A construction or infrastructure project in Egypt is governed by three layers of law: the contracting chapter of the Civil Code, Law No. 131 of 1948, in Articles 646 to 667; Public Procurement Law No. 182 of 2018 where a public entity is the employer; and Building Law No. 119 of 2008 for licensing, supervision and occupancy. Our Cairo office reads these together, because most project disputes arise where the drawings, the contract and the license do not match.
The legal framework: contract, procurement and building law
The Civil Code defines the contract of works in Article 646 as a contract in which one party undertakes to make a thing or perform work for the other against a price. Article 647 allows the contractor to undertake the work alone or to supply the material as well. These rules apply to private projects and fill gaps in public ones. Parties may agree different terms, but several provisions on liability are mandatory, as shown below.
Law No. 182 of 2018, with its Executive Regulations issued by the Minister of Finance, applies to the public bodies listed in its first promulgation article. It governs how the contract is awarded and monitored. Law No. 119 of 2008 and its Executive Regulations, issued by Ministerial Decree No. 144 of 2009, regulate the license, the supervising engineer and the finished building. Our standing advice is to list, before signing, which of the three applies to each obligation.
Contract types and how the price is fixed
Under Article 657 of the Civil Code, where the contract is by unit price on an estimate, the contractor must notify the owner immediately if the work will clearly exceed the estimate, and if he does not he loses the right to claim the excess. If the overrun is very large, the owner may terminate the contract at once and pay for the work already done, without any lost profit. This rule works against contractors who let the cost drift and ask for payment only at the end.
Under Article 658 a lump-sum contract on an agreed design carries the risk of the design. The contractor may not claim more even if the design changes, unless the change comes from the owner's fault or the owner authorized it and agreed a price. Under Article 659, where no price was fixed, the court looks to the value of the work and the contractor's costs. We advise that every contract states the pricing method, the measurement basis and the estimate on which notices will be tested.
Variations: written agreement and the price of change
Article 658 of the Civil Code requires that an agreement on the price of a change to a lump-sum design be made in writing, unless the original contract was itself oral. A site instruction without a price is therefore weak ground for a claim. The contractor must show an authorization from the owner, or the owner's fault, and an agreed price, and the writing requirement applies to the price agreement itself.
In practice we prepare a variation file with five items: the drawing revision, the owner's instruction, the cost and time effect, the signed price agreement and the notice sent under Article 657 if the work is on unit prices. We advise the contractor to stop and ask for written approval before starting changed work, and the owner to refuse informal instructions, because both sides lose when the record is a series of site messages.
Exceptional events and the rebalancing of the price
Article 658, paragraph 3, bars a contractor on a lump-sum contract from claiming more because material, labor or other costs rise, even if the rise makes performance burdensome. Paragraph 4 adds a narrow exception: if exceptional general events that could not be foreseen when the contract was made destroy the economic balance between the parties and the financial basis of the price collapses, the judge may increase the price or rescind the contract.
The exception is for events outside the ordinary run of price movement, and the claimant must prove both the event and its effect on the original estimate. Our standing advice is to deal with price risk in the contract itself through a clear price adjustment clause or a stated allocation of the risk, and to keep the pricing records from tender stage, because a court asked to rebalance a price will start from them.
Defective work and the owner's remedies
Under Article 650 of the Civil Code, where the contractor performs the work in a defective manner or contrary to the agreed terms, the owner may give him a reasonable period to correct it. If the contractor does not correct it within that period, the owner may ask for rescission, or may have the work completed by another contractor at the first contractor's expense under Article 209. Where correction is impossible, the owner may ask for rescission at once without the notice.
Article 649 deals with material supplied by the owner: the contractor must look after it, use it according to good practice, account for it and return the surplus, and he pays for material spoiled by his negligence. We therefore advise owners to issue the corrective notice in writing with a date and a description of the defect, and to keep inspection reports, test results and photographs, since the notice and the period are what open the substitution remedy.
Subcontractors and the direct claim against the owner
Article 661 of the Civil Code lets the contractor subcontract all or part of the work unless the contract forbids it or the nature of the work depends on his personal skill, and he remains liable to the owner for the subcontractor. The contractor's responsibility therefore does not move down the chain, and an owner who wants control over who works on site must say so in the contract.
Article 662 gives subcontractors and workers a direct claim against the owner for what he owes the main contractor on the day the claim is filed, with a privilege over those sums. For an owner, this means that paying the main contractor in full without checking the position of the subcontractors may not discharge the debt. We advise payment certificates to include a declaration on subcontractor payments and a retention to meet such claims.
Ten-year liability for structural defects
Article 651 of the Civil Code makes the architect and the contractor jointly liable for ten years from delivery for total or partial collapse of buildings or other fixed works, and for defects that threaten the stability and safety of the building, even where the cause is a defect in the land or the owner authorized the defective works, unless the parties intended a shorter life for the work. This does not affect the contractor's recourse against subcontractors.
Article 653 makes void any term that excludes or limits this liability, and Article 654 ends the guarantee claim three years after the collapse or the discovery of the defect. Article 46 of Law No. 119 of 2008 also requires an insurance policy covering the civil liability of the engineer and the contractor for damage to third parties from collapse, for works above the threshold set in that article, as a condition for the license or the start of work.
