produced in state-owned enterprises. Egypt has nearly unlimited access to the EU market, its largest trading partner (37.4% of exports), but continues to impose tariffs and trade barriers on imports from the EU market. 3. Is inspection conducted according to generally established procedures? Are there indications that the inspection is not effective? The Customs Administration conducts inspections which are limited to the valuation of imported goods. 4. Do pre-shipment/post-shipment inspection, if any, unduly increase the procurement lead time? Pre-shipment inspection services are readily available and used by the private sector. They are rarely used by the public sector. 5. Is counter-trade used? Barter agreements? For what percentage of the country’s total trade? No. 6. Are the ICC’s INCOTERMS generally understood and commonly used in the Country? Are other trade terms used? INCOTERMS are not widely understood or used in the public sector, although Article 66 of the Executive Statutes refers to FOB, C&F and CIF but without referring to the INCOTERM Manual. 7. Are licensing and customs procedures generally transparent and efficient? No, the Customs Administration is notorious for inefficiency and arbitrariness. It invites and tolerates large scale evasion and other attendant ills of public administration. 8. Are “facilitation” payments normally necessary to clear goods through customs, obtain work permits for expatriate labor, process monthly payment certificates/invoices? Yes, “facilitation payments’’ are so commonplace that they have even been reported by other donors who have attempted to import equipment to be donated directly to needy Egyptian beneficiaries. Many private sector managers have voiced the belief that the Customs Administration enjoys unlimited autonomy. 9. Are staff familiar with shipping and other trade documents? With documentary credits? Partially – GOE units managing large projects or projects financed by international donors are usually quite familiar with shipping and trade documents. In other GOE units, these documents are largely unknown.

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Section C - Financial/Budgetary Framework

1. Are banks capable of issuing Letters of Credit? Yes. 2. Are banks generally creditworthy? Yes, even though the Big Four state-controlled banks are inefficient and technologically obsolescent, they are considered to be creditworthy in terms of maintaining proper ratios. 3. Can bid, performance and advance payment securities be obtained easily? What formats are permitted? Bank guarantees? Bonds? Other? Provide details on cost, if available.

Conditional and unconditional securities are available but rigidly applied eligibility criteria and high collateral requirements deprive many small and medium size enterprises of access in connection with bidding opportunities. Large firms usually have additional access to foreign banks through special arrangements.

4. Are the requirements for issuance of bid, performance, and other securities to suppliers/contractors reasonable? See No.3 above. 5. Do suppliers/contractors have reasonable access to credit? Several contractors and consultants have reported that banks require them to agree to escrow assets equal to 120% of the requested line of credit. 6. Do implementing agencies obtain budgetary authorizations for contract payments falling due beyond the current financial year? No, these decisions are made on an ad-hoc basis in coordination with MOF and MOP. 7. Are major projects or programs clearly identified in government budget estimates?

Yes, at the beginning of each fiscal year, although public access to this information is rather limited. 8. What procedures are followed to ensure the procuring entity obtains budget authorization prior to inviting bids? Each ministry has a budget unit which tracks the allocations and advises the Competent Authority (Minister), prior to decision to go forward with procurement. The Minister’s decision signifies budget authorization prior to inviting bids. However, any subsequent delays carry the risk that a previous allocation has been transferred to another project or program in need of additional funding during the particular fiscal year. Procurement actions are often stalled because of this moving-around of unspent allocations. 9. Do procuring entities reliably receive the monies authorized? Or is the budget subject to revision during the year by a restrictive cash release system? Reports from several GOE units indicate that they are most concerned with the process of using allocations within a given fiscal year, because they cannot be sure that they will retain authorized monies to meet objectives.

