Subject: Decision on Local Components in Government Contracts

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Internal newsletter 1, 15 October 2015

40% Local Component in Government Contracts is Now Mandatory
Local Component used to give a bidder an advantage; now it is a condition for contracting.
Earlier this year, Law 5/2015 was promulgated to decide favorable treatment for Egyptian products in public contracts and procurement. This month, the Minister of Trade and Industry issued the executive regulation 656/2015 for this law. .

Law 5/2015 applies on all administrative authorities, including ministries, public institutions, municipalities, public sector and public works companies. The law imposes on such entities a duty to include a condition in public tenders and bids that the Egyptian component in any project must be at least 40% (+/- 10% in some cases). This requirement does not apply on the Armed Forces, Ministry of Interiors, other security agencies as well as PPP contracts. Also, in some designated cases, a waiver from this requirement may be sought from the Prime Minister.

The executive regulation addresses how private contractors can meet the regulation’s requirements. The contractor must submit a certificate to the authorities proving that he complies with the Egyptian components requirement.

The following are the procedures of obtaining the certificate:
  1. The applicant shall prepare a report that illustrates the costs of the Egyptian component. Costs are calculated based on both the variable and fixed costs. 
  2. The applicant submits the report before the Industrial Development Authority “IDA”. 
  3. After the IDA authenticates the report, the applicant submits the report before the Federation of Industries. The latter shall issue a certificate proving that the Egyptian component is fulfilled. 
  4. This certificate is valid for a year.

On another note, the law and the executive regulation exempted small and micro-businesses, which fulfill the Egyptian component requirements, from half the value of the security bond payable during the tender or bid process.

In 2006, Jim Wright, Ahmed El Sharkawy and Karim Sarhan established Sharkawy & Sarhan. Their extensie experience and different backgrounds combined to create a firm set up to provide high quality business law services. The Firm extended rapidly to become one of the leading firms in Egypt... read more about who we are ››
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