For reasons of force majeure, or public interest, the Public Administration can declare the suspension of a contract (article 210 of the Public Contracting Regulations), the suspension of the contract’s term (207 of the Public Contracting Regulations) or even revoke the contract (article 11 of the Public Contracting Law and article 214 of its Regulations, or RLCA) because of acts of god, force majeure or the public interest. It should be noted that suspending the administrative contract is a unilateral act from the Public Administration.
The national emergency due to the COVID-19 pandemic, declared by Decree Number 42227-MP-S, classifies as force majeure or fortuitous event.
- Can a contractor ask for the suspension of a contract due to the COVID-19 pandemic?
Yes, the contractor can request the suspension of a contract due to force majeure or fortuitous event, however it is up to the Public Administration to decide if the request is granted or not.
- In which phase of the contract can the contract be suspended, due the COVID-19 pandemic?
The suspension of the contract can be declared once the contract is effective and during its execution.
- What is the maximum term in which a contract’s execution can be suspended?
The maximum term for the suspension of the execution of the contract is 6 months, which can be extended for another equal term. The date to restart contractual execution will be notified by means of a written communication; it should be notified before the date in which the suspension comes to an end.
- Which is the procedure to declare suspension of the contract?
The suspension should be authorized by a written resolution, released by the competent authority, indicating the following:
- The part of the contract that has already been executed until that moment and its current status.
- Who is responsible for safeguarding the part that has already been executed.
- Measures that will be taken to guarantee the financial balance of the contract.
- The date in which the contract execution will restart.
- What are the implications of the suspension of the contract with respect to the parties’ rights and obligations?
The suspension of the contract implies the suspension of all obligations and rights of the parties, and, therefore, entails the suspension of the contract’s term as well (according to the General Comptroller’s Office criteria, expressed in various resolutions, including number 4730 of May 8th, 2008):
“A different thing occurs when the suspension of the term for the execution of the contract operates without the suspension of the contract. As a matter of fact, it is possible that the term for the execution of the contract is suspended and the contract’s obligations remain. It is also possible that a partial suspension of the execution term is declared, for example, of a certain obligation, without having any effect over the execution term of the other obligations included in the contract”.
- Which economic compensation must the Public Administration recognize as a result of contract suspension due to the COVID-19 pandemic?
In case of contract suspension, the Administration should recognize the following economic compensation to the contractor:
- The part of the contract that has already been executed.
- Damage compensation due to contract suspension. We recommend that the contractor registers and justifies every additional cost that it paid with a note for reference, so that it can be used to determine its price using objective parameters.
- Can the contractor claim for recognition of lost profits caused by the contract suspension due to the COVID-19 pandemic?
Since contract suspension due to COVID-19 originates from force majeure or fortuitous event and not in a unilateral action of the Public Administration, on principle, there is no right of the contractor to claim lost profits (according to article 210 of the Regulations to the Public Procurement Law); however, each case should be analyzed.
- What happens if the contractor does not restart contract execution on the agreed upon date?
If this happens, the Administration should immediately start the procedure required to terminate the contract, unless that public interest reasons require immediate execution of the contract.
- What happens if the contractor does not receive any notification of the suspension of the contract?
In this situation, the contractor should continue executing the contract, under the terms and conditions previously agreed upon.
If the contractor doubts whether to carry on executing the contract or has difficulty doing so, we advise to deliver a written inquiry to the Administration or directly requesting suspension of the contract. However, as long as the Administration has not expressly authorized contract suspension, the contractor must continue with execution its contractual obligations.
- Does contract suspension due to the COVID-19 pandemic apply to a framework agreement?
Per Article 121, section k) of the RLCA, the contractor must file a written request to the entity that administers the framework agreement for the temporary or permanent withdrawal of the business options that are included in the Electronic Catalog, due to duly proven exceptional circumstances (such as those derived from force majeure or fortuitous event). This entity should issue a resolution regarding the approval or disapproval of the temporary or permanent withdrawal request.
Once the term of the temporary withdrawal comes to an end, the entity will include the business options of said contractor once again (except, of course, if another well-justified request for withdrawal has been filed).
- What happens if purchase orders have been issued before the approval to withdraw business options from the catalog?
The contractor must deliver said purchase orders, unless there are duly accredited situations of exceptional severity that prevent the contractor from doing so. In these situations, the contractor could ask the administrator of the framework agreement to relieve it from the obligations derived from the pending purchase orders.
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