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Section D - Public Sector Procurement of Goods/Works

General Risk Assessment

1. Is staff working in public sector procurement area held in high regard? Procurement does not exist as a specific group within GOE. They are in the financial section of ministries. Doing procurement is not considered better or worse than any other job in the civil service. 2. Are pay levels for staff working on procurement comparable to that for other public and private sector technical specialists? They are comparable to other wages in the public sector but are lower than those of the private sector. 3. Does a code of ethics exist that staff working in procurement are expected to follow? Only the provisions contained in the Law concerning the State’s Civil Servants System. 4. Are the authorities relating to procurement clearly delegated to the entities carrying out the process? Are the applicable procedures clearly defined? The Law clearly delegates contracting authority to individual ministries. However, the Law and the Executive Statutes provide broad principles of sub-delegation but the application of these principles is not articulated into clear and precise guidelines, which results in their inconsistent application. Authorities are not equally delegated in ministries. 5. Are procurement decisions overridden by higher governmental agencies? If so, by whom? To what degree is the procurement decision-making process independent and based on transparent criteria? No, however the discretionary powers are such that it could be possible to carefully influence a decision process without leaving a trace. 6. Does the highest level of government encourage/support/enforce compliance with existing procurement regulations? Are violations investigated and procurement/other responsible officials held accountable? Yes it does so officially. The Ministers encourage compliance with the Law and the Executive Statutes; however, the discretion built into implementation of the law allows many variances that do not constitute non-compliance. Three independent organizations conduct audits and oversight over procurement. Violations are followed-up when detected, but again the imprecision in the law allows for many deviances. Although there are some investigations, the discretionary power is such that it can be difficult to determine if there was an infraction. 7. Are there indications suggesting price-fixing in open bidding? None in connection with Bank-financed projects. No information available in connection with other GOE procurement.

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Organization

1. Is appropriate information on procurement adequately disseminated (i.e. procurement staff are aware of updated rules and thresholds, and other issues relevant to their assigned responsibilities)? No. Sharing from a ministry to another does not exist. Information is not adequately disseminated. CAO audit reports are not public documents. 2. Are the procurement and supply management functions clearly distinguished? No, they are under the same General Authority for Government Services in MOF. However, some central government units and some govenorates maintain their own warehouses. Reorganizing and modernizing the GOE supply function is in fact, a top priority of Government, under the leadership of the Minister of Finance. The World Bank has provided an IDF Grant for capacity building in the supply function. The CFAA provides further details on the current and anticipated functions of Supply Management and Inventory Control (Section 2.2.5). 3. Is contracting authority reasonably delegated (i.e. there are no unnecessary levels of approvals or cumbersome procedures)? No. Authority is concentrated at the Minister level, with little indication of any delegation of authority and decision making. 4. Are the thresholds for contracting authorities regularly updated? No, at least, not since 1998 (the date of Law No. 89).. 5. Do procuring entities have internal quality and control mechanisms? Are they regularly audited? No independent external quality control mechanism within the entity; but they have financial auditors. 6. Are procurement staff experienced in international procurement? PIU staff are knowledgeable. Staff in the Ministries are generally more familiar with NCB procurement than with ICB since there is a strong bias in GOE toward procuring goods, works and services from local firms. 7. Do adequate formal and on-the-job training programs exist for entry- and higher-level staff that contribute to proper professional career development? Does knowledge of procurement lead to career advancement? There is on job training but not specifically for procurement; the same training is provided to all civil servants. There is more training for high level positions. MOF operates a procurement training center which is in need of better equipment, training materials and facility renovations. 8. Are there additional training resources in the country that are currently utilized or that could be utilized to complement Government/donor-administered programs (e.g. universities and private institutions)? No 9. Did previous training programs (if any) lead to an obvious improvement in the quality/productivity of procurement work? Yes, the World Bank conducted a 6-day capacity building seminar in 2002 which was attended by 75 GOE staff; the Bank has also offered shorter procurement training workshops in Arabic.

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10. Did previous training programs (if any) lead to an obvious improvement in the quality/productivity of procurement work? Yes 11. Are procurement agents used? Under what circumstances? How are they selected? Describe normal basis for compensation and contract duration. Law No.121/ 1982 requires that an importer who wishes to import goods for the purposes of trade must be registered in the Register of Importers and must be an Egyptian national. Lwa No. 121 requires a number of other conditions for such registration, including conditions relating to minimum capital and past commercial experience. 12. Is procurement monitoring and administration computerized? How adequately do procurement entities track the key steps in the procurement process and collect appropriate project-related cost and schedule information? No. Tracking is done manually.

