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Uncertain times for public contractors

| News | Public and Regulatory Law

José Vicente Morote and Silvia del Saz explain in Expansión that the public sector and its contractors are suffering from the paralysis of their activity in non-essential sectors

The COVID-19 has evidently altered the normality of the country's economic activity. The public sector and its contractors are also suffering from the paralysis of their activity in non-essential sectors. And if anything has become clear, it is that, even though the regulations governing public contracts are one of the most up-to-date and complex, they are not prepared for an exceptional situation such as this. Once again, the 2017 legislator, concerned with preventing corruption, thought that an emergency such as the current one would only require the establishment of exceptional rules for the award and conclusion of contracts. As everything else could remain the same. 

The exceptional measures that have been adopted are designed to respond to the situation caused by the declaration of the state of emergency and for as long as it lasts. They are not intended to extend beyond that, as if, once the standstill has been overcome, the execution of public contracts were to return to the prior normality, from one day to the next. They are too short, although many of the problems will come when activity resumes. But neither is this new express regulation a panacea for the problems caused by the economic standstill. Either because of the speed or haste with which they have been conceived, or because it is not possible to give uniform treatment to very different situations, these exceptional measures have not succeeded in clearly defining the rights and duties of each of the parties to the public contracts whose execution has been made impossible. If the aim were to provide legal certainty in relations between public entities and their contractors, this objective has not been achieved.

Thus, those who have thought that it would be sufficient to simply apply the institution of force majeure for public sector entities to compensate the contractor for the damage caused by this situation will soon realise that this institution is of uncertain application when the damage does not result from natural disasters or public disorder affecting specific contracts, but is generally the consequence of regulatory measures of general scope approved by the government. Think, if not, of the adverse fate of the contractors who have been forced to assume the extra costs derived from the increase in the minimum wage, precisely because it derived from a regulatory measure of general scope and not individualized in a specific contract. 

In any case, the Government has already been quick to settle any dispute by establishing that contracting entities will not be liable for all damages caused to contractors as a result of the suspension of contracts whose execution cannot be continued under the terms foreseen, either because of illness or because of measures taken to prevent contagion. They will only be liable for unavoidable expenses incurred by the contractor when the law in force also recognizes the contractor's right to be compensated for lost profits. However, this measure restricting the contractor's rights has been presented as a measure dictated in its relief to prevent the contracts currently in force from being terminated.

Similarly, to cite other shortcomings of the hasty legislation, administrative deadlines have been suspended, which should lead to the suspension of the deadlines for tendering and awarding contracts which obviously do not include emergency processing contracts which, as we know, do not follow a tendering process. However, the contracting authorities have made quite different interpretations of this suspension of deadlines. What is worse, in the absence of express provision, the suspension of deadlines in contracts being executed has led to a discussion on how it affects interest on arrears. 

Many other technical aspects of the exceptional regulation of public contracts can clearly be improved. For example, the Government has forgotten to include the public service management contracts that still exist, even though they can no longer be concluded. The Government's property contracts have not been regulated, nor have the requirements for their rebalancing. The procedure for suspending contracts has already had to be corrected, as it is contradictory. It is not clear what the situation is with the contractor who, having requested suspension, sees that the contracting entity does not reply to him within the short time limit. It is not clear what documents the contractor has to present in order to obtain suspension, which are not clearly distinguishable from those that must be presented to prove the damage. It is also not clear to what extent the salary costs to be compensated are to be covered and whether these include the full salary costs including social security contributions, whether the contractor is obliged to process the corresponding Erte and, if so, how to maintain the stability of employment of the workers assigned to the contract or, finally, whether the paid leave is to be applied to the said workers.

And all of this without forgetting that the best measure to support the contractors of the Public Sector entities would have been to establish that the latter should automatically pay all outstanding invoices. An urgent payment plan to suppliers would be alleviating the cash flow situation of the contractor companies and would undoubtedly contribute to the maintenance of jobs by these companies. 

Clearly despite or as a result of the new regulation, conflict is rife. 

You can see the article in Expansión.

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