Little happened until the beginning of 1886, but with the re-election of Jules Grévy as President and his appointment of Edouard Lockroy as Minister for Trade decisions began to be made. A budget for the Exposition was passed and on 1 May Lockroy announced an alteration to the terms of the open competition which was being held for a centerpiece for the exposition, which effectively made the choice of Eiffel's design a foregone conclusion: all entries had to include a study for a 300 m (980 ft) four-sided metal tower on the Champ de Mars. On 12 May a commission was set up to examine Eiffel's scheme and its rivals and on 12 June it presented its decision, which was that only Eiffel's proposal met their requirements. After some debate about the exact site for the tower, a contract was signed on 8 January 1887. This was signed by Eiffel acting in his own capacity rather than as the representative of his company, and granted him one and a half million francs toward the construction costs. This was less than a quarter of the estimated cost of six and a half million francs. Eiffel was to receive all income from the commercial exploitation during the exhibition and for the following twenty years. Eiffel later established a separate company to manage the tower.
Work on the foundations started on 28 January 1887. Those for the east and south legs were straightforward, each leg resting on four 2 m (6.6 ft) concrete slabs, one for each of the principal girders of each leg but the other two, being closer to the river Seine were more complicated: each slab needed two piles installed by using compressed-air caissons 15 m (49 ft) long and 6 m (20 ft) in diameter driven to a depth of 22 m (72 ft) to support the concrete slabs, which were 6 m (20 ft) thick. Each of these slabs supported a limestone block, each with an inclined top to bear the supporting shoe for the ironwork. These shoes were anchored by bolts 10 cm (4 in) in diameter and 7.5 m (25 ft) long. Work on the foundations was complete by 30 June and the erection of the iron work was started. Although no more than 250 men were employed on the site, a prodigious amount of exacting preparatory work was entailed: the drawing office produced 1,700 general drawings and 3,629 detail drawings of the 18,038 different parts needed. The task of drawing the components was complicated by the complex angles involved in the design and the degree of precision required: the positions of rivet holes were specified to within 0.1 mm (0.04 in) and angles worked out to one second of arc. The components, some already riveted together into sub-assemblies, were first bolted together, the bolts being replaced by rivets as construction progressed. No drilling or shaping was done on site: if any part did not fit it was sent back to the factory for alteration. The four legs, each at an angle of 54° to the ground, were initially constructed as cantilevers, relying on the anchoring bolts in the masonry foundation blocks. Eiffel had calculated that this would be satisfactory until they approached halfway to the first level: accordingly work was stopped for the purpose of erecting a wooden supporting scaffold. This gave ammunition to his critics, and lurid headlines including "Eiffel Suicide!" and "Gustave Eiffel has gone mad: he has been confined in an Asylum" appeared in the popular press. At this stage a small "creeper" crane was installed in each leg, designed to move up the tower as construction progressed and making use of the guides for the elevators which were to be fitted in each leg. After this brief pause erection of the metalwork continued, and the critical operation of linking the four legs was successfully completed by March 1888. In order to precisely align the legs so that the connecting girders could be put into place, a provision had been made to enable precise adjustments by placing hydraulic jacks in the footings for each of the girders making up the legs.
In 1887, Eiffel became involved with the French effort to construct a canal across the Panama Isthmus. The French Panama Canal Company, headed by Ferdinand de Lesseps, had been attempting to build a sea-level canal, but came to the realization that this was impractical. The plan was changed to one using locks, which Eiffel was contracted to design and build. The locks were on a large scale, most having a change of level of 11 m (36 ft). Eiffel had been working on the project for little more than a year when the company suspended payments of interest on 14 December 1888, and shortly afterwards was put into liquidation. Eiffel's reputation was badly damaged when he was implicated in the financial and political scandal which followed. Although he was simply a contractor, he was charged along with the directors of the project with raising money under false pretenses and misappropriation of funds. On 9 February 1893 Eiffel was found guilty on the charge of misuse of funds, and was fined 20,000 francs and sentenced to two years in prison, although he was acquitted on appeal. The later American-built canal used new lock designs (see History of the Panama Canal).