Procurement Planning

1. Are project implementation units adequately staffed with trained procurement, planning, scheduling, expediting and cost estimating personnel? No, planning is notoriously neglected. For example, the PIU for the Education projects has one procurement staff for four projects. Procurement staff has not increased as projects were added to the PIU. In the Health sector, the PIU does not have contract management skills, so a new position is being added in an effort to address procurement problems in the project. Cost estimating skills are absent, except in units which have engineers on their staff. 2. Is overall planning for complex goods, works and other contracts done in sufficient detail to produce realistic project definition, achievable completion schedules, and accurate cost estimates? Partially, because many procurement plans are overly optimistic and not kept up-to-date. Some of these problems are exacerbated by the uncertainties over annual budget allocations. 3. Is the early technical and financial planning well coordinated so that projects are fully funded when work needs to begin, based on accurate cost estimates? It takes a long time before projects can be declared effective. GOE will not fund a PIU before the Bank has declared a project effective. Therefore, planning and cost estimating are delayed until the PIU has hired skilled staff. 4. Are appropriate methodologies used to plan multiple inter-related procurement activities on large projects (e.g. the critical path method)? No, unless the project is so large that it requires a construction management firm or a consulting firm that provides these services as part of project design. These rare exceptions usually succeed through the direct support of the responsible minister. 5. Are project components appropriately packaged for procurement purposes? Not always, procurement packaging follows assumptions about market response which is often not achieved. Packaging to take advantage of economies of scale is not widely practiced.

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6. Are completion schedules generally met for goods, works and consultant services contracts? If not, what is the major cause for slippage? Is sufficient time generally allowed for external reviews/clearances?

Completion schedule often slip. The cause of delays is the complexity of the GOE procurement process, along with procurement plans that are too optimistic and do not correspond to these known complexities. It has been reported that some schedules are made to please the Competent Authority (Minister) but are contrary to the judgment of subordinate technical staff. Almost inevitably, these schedules are not met.

Construction schedules tend to be more realistic than other schedules and have a better chance of being met. Except for Bank-funded projects, where delivery schedules are defined in the bidding documents, the delivery of goods is often renegotiated at the contract award stage, with agreement on penalties for subsequent delays. Similar renegotiations and delay penalties apply to consulting contracts.

The most serious delays actually occur during the bid evaluation period, because many evaluation committees lack the technical skills to evaluate bids against the specifications and lack access to external resources. 7. Do procurement units regularly conduct market surveys to update their knowledge of prevailing prices for goods and works? No. 8. Are procedures and methodologies for planning procurement of recurrent items (i.e. inventory control, forecasting of future requirements, classification, coding, accounting/financial management, spare parts management, and delivery systems) adequate? No. Improving inventory control is among the top priorities of GOE in connection with supply management. A pilot inventory control system has been developed by the Information & Decision Support Center (IDSC) in the Prime Minister’s Office. A request for funding the system has been submitted to Parliament. The Bank has provided an IDF Grant for capacity building, once the system is available.

Document Preparation

1. Do standard documents exist for goods, works and other types of contract? List. Are other international contract formats used? If so, identify. GOE has no standard bidding or contract documents. Very large civil works projects use FIDIC documents. Donor-funded procurement, including the World Bank, uses the donor’s bidding documents. Some ministries have developed bidding document and contract formats for repetitive procurements. The private sector uses available standard documentation applicable to international commerce. 2. Are these documents, if any, readily adaptable to specific contract situations (i.e. by modifications made through a Bid Data Sheet, Special Conditions of Contract or similar)? N/A 3. Are there separate documents for international and national competitive bidding not financed by the Bank? See No.1 above. 4. Do Instructions to Bidders (ITBs) contain all information necessary to prepare responsive bids and clearly understand evaluation criteria and their method of application? N/A

