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Flash info Algeria | Public Works Contracts Code: new rules for partnership investment

01/04/2011

The article 24 of the new Public Works Contracts Code1 (PWCC) provides the obligation for the foreign tenderers for international bids to create a partnership with Algerian companies held by a majority of national residents.

We have to notice that these provisions had difficulties to be enforced as there were no application regulations.

Regarding that, the Prime Minister has given expression in the note dated on January 5th, 2011 for a postponement of their application precising that “the contracts whose draft of specifications are in accordance with the presidential decree n°10-236 dated on October 7th, 2010 and which are lodged in front of the competent contracts Committee will continue to be governed for their drawing up by this regulation, apart from the provisions included in its article 24 and the provisions which need the involving of an application regulation”.

The presidential decree n°11-98 dated on March 1st, 2011 (the Decree) could be considered as including useful precisions regarding the implementation of the obligation of partnership.

The principal elements of clarifications can be summarized as follows:

1. Precisions regarding the scope

The obligation of partnership applies only for the contracts which will be explicitly subject to it.

The definition of the concerned contracts and the nature of investment are determined by decision of the National Institution of the State sovereignty, the National Independent Institution, or the relevant Minister for the concerned contracts and the relevant establishments and bodies.

Regarding the contracts of public companies, the relevant Minister2 or the Council of Participations of the State3 (CPS) defines the contracts subject to the obligation of partnership and the nature of investment.

This will lead to consider that some of the international bids would be concerned by the obligation of partnership. For the contracts which will be concerned by the latter, the type of partnership must be defined for each contract by the decision bodies mentioned above.

In addition, we kindly remind you that the bid file must suggest a list of Algerian companies which may make a reality the said partnership.

2. Precisions regarding the investment engagement in partnership

The Decree provides that the foreign bidder must include (if not, it will be dismissed) an investment engagement according to a planning and a methodology fixed in advance.

However, the choice of the Algerian partner can be communicated after the notification of the contract (non mandatory information in the bidding step).

The follow of the realization of the investment engagement is granted to the National Agency of Development of the Investment (ANDI) in consultation with the relevant authorities (please see point 1).

3. Introduction of the preliminary notice before the application of the penalties provided by the PWCC

In its previous wording (prior to the Decree), the article 24 of the PWCC provided that the non respect of the partnership engagement led to the application of financial penalties which amounted until 20% of the contract amount.

Without reconsidering this principle of financial penalty, the Decree introduces the formalism provided by the other pertinent provisions of the PWCC. Thus and before each financial penalty, the contractor which notices the non-respect of the engagement must put to the foreign bidder a formal notice.

The latter has to engage the necessary measures within the deadline provided by the formal notice in order to remedy this failure. If not, the financial penalties provided by the paragraph 2 of the article 9 of the PWCC are applicable “the contractual provisions of the contract precise the rate of the penalties as well as the application or the exemption modalities in accordance with the specifications mentioned which are the elements which constitute the public works contracts”.

4. Exemption of the contracts by simple mutual agreement from the obligation of investment in partnership

The investment obligation may be removed by the concerned bodies4 towards the foreign bidder who has realized or has already engaged himself to realize an investment. In this case, the exemption must be provided in the specifications.

Thus, a foreign company which has already created a company established under Algerian law in partnership in the same activity field as the purpose of the contract would not need to engage itself in a new investment, in each international bid.

However, according to the Decree, the removal of the investment engagement must be provided in advance by the specifications.

5. Exemption of the contracts of simple mutual agreement from the investment obligation in partnership

The Decree precises that the simple mutual agreement procedure which is applicable to the cases enumerated under article 43 of the Public Works Contracts Code5 is exempted from the investment obligation.

However, the mutual agreement contracts after the checking are subject to the investment obligation excepted the ones which are linked to the Institutions of the State sovereignty.

6. Date of the coming into force

In principle, according to the general rules of law, the coming into force of the provisions of the Decree has been done one clear day after its publication; i.e March 7th 2011 (JO n°14 dated March 6th 2011).

However, the question is to know if the postponement of the application of the provisions of article 24 of the PWCC provided by the note of the Prime Minister dated January 5th 2011 can be considered as removed following the publication of the Decree.

We consider that the Decree has provided the principal elements of clarification which allow the application of the article 24 subject to a contrary position of the authorities.

1. Presidential decree n°10-236 dated on October 7th, 2010 regarding regulation of public works contracts.

2. For the contracts financed partially or totally by temporary or definitive financing of the State.

3. For the contracts which are not financed by temporary financing of the State.

4. Authority of the State sovereignty, the National Independent Institution, the relevant Minister or the CPS.

5. Article 43 of the PWCC “the contractor resorts to the simple mutual agreement exclusively in the following cases: 
- When the services can be performed only by a sole co contracting partner which has either a monopolistic situation or for an exclusive reason the technological process; 
- In the cases of urgency motivated by an imminent danger for a good or an investment which already exists and which don’t adapt to the delay of the bid provided that the circumstances which are the reason of this urgency haven’t been foreseen by the contractor and haven’t been the result of delaying operations; 
- In case of an urgent supplying which is supposed to save the functioning of the economy or the essential needs of the people provided that the circumstances which are the reason of this urgency haven’t been foreseen by the contractor and haven’t been the result of delaying operations; 
- When the project has priority and has a national importance. In this case, the using of this exceptional type of drawing up must be submitted to the preliminary agreement of the Ministers Council; 
- When a regulation gives to a public establishment an exclusive right in order to perform a public service assignment. The list of the concerned establishments will be determined by a Decree from the Minister of finance and the concerned Minister; 
- When it is about the development of the production national public tool. In this case, the using of this exceptional type of drawing up must be subject to the preliminary agreement of the Ministers Council.

The modalities of application of the provisions of this article are precised, if needed by a decree from the Minister of finance”.

Authors

Picture of Samir Sayah
Samir Sayah
Partner Africa Practice – Corporate, M&A
Algiers
Jean-Jacques Lecat