Economic Balance of the contract and the granting of extensions in public infrastructure works – COVID-19

Karina Castillo | Associate

The economic balance of the contract and the granting of extensions are very well developed concepts in our regulations, when in the Single Text of Law 22 of June 27, 2006, which is regulated by Law 61 of 2017, in its articles No. 29 and 95 respectively, it is stated that:

Article 29: Economic balance of the contract. “In public contracts the equality or equivalence between rights and obligations arising at the time of proposing or contracting, as the case may be, will be maintained. If said equality or equivalence is broken due to duly supported and proven causes not attributable to the affected party, the parties will adopt, in the shortest possible time, the necessary measures for its restoration.

For such purposes, the parties will sign agreements and pacts that are necessary to reestablish the economic balance, including amounts, conditions, form of payment of additional expenses and recognition of financial costs, if this was the case, in the way provided in the clause of modification of the contract, whose additional payment, if any, will be made as it is established in the modified contract; and in accordance with the provisions on expenditures contemplated in the General State Budget. ”

Article 95: Granting of extension. “Delays that are caused by reasons not attributable to the contractor or when situations of force majeure or fortuitous event occur, provides the contractor with the right to extend the term of the contract for a period which will not be less than the said delay, which will be processed ex officio or at the party’s request by the contracting entity.

Without prejudice of what is legally established, the extensions will modify, proportionally, the terms and will be documented as adjustments to the purchase order or addenda to the originally signed contract. ”

Based on these concepts, and after Resolution 453 of May 29, 2020, the reactivation of the construction of prioritized public infrastructure was ordered, and the Ministry of Public Works, in compliance with the legal provisions, has obtained the approval of the Ministry of Health, thus granting the endorsement to reactivate eleven projects of national interest.

As a consequence of the foregoing, the contractor companies of such projects will now have to take steps to have the time they have been paralyzed recognized; and the reestablishment of the economic balance of the contracts, all this due to the suspension of the construction industry, a measure that was adopted through the promulgation of Executive Decree No. 506 of March 24, 2020 and its modifications, as a result of the declaration of the State of National Emergency, on March 13, 2020.

Regarding this situation, we are not sure on what the position of the Public Entities will be, but the truth is that the regulations empower companies to request extensions for the period of the suspension, and also urges the parties to enter in agreements to reestablish the contractual balance.

We can assure that different legal opinions will be generated regarding possible equitable solutions and also, from this moment we could assure that some claims derived from these claims will end up even being sued in the Third Chamber of Administrative Litigation of the Supreme Court of Justice.

If you require additional information or legal advice, Quijano & Associates has a team of professionals who are experts in these matters, and willing to advise you and clarify any doubts in this regard.