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5. Do they contain other necessary information, such as eligibility requirements, basis of bid, language and currency of bids, common currency for purposes of evaluation, source and date of the exchange rate, etc.? Are sample forms and other appropriate sections of the documents provided? N/A 6. Are bidders required to provide bid security in an appropriate amount as a condition of responsiveness of their bid? Yes, all GOE bidding documents call for a bid security equivalent to 2% of the bid price. Bids offering a lower bid security are usually – but not always – rejected as unresponsive. 7. Is pre- or post-qualification provided for? Except for very large civil works projects, GOE does not use prequalification of bidders. However, the registration system applicable to suppliers and contractors is used to exercise a de facto pre-qualification process. Post-qualification is standard procedure during the bid evaluation process. However, post qualification criteria are not always spelled out clearly in bidding documents and are often applied on d discretionary basis. 8. Are qualification criteria appropriate and clearly described? See No,7 above. 9. Are conditions of contract equitable? Do they provide adequate coverage for most important commercial and legal issues (for the method of procurement, size, nature and type of contract used) and provide adequate protection to the Government, without putting undue risk on bidders? A major complaint of the private sector doing business with GOE is the imposition of inequitable contracts on successful bidders on a ‘take-it-or-leave-it’ basis. The risk allocation in these contracts is usually one-sided and made more difficult to accept because of severe penalty clauses. Often, these contracts are not displayed in the bidding documents and not considered subject to further negotiations. Unfair terms for termination, payments and release of retainages and performance securities are forced on successful bidders, along with uncompensated additions to the scope of work. Contracts funded through Bank loans are the exception to this situation. 10. Are standard purchase orders used for shopping? No . The same goods are often purchased by different ministries with very different purchase orders.

Pre-Qualification

1. Is pre-qualification carried out when appropriate? What types of contracts is it used for? Works? Goods? Other? Except for very large civil works projects, GOE does not use prequalification of bidders. No parallel can be drawn between these very large civil works contracts and the more routine GOE procurement of works and goods. 2. Is the pre-qualification process fair and transparent? Are decisions made promptly? Are foreign firms allowed to apply? Applicants for registration as contractors or suppliers (as a form of de facto prequalification) must be Egyptian nationals. However, foreign firms can gain access to GOE bidding opportunities through their registered Egyptian agents.

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3. Are standard pre-qualification documents used? Do they clearly and completely describe all the prerequisites for submitting responsive applications for pre-qualification? Is financial information routinely requested and critically evaluated to assess an applicant’s financial capacity to perform? N/A 4. Do procuring entities verify prior to contract award if a successful bidder continues to meet pre-qualification requirements? Yes, to some extent, because procuring entities are required to verify the registration of bidders. 5. Are suppliers required to have a local agent in order to qualify to bid for goods or services? Yes See No. 2 above. 6. Do procuring entities maintain updated lists of qualified suppliers and contractors and updated market information on commonly procured goods, including spares and consumables? Is supplier and contractor performance routinely evaluated and are any standing lists of pre-qualified suppliers and contractors updated and modified based on this information. Can newcomers readily apply and be qualified? See No.1 and 2 above. START 7. Is the procedure for registration of domestic contractors fair, providing timely access to the bidding process to all potentially qualified bidders? Are bidders should be allowed to register by mail and, if the conditions in the country allow, through the internet?

Is registration permanently opened to bidders for registration or update, is there a deadline imposed in relation to a specific bidding process? Is the time taken for registration reasonable? The registration system generally allows access to all Egyptian contractors and suppliers who possess the necessary qualifications for a particular class of registration. Reports indicate that the registration criteria are applied rigidly and without recourse to further appeals by the applicant. It has also been reported that moving upward to the next class of registration can be difficult and requires a complex review process. Some reports claim that the registration system maintained by GOE tends to control the number of contractors and suppliers eligible to compete for various sizes of contracts but this cannot be confirmed.

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1. Are contracts to be awarded by competitive bidding publicly advertised? Yes, Article 12 of the Executive Statutes.

2. Is sufficient time allowed to obtain documents and prepare bids? The Executive Statutes provide for 30 days; this would be considered sufficient. However, it is also mentioned that it can be reduced to 20 days which would not be enough time. However, in practice, there are many postponements, extending the time to obtain the documents.. 3. Do the requirements specify use of publications or websites that are readily available to the public and are known to the private sector as sources of information on public procurement opportunities? No.

