On 31 of October 2024, the new Administrative Contracts Regulations (ACR) was issued (CoM Decree 600/2024), hereby replacing the outdated Decree no. 563/2007. This update significantly transforms the legal framework governing public tenders and contracting with the public sector. The ACR is the central legal framework that governs the tender procedure, contracts concluded with the public sector, and the implementation of these contracts. For international companies engaging with Libya, these changes are vital to understand.
This alert discusses the relevance of the new ACR for international companies doing business in Libya, the changes that were introduced, and assesses whether the new regulation is more beneficial for international companies.
1. Why is this important?
Under Libyan law, the term administrative contract refers to contracts that are concluded with the government, its affiliated entities, or contracts concerning projects financed by the public budget. Administrative contracts are subjected to a special set of rules and regulations that in some respects deviate from the general contract law rules. These rules grant the contracting public entity certain “privileges” over commercial contracting parties, for example to impose administrative penalties, to terminate the contract in the public interest, or to unilaterally amend the quantities under the contract.
Most of these rules are codified in the ACR. The ACR governs the conclusion and implementation of administrative contracts, as well as setting the procedures for tendering government projects.
Given that the public sector dominates the Libyan economy, many of the large transactions are public contracts. The ACR is deemed ipso jure part of the contractual agreement meaning that reviewing the underlying contracts alone is not sufficient. In other words, reviewing and understanding the provisions in the ACR are as important as understanding the contract itself. Furthermore, in the vast majority of cases contract drafts used by the public entities in Libya are drafted based on the ACR.
2. What changed?
The ACR introduced amendments both with regard to (i) the tender process and (ii) the implementation of contracts with the public sector.
Tender Process
The most relevant developments introduced by the ACR in terms of tender procedures are as follows:
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- Unified Electronic Portal Announcement: The new ACR mandates the use of a unified electronic portal for publishing tenders, contract awards, and listings of “blacklisted” companies. This move aims to enhance transparency and improve public access to contract information (Articles 1[20], 20, 34, 69[b], 155, 163 ACR).
- Framework Agreements: The ACR introduces framework agreements as a new form of tendering projects alongside the methods established under the old ACR (public tender, limited tender, and direct contracting). The introduction of framework agreements makes it possible to conclude contracts with fixed prices for up to two years, without specifying exact quantities or delivery schedules (Articles 8[g] and 77 ACR). This flexible procurement model is especially suited for recurring needs, such as annual medical supplies for the public healthcare sector.
- Competition as a form of Tendering Projects: Competition (“contest”) is a newly introduced mechanism allowing public entities to invite bidders to submit studies, designs, or plans for a project. The winning proposal is then implemented (Articles 8[h] and 78 ACR).
- Challenge the Outcome of a Tender: The ACR now grants an unsuccessful bidder the possibility to challenge the award decision within seven days as of announcing the winning bidder. In order not to hinder the project, the challenge must be decided within seven working days as of the date on which it was lodged (Article 25 ACR).
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Contract Implementation
The most relevant developments introduced in terms of administrative contracts are as follows:
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- Extension of Time or Compensation for Delay in Handing over the Project Site: Contractors now have a codified right to claim an extension of time or cost compensation for handover delays caused by the public entity (Article 98[2]).
Delays in handing over the project site attributable to the public contracting party is a frequent challenge in public construction and engineering projects in Libya. Under the old ACR the remedies for the contractor in such case were not regulated and subject to debate among legal commentators. Article 98 [2] ACR is therefore a good development, yet the either/or approach, i.e. either extension of time or compensation for delay, is less convincing. - Suspension of Performance for Non-Payment: Contractors may suspend work if payments are delayed beyond specified thresholds (2 or 10 weeks, depending on the approving authority). Contractors can also claim up to 4% of the delayed payment amount as working expenses during the suspension period (Article 104).
The right of a contracting party to suspend performance was previously highly controversial in Libyan legal literature, with the prevailing opinion stating that under administrative contracts the contractor is not entitled to suspend the performance even if the contracting public party is in breach of its obligations, therefore limiting the contractor’s remedies to compensation. However, this opinion is now obsolete as the ACR explicitly grants contractor the right to suspend performance for non-payment. - Deemed Acceptance: If a public entity fails to inspect or respond to a takeover notice within 60 days, the works are deemed accepted. This simplifies the transfer of risk, whereby the period of guarantee begins and the remaining payment becomes due (Article 135[b]).
- Dispute Avoidance and Advisory Board: A new body called the Dispute Avoidance and Advisory Board must be involved before escalating the matter to litigation, with the aim of resolving disputes amicably (Article 96 ACR). The board consists of one or three members to be named in the contract or appointed thereafter.