Completion, handover and payment
Under Article 655 of the Civil Code the owner must take delivery of the finished work as soon as the contractor puts it at his disposal, and if he refuses without lawful reason after an official notice, the work is treated as delivered. Delivery starts the ten-year period in Article 651, so the date matters to both sides. Under Article 656 payment falls due on delivery unless the agreement or custom says otherwise.
We treat completion as a process, not an event. The contract should say what a completed work is, who inspects it, how defects are listed, when the snag list is closed and when retention is released. The contractor should serve an official notice offering delivery, and the owner should answer it in writing with reasons. A silent owner risks deemed delivery, and a silent contractor risks losing the ground to claim payment.
Termination by the owner and impossibility of performance
Article 663 of the Civil Code lets the owner end the contract at any time before completion, provided he pays the contractor's expenses, the value of the work done and the profit the contractor lost. The court may reduce the compensation for lost profit by the savings the contractor made and the profit he earned by using his time elsewhere. Termination for convenience is therefore a right, but it has a price that can be estimated in advance.
Under Article 664 the contract ends where performance becomes impossible, and Articles 666 and 667 deal with the death of the contractor. Termination for the contractor's default runs under Article 650 and the general rules on rescission. We advise both sides to keep a running schedule of delay causes, because a termination dispute turns on who delayed what, and that is proven by dated records.
Public contracts under Law No. 182 of 2018
Law No. 182 of 2018 requires public bodies to buy through the methods listed in its Article 7, which may not be converted into one another, and Article 10 bans splitting contracts to avoid its rules. Article 19 requires tender documents with specifications, schedules and standard contract forms. Article 22 provides that a bidder who withdraws before the technical envelopes are opened loses its provisional guarantee, and Article 35 allows an abnormally low bid to be questioned in writing.
Under Article 5 a concerned party may complain in writing to the entity and send a copy to the Public Procurement Complaints Office, whose decisions bind both sides and must be implemented within seven days. Article 33 requires the entity to notify the Competition Authority of suspected bid rigging. We advise bidders to keep the tender record, the clarifications and the complaint dates, because the complaint route is time-sensitive and not a substitute for a claim under the contract.
Licenses, supervision and occupancy under Law No. 119 of 2008
Under Articles 40 and 41 of Law No. 119 of 2008, the administrative authority gives the owner a statement on the suitability of the site, and the license application is filed through an accredited engineer or engineering office that certifies the works for licensing. Article 46 requires an insurance policy for works above the stated value or buildings of four floors or more. Article 53 requires the owner to notify the authority before starting, and the same chapter requires him to engage a supervising engineer.
Under Article 59 the authority stops works that violate the license by a reasoned administrative decision, and the governor may order removal of stopped works that cannot be corrected. At the end of the work, the supervising engineer must issue a certificate that the building is fit for occupancy, which Article 61 treats as the point after which violations are handled as post-occupancy violations. Utilities and occupation should not start before this certificate is in the file.
What we review in an Egyptian construction file
When our Cairo office reviews a project, we trace the drawing, the license and the contract line by line. We check that the drawings match the licensed design, that access and handover dates are in the contract, that every variation has a signed price, that delay causes are recorded in dated minutes, and that the final account, the completion certificate and the occupancy certificate are in one project record. We also confirm who holds the insurance policy required by Article 46 of Law No. 119 of 2008.
See also: our Egypt dispute resolution guide and our Egypt Investment Law 72 guide, plus our commercial and corporate practice.
Frequently asked questions
Can a contractor claim extra payment for a variation without a written agreement?
Rarely. Under Article 658 of the Civil Code, on a lump-sum contract the agreement on the price of a change must be in writing unless the original contract was oral, and the change must come from the owner's fault or authorization.
Can the contractor claim more when material prices rise?
Not on a lump-sum contract. Article 658, paragraph 3, bars the claim, and paragraph 4 lets the judge increase the price or rescind only where exceptional general events that could not be foreseen destroy the economic balance of the contract.
How long does liability for structural defects last?
Ten years from delivery under Article 651 of the Civil Code, jointly on the architect and the contractor. Article 653 voids any clause that excludes it, and Article 654 ends the claim three years after the collapse or the discovery of the defect.
What can the owner do about defective work during construction?
Under Article 650 of the Civil Code, serve a written notice with a reasonable period to correct. If the contractor fails, the owner may seek rescission or have the work completed by another contractor at the first contractor's cost.
Can the owner terminate the contract before completion?
Yes. Article 663 of the Civil Code allows it at any time, on payment of expenses, the value of the work done and lost profit, which the court may reduce by the contractor's savings and by profit earned from reusing his time.
Can a subcontractor claim from the owner directly?
Yes. Article 662 of the Civil Code gives subcontractors and workers a direct claim against the owner up to what he owes the main contractor on the day the claim is filed.
Where do I complain about a public tender?
Under Article 5 of Law No. 182 of 2018, send a written complaint to the entity with a copy to the Public Procurement Complaints Office, whose binding decision must be implemented within seven days of receipt.
Can your firm review our construction contract and project record?
Yes. Our Cairo office reviews the contract, license and record against the Civil Code, Law No. 182 of 2018 and Law No. 119 of 2008. Please contact us through our contact page.