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Communications Between Bidders and the Procuring Agency

1. Are requests for clarifications answered promptly and completely in a written form? The Law and the Executive Statutes do not provide any guidance. However, in practice, bidders’ meetings can be arranged at the beginning of the procurement process if the nature of the procurement calls for it, or at any time at the request of bidders or the Competent Authority itself. GAGS mentioned that minutes are prepared for these clarification meetings. This process follows no written rule, although it can be very critical in the evaluation process. 2. Are clarifications, minutes of the pre-bid conference, if any, and modifications of the documents promptly communicated to all prospective bidders? There is no written rule and practices vary widely. 3. Are bidders afforded sufficient time to revise their bids following a modification of the documents? There is no written rule and practices vary widely.. 4. Do procuring entities maintain accurate records of all communications with the bidders (before and after the deadline for submission)? There is no written rule and practices vary widely..

Receipt of Bids and Opening

1. Are bids received prior to the deadline securely stored? Pursuant to Article 16 of the Executive Statutes, they are placed in a tender box “designed in a manner that does not allow for extracting any of the contents through it. It shall have two locks and the key to one of these locks shall be kept with the Head of the Quarter or his delegate assignee while the other key shall be maintained with the Director of the Purchasing Department or the Head of the Concerned Section.” 2. Are public bid openings conducted? Yes. 3. If so, are they conducted at a specified place closely following the deadline for submission? Yes 4. What information is read out at the opening ceremony? Are minutes kept? Paragraph 8 of Article 17 mention that the following is read at the opening of the technical envelope: name of the bidder, the amount of the bid bond and its kind, as well as the other contents of the technical envelope. Article 26 mentions that the same procedure will be applied at the opening of the financial envelope. 5. Do bid opening procedures differ for goods, works or other types of contracts? If so, how? There is no difference.

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Bid Examination and Evaluation

1. Are evaluations conducted by qualified evaluating committees? Yes. 2. Are evaluating committees appointed ad hoc for each evaluation? Yes, pursuant to Article 15 of the Executive Statutes, However, there is a standard list of people who are appointed to serve on evaluation committees. The law requires one member of the MOF and (based on the threshold) one member of the State Council. Additional members are invited based on technical expertise. 3. Is responsiveness determined on the basis of the documentary requirements described in the documents and according to established practice? It depends on the bidding documents which are not standardized throughout GOE. The decision on responsiveness is frequently left to the discretion of the committee members.. 4. Are bid evaluations carried out thoroughly and on the basis of the criteria specified in the documents? There are no standard evaluation criteria. Bidding documents are not explicit about evaluation criteria, which at best, are based on a point system.. A lot is left to the discretion of each committee. Bank-funded procurement follows Bank SBDs with the usual specific bid evaluation criteria. 5. Is the successful bidder’s qualification to perform the contract determined solely on the basis of the criteria stated in the documents? (See above) If not, what other criteria are considered? A strong preference is given to Egyptian suppliers, contractors, consultants and their works, goods and services. In some cases, an additional preference is given to bidders from the local governorate. 6. Are evaluations normally completed within the original bid validity period? NO. There are frequent delays due to the Evaluation Committee not being able to meet in a timely manner. 7. Are bid evaluation reports prepared containing all essential information (i.e. a clear and complete description of the evaluation process, including the reasons for rejecting any bid as non-responsive, how the stated evaluation criteria were applied, and how the successful bidder’s qualifications were verified)? It is not a transparent process. It was reported that detailed evaluation reports are prepared, but these detailed reports are kept confidential and unavailable to the public. On the other hand, the results of technical evaluations are often posted on public bulletin boards. 8. Describe any significant differences between goods and works procurement relating to the above. There is none.

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Contract Award and Effectiveness

1. Are contracts required to be awarded to the lowest evaluated responsive bidder who has been determined to be qualified to perform the contract satisfactorily? Not necessarily, since a point system is often used to rank bidders. 2. Are negotiations conducted with bidders, before or after selection? YES. especially in public practices negotiations. 3. Are additional Government approvals required before contracts can be made effective? Article 33 of the Executive Statutes mentions approval by the Competent Authority. 4. Is performance security required in a reasonable amount and in a reasonable format? Yes, 5%. There is no standard format 5. Describe any differences between goods and works relating to the above. It is the same.