The aim is apparently to reduce the number of proceedings initiated against public sector entities and to resolve disputes amicably and at an early stage. However, the law does not specify the procedures to be followed by the Dispute Avoidance and Advisory Board, the deadlines the board is bound by, or what happens if the board members disagree on certain procedures. This bears the risk that the board will only be of limited use in resolving disputes and rather a mechanism to delay the resort to arbitration or court proceedings. - Arbitration Subjected to Libyan Arbitration Law: Unlike the old ACR, the new ACR allows both local and international contracting parties to agree on arbitration as a dispute resolution mechanism in administrative contracts. International companies were granted this option before, however only with the approval of the cabinet of ministers. This remains unchanged. The key change now is that the arbitration proceedings, for both local and international companies, must be subject to the Libyan Arbitration Law (Law 10/2023 on Commercial Arbitration). This includes that the law governing the arbitration clause will be the Libyan Arbitration Law regardless of the seat of arbitration. The Libyan Arbitration Law itself is a modern law inspired by the UNCITRAL Model Law and the arbitration laws of Egypt and Tunisia though it still has some shortcomings (for more on this see: The New Libyan Arbitration Law – A Primer).
- Force Majeure: Contracts may be terminated after three months following a force majeure notice, with the effect that outstanding payments must be made and performance bonds must be returned to the contractor (Article 118).
Force majeure under Libyan law is a situation where the performance of the contract becomes absolutely impossible, meaning that no other party can discharge the respective obligation. In such a case the contractor is exempted from performing their obligations. The new ACR additionally addresses the fate of the contractual relationship and the financial consequences of force majeure events as aforementioned. - Revival of Pending Projects Since 2011: A number of projects, and consequently administrative contracts with international companies have been put on hold since the outbreak of the Libyan revolution in 2011 and the onset of the civil war in 2014. The new ACR addresses this issue by granting the contracting public entity the possibility of reviving the projects and negotiating an increase in the contract price with the contractors (Article 100 ACR).
- Liability Caps: The new regulations require prior approval from the Cabinet of Ministers for any exclusion or limitation of a contractor’s liability (Article 137[c] ACR). This means administrative contracts with liability caps or exclusions must receive explicit governmental approval. However, Article 137[c] also refers to Article 220 of the Libyan Civil Code, which, following its 2016 amendment, materially constrains agreements limiting or excluding liability. This creates ambiguity if and how limitations of liability can be implemented. It must be noted though that the validity of the 2016 amendments, and thus Article 220 as amended, remains contentious in Libyan case law and academic discourse.
- Advance Payment Restricted to 15% of the Contract Value: The amount of advance payment is capped at 15% of the contract value (Article 103 ACR). This abolishes the previous option under the old ACR to increase the advance payment to 25%.
- Assignments of Contracts: The assignment of an entire administrative contract to a third party remains prohibited. Violation of this rule grants the public entity the right to terminate the contract, confiscate the performance bonds, and claim compensation. However, the new ACR introduces a provision allowing the public entity to continue a project with the assignee (Article 108[b] ACR). This approach minimizes the liability of the original contractor for additional costs arising from increase in prices and administrative expenses related to the re-tendering of the project.
- Corporate Social Responsibility (CSR) Obligations: International companies are now mandated to contribute 2% of the project’s expected net profit to CSR initiatives in Libya (Article 107[c] ACR). This aligns with Article 3(2) of Ministerial Decree No. 494/2022, which established a Code of Conduct for Corporations.
- Performance-Based Bonuses: The ACR introduces incentives for contractors meeting or exceeding performance expectations (Article 139 ACR):
- A 2% bonus for completing work ahead of schedule.
- A bonus of 25%-50% of the saved capital if the contractor contributes to reducing project costs.
- Extension of Time or Compensation for Delay in Handing over the Project Site: Contractors now have a codified right to claim an extension of time or cost compensation for handover delays caused by the public entity (Article 98[2]).
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3. Take Away
The amendment represents a thoughtful overhaul, reflecting input from stakeholders experienced in the challenges of administrative contract in practices. While the changes introduce several benefits for private contractors, on balance the overall impact remains mixed:
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- Positive Developments:
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- The right to suspend performance in the event of payment delays directly addresses a common contractor grievance.
- The introduction of deemed acceptance reduces contractor risks significantly and reduces disputes over delays.
- Performance-based bonuses and CSR obligations create clearer expectations for contractors.
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- However, Challenges Remain:
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- Advance payments continue to be limited to 15%. This will prove a significant financial burden for contractors, especially in capital-intensive construction projects.
- Compensation claims for delays due to non-payment are capped to 4% of the delayed amount.
- Ambiguities surrounding liability caps and Article 220 of the Civil Code could complicate negotiations and approvals.
- The effectiveness of the newly introduced Dispute Avoidance and Advisory Board remains uncertain, depending in particular on the appointment process and procedural clarity. It remains to be seen whether this mechanism will facilitate or delay dispute settlement.
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Despite these challenges, the reforms demonstrate a strong intent to modernize and streamline the legal framework for administrative contracts, potentially fostering a more favorable environment for international companies operating in Libya.
If you would like more information about this topic then please contact us.
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PARTNER
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PARTNER
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