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Annex A of Questionnaire

Checklist comparing National Competitive Bidding Procedures and World Bank Policy

Yes No Bank Policy 1. Are there eligibility

restrictions based on nationality of bidder and/or origin of goods (other than primary boycotts)?

X There could be ad hoc restrictions imposed by the Government on products which could be dangerous such as meat from a country with mad cow disease.

Not allowed.

2. Are there primary boycotts which are established by law?

X

Only primary boycotts are acceptable.

3. Are bidding opportunities advertised in the local press?

X Article 2 of the Law on Organizing Tenders and Bids provides for advertisement for public tendering and public practice negotiation.

Required.

4. Are prospective bidders allowed at least 30 days for bid preparation (except for commodities/small goods contracts)?

X Article 14 of the Executive Statutes of Tenders Law provides for a 30 day delay, however it also mentions that the Competent Authority may reduce it to 20 days.

Required.

5. Are contractors/suppliers prequalified for large/specialized contracts?

X There are no provisions for prequalification in any case.

Required.

6. Are minimum experience, technical and financial requirements (for pre- or post-qualification) explicitly stated in the documents?

XX Article 3 of the Law on Organizing Tenders and Bids mentions that “[…] suppliers or contractors or consultants or technicians or experts […] shall have technical and financial efficiency”. It is also encompassed by Article 8 of the Executive Statutes of Tenders Law, however it could be stated more clearly.

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Annex A of Questionnaire Checklist comparing National Competitive Bidding Procedures and World Bank Policy

Registration should not be used as a substitute for advertisement when open competition is required. However, when advertising for civil works, borrowers could indicate the required minimum category of contractor specified in the registration system.

X Article 14 of the Law on Organizing Tenders and Bids provides for mandatory registration.

7. Is an invitation to prequalify advertised for each procurement involving large or complex potential contracts?

X There are no provisions for prequalification in any case.

Required.

8. Are joint ventures with local firms required for foreign firms’ eligibility?

X Not allowed.

9. Are joint venture partners jointly and severally liable?

X Required.

10. Are there set limitations to the number of firms who can bid for a contract?

X Not allowed.

11. Are parastatals allowed to bid? X However, there are no conditionality.

Acceptable only if they (i) are financially autonomous, (ii) operate under commercial law, and (iii) are independent from borrower and its purchasing/contracting authority.

12. Are bidders required to register with a local or federal authority as a prior condition for bidding?

X Should be discouraged. Acceptable only if registration criteria, process and cost reasonable/efficient and qualified foreign firms are not precluded from competing.

13. Are extensions to bid validity allowed?

X Acceptable only if justified by exceptional circumstances.

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14. Are there restrictions on the

means of delivery of bids?

X Article 16 of the Executive Statutes of Tenders Law mention that the tenders are to be “delivered to the Incoming Mail Department”. The representatives of the Government of Egypt mentioned that it may be delivered by hand, in person or by a messenger or courier, or by registered mail.

Not allowed, except when bidders have to submit physical samples. Then they can be required to deliver bids by mail, by courier, by hand, etc.

15. Is preference given to suppliers or contractors based on region or locality of registration, small size, ethnic ownership, etc.?

X Article 4 of the Law on Organizing Tenders.

Not allowed.

16. Are there restrictions on sources of labor and material?

X Not allowed, except for unskilled labor, if available locally.

17. Is public bid opening required? Does it occur immediately or closely following the bid submission deadline?

X But since it is a two envelope system, only the technical envelope is opened. Article 17 of the Executive Statutes of Tenders Law.

Required.

18. Is a “two envelope” bid opening procedure permitted for procurement of goods or works? 88

X Should be discouraged. Allowed only if (i) domestic law precludes use of one envelope and (ii) provided adequate safeguards against retaining second envelope unopened are incorporated in the two envelope procedures and effective bid protest mechanisms are already in place for the due processing of bid complaints.

19. Is automatic rebidding required if too few bids are received?

X Acceptable, provided all responsive bidders are allowed to bid, the process is efficient and no serious delays result.

88 All technical envelopes are opened first and, after review, price envelopes of all or only

qualified/responsive bids are opened in the second round.

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20. Is “bracketing” used in bid evaluations? 89

Are bid evaluation criteria other than price allowed?

X Article 29 of the Executive Statutes of Tenders Law mention that the tender may be cancelled “if the amount of the lowest tender exceeds the estimate value.” X Article 28 of the Executive Statutes of Tenders Law provides for a point system.

Not allowed. Only if quantified in monetary terms.

Is award made to lowest evaluated qualified and responsive bidder?

X Required.

21. Are price negotiations conducted with “winning” bidders prior to contract signature?

X One of the two principal procurement method is “public practices negotiation”.

Not allowed, except where the bid price is substantially above market or budget levels and then only if negotiations are carried out to try to reach a satisfactory contract through reduction in scope and/or reallocation of risk and responsibility which can be reflected in a reduction in Contract Price. (See Guidelines para 2.60).

22. Are price adjustment provisions generally used?

X Not required, but recommended for works contracts of one year or more in duration when domestic inflation rate is high.

23. Are the terms and conditions used in goods and works procurement generally appropriate for the size and nature of contract intended?

X

Required (to be acceptable they should be balanced, reasonable, and clearly address the most important issues that lead to problems during performance, e.g. risk allocation, payment, inspection, completion/acceptance, insurance, warrantees, changes, contract remedies, force majeure, governing law, termination, etc.).

24. Are contract scope/conditions modified during implementation?

X Acceptable, but the Bank’s approval is required for changes in those contracts that were subject to prior review under the Loan Agreement.

89 Rejection of bids outside a range or “bracket” of bid values.

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ANNEX D

LIST OF PEOPLE MET DURING MISSIONS A. Ministry of Finance H.E. Dr. Medhat Hassanein, Minister of Finance Dr. Doha Mounir, Senior Policy Advisor B. General Authority for Government Services Mr. Mohamed Abdel-Moneam El-Shibokshy, Chairman Mr. Mohamed El-Sayed El-Far, General Manager Mr. Ahmed El-Sayed Ahmed, Head of Central Administration for Procurement Mrs. Sawsan Moustafa Ashmawy, Head of Central Administration for Financial Affairs Mr. Fahed El-Bagoury, Consultant to State Council Mr. Sabry El-Bagoury, Final Accounts Sector in Ministry of Finance C. Ministry of Technological Development and Industry Mr. Galal Hafez, Head of Central Administration for Financial Affairs Mr. Aly Mohamed Rashad, Director of Procurement Administration Eng. Raafat Abdel-Hareth, Undersecretary D. Ministry of Supply and Internal Trade Mrs. Ahlam Roushdy, Head of Central Administration for Financial Affairs Mr. Hossam El-Din Khalil, Supervisor of Procurement E. Ministry of Foreign Trade Mr. Moustafa Abdel-Kader, Head of Procurement and Contracts Mr. Saleh Galal Ahmed, Head of Procurement Mr. Bareq Attia, Head of Central Administration for Financial Affairs F. Ministry of Education Mrs. Wedad Ibrahim Abdel-Aal, Head of Central Administration for Financial Affairs Mrs. Abla Abdel-Gelil, General Manager of Projects Mr. Alfons Hanna G. Ministry of Justice Judge Mohamed Adb El Aziz Dr. Omar El-Cherif, Magistrate H. Ministry of Public Enterprises Mr. Hamdy Rashad, Minister’s Technical Office Manager Mr. Taha Abdo, Deputy Chairman of State Council and Advisor to Minister I. State Council Dr. Mohamed A. Megeed Ismail, Judge in the Conseil Détat

and Legal Advisor to the Minister of Petroleum Mr. Fahd El-Bagoury

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ANNEX E

Supporting Materials for the Team’s Findings (On File)

1. Listing of MNA procurement-accredited staff (July 9, 2003). 2. Listing of the Task Team Leaders assigned to Bank projects in Egypt (June 2003). 3. Summary of procurement thresholds for the active projects. 4. Office Memorandum from Alfonso Sanchez, Director, OCS on Accreditation of Staff to

Carry Out Procurement (November 21, 2000). 5. Prior review contracts under Bank-financed projects, (data as of June 22, 2003). 6. Office Memorandum: Bank Policies and Procedures on Decentralization of Procurement

Work to Field Offices, OPCPR (September 16, 1998). 7. Memorandum from Anand Seth, Director, SSQA, MNAVP, on Decentralization of

Procurement Work in MNA Field Offices in Egypt, West Bank and Gaza, and Yemen (January 12, 2000).

8. MNC03 Portfolio Status Report (May 31, 2003). 9. Egypt Portfolio: Disbursements During Fiscal Years 1999-2002 (data through November

2001, Table 1). 10. Egypt Portfolio Disbursements during January-April 2002 (data as of April 2002, Table

1). 11. Egypt Portfolio Disbursements June 2002-January 2003 (data as of February 9, 2003,

Table 1). 12. MNC03 Organizational Chart. 13. Quality-at-Entry in FY02 (QAE5): A QAG Assessment (April 8, 2003). 14. Egypt Social and Structural Review, Social and Economic Development Group, MNA

Region, Report No. 22397-EGT (June 20, 2001). 15. Egypt Country Assistance Strategy, Report No. 22163-EGT (June 5, 2001). 16. Egypt-at-a Glance: 2001-2002, The Economist Intelligence Unit (August 2001). 17. Egypt-at-a Glance: 2002-2003, The Economist Intelligence Unit (January 2002). 18. Egypt-at-a Glance: 2003-2004, The Economist Intelligence Unit (November 2002). 19. Transparency International Corruption Perceptions Index 2002 (August 2002). 20. Implementation Completion Report (IDA-24030), National Schistosomiasis Control

Project, Report No. 25552 (March 2, 2003). 21. Report on the Observance of Standards and Codes (ROSC), Corporate Governance

Assessment, Arab Republic of Egypt (September 2001). 22. Abstract: Governance and Development in Egypt, by Abdel Monem Said Aly 23. ARPP FY02, Statistical Appendix, Table 3.18: Portfolio at Risk Factors FY97-02 24. Draft CFAA (to be replaced by final CFAA, once available) 25. Egypt: Country Portfolio Performance Review (May 2002). 26. Egypt: Proposed Economic Support Loan, Concept Paper (March 2002). 27. Proposed Second National Drainage Project, LACI Compliance Review of Procurement

(November 1999). 28. Egypt: Draft Procurement and Contracting Assessment of the General Authority for

Educational Buildings (GAEB) (October 1999).

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29. MNA Procurement Ex-Post Reviews Monitoring for FY03, Email from Najib Sefta, MNA RPA to MNAVP Management (April 8, 2003).

30. Issues For Discussion with the Minister of Finance (from the draft CPAR) (May 2003). 31. CPAR (April 5, 1994). 32. Country Program Brief (WBI FY03). 33. Main Economic Indicators - Egyptian Monthly Bulletin (September 2002). 34. ‘’Egypt Outreach’’ - Quarterly Newsletter, WBCO, Cairo (September 2003) 35. ‘’Investing in Egypt’’- Ministry of Economic & Foreign Trade, 2001. 36. ‘’A Record of Achievements,’’ The Cabinet Information Support Center (IDSC), 1981/82

– 200/2001. 37. ‘’Egypt Almanac’’- Egypto-file Ltd., 2003 38. Law No. 89/1998 Promulgating the Law on Organizing Tenders and Bids (Arabic). 39. Law No. 89/1998 Promulgating the Law on Organizing Tenders and Bids (English). 40. MOF Decree No. 1367/1998 Promulgating the Executive Statutes of Tenders Law. 41. Law No. 47/1978 Law on the State’s Civil Servants (as amended by Laws No. 136/1980,

108/1981, 117/1993/31/1983/115/1983,219/1991,31/1992 and 5/2000. 42. Law No. 48/1978 Law on Public Sector Workers Regulations. 43. Law No. 12/2003 Labor Law, 44. Law No. 27/1994 Arbitration Law (as amended by Laws No. 9/1997 and 8/2000). 45. UNCITRAL Model Law on Procurement of Goods, Construction and Services. 46. Prime Minister’s Decree No. 1664/2000.