General remedies available to Government-owned Entities

As a general rule, a party to an agreement where both of the parties exchange promises and the promises made by one party are given as consideration for the promises of the other party, the non-breaching party will be entitled to three types of remedies in the event of breach by the other party (Civil Code Articles 1613 and 1546): avoidance, specific performance and damages.

These three general remedies are available to Government-owned Entities. Because of their nature, the remedies of avoidance and specific performance are mutually exclusive – a Government-owned Entity acting as plaintiff may not request, at the same time, that avoidance and specific performance be awarded as a consequence of a breach of contract. Instead, it will be necessary for the Government-owned Entity to choose one of the two remedies as a first option, and the second one may only be awarded if the court does not award the first (Civil Code, Article 1546).

On the other hand, damages may be awarded independently or in addition to both the remedies of avoidance and specific performance, to the extent that the non-breaching party has sustained an indemnifiable loss.

Unlike other legal systems, Colombian courts do not have the discretion to award either avoidance or specific performance of a contract – a court is limited to the terms of the plaintiff's request.

Special remedies available to the Government-owned Entities

Government-owned Entities subject to the Procurement Statute must include certain specific clauses that vest them with special powers that can be enforced unilaterally through the issuance of administrative resolutions.

Agreements in which the inclusion of the special powers is mandatory are those agreements for the performance of a service or utility deemed public, concession agreements for the exploitation of public assets or of a monopoly of a public nature, as well as civil works (construction) agreements. The inclusion of these special powers is optional regarding agreements for the provision of services.

These special powers are:

• Unilateral interpretation of the contract. If while performing the agreement, the parties disagree on the interpretation of a specific provision of the agreement and the difference may lead to paralysation of or a grave adverse effect on the public service to be satisfied or served, the Government-owned Entity may define how the agreement is to be interpreted.
• Unilateral modification of the contract. If while performing the agreement the Government-owned Entity (i) realizes that the scope of the contract needs to be increased, modified or decreased, (ii) the parties fail to reach an agreement as to the required changes, and (iii) such failure may lead to the paralysation of or have a grave adverse effect on the public service to be satisfied or served by the contract, the Government-owned Entity may unilaterally order the modifications as necessary. Whenever the modifications ordered alter the value of the agreement in 20% or more, the contractor may terminate the agreement and cease its performance.
• Unilateral termination of the contract. Upon the occurrence of certain specific events, the Government-owned Entity may unilaterally terminate the agreement before expiration of its term. Such particular instances include (i) events where the public service or utility affected by the agreement so requires, (ii) when the contractor that is an individual dies, (iii) when the contractor that is a legal entity is dissolved or enters into a procedure for its liquidation, or (iv) when the contractor generally ceases its payments.
• Caducity. When the contract is materially breached by the contractor in way that gravelly,directly and adversely affects the performance of the contract, the Government-owned Entity may unilaterally terminate the contract. In this event, the contractor will be prevented to enter in contracts with Government-owned Entities in the future.

It should be noted that the decisions made by the Government-owned Entity may be challenged by the contractor before the competent courts. The contractor may request monetary relief resulting for undue interpretation, modification or termination of the agreement by the Government-owned Entity or seek adequate compensation to restore the balance of the contract disturbed by the unilateral interpretation or modification, even when accurate.

Remedies limited to the private party in a contract entered into with a Government-owned Entity

In case of breach of contract by a Government-owned Entity, the remedy available for the contractor, as established in the Procedural and Contentious Administrative Code (Law 1437 of 2011 Article 141), consists of a Contractual Action that can be filed against the contracting entity before Colombian administrative courts in order to seek a judicial declaration of breach of contract, the payment of the corresponding indemnifications and other declarations that may apply.

The issue of whether specific performance is available is generally not discussed because, as a general rule, the Government-owned Entity will be required to pay an amount of money instead of rendering a service. When the Government-owned Entity is subject to the Procurement Statute, even if such entity is the one to render the services or supply the goods, specific performance will as general rule not be available because there is a long- standing principle that courts cannot order administrative authorities to carry out a specific action, but rather should limit relief granted to awarding damages.

However, when the Government-owned Entity is authorized to deal as a private player and is not subject to the Procurement Statute, specific performance may be available against the Government-owned Entity.

There are no substantive restrains to the contractual freedom that the parties to an agreement, whether public or private, enjoy to negotiate and craft their own remedies in a contract.

The guiding principles as to contractually-fashioned remedies are that any agreed remedies are valid if:

• they do not constitute a waiver of any statutory remedies for causes of action based on gross negligence or wilful misconduct, unless such waiver is made after the affected party becomes aware or could become aware of the occurrence of a gross-negligent action or a wilful misconduct (Civil Code, Article 1522); or
• in the context of a consumer relation, a waiver of the legal warranty and of the safety warranty may be invalid.

As a matter of practice, a Government-owned Entity purchasing goods or retaining a service will generally request that the agreement includes both simple delay penalties as well as a liquidated damages clause.

A simple delay penalty allows the Government-owned Entity to impose a fine or penalty on the contractor for each day (or other period of time) in which the contractor is delayed in the delivery of the goods or performance of the service (e.g., a US$1,000 penalty for each week of delay in meeting the final date in which a completed construction must be delivered by the contractor). Delay penalties allow for double-dipping, that is, the Government-owned Entity may claim both the penalty as well as the damages resulting from such delay.

Liquidated damages are usually stipulated to relieve the Government-owned Entity from the burden of proving the damages it sustains on account of the breach by the contractor. Unlike a mere delay penalty, a liquidated damages clause does not allow for double-dipping, but the Government-owned Entity can waive the liquidated damages clause and instead sue for the actual damages resulting directly for the breach.

Remedies may be sought outside of the public procurement legislation. As a general rule, claims and disputes involving government entities are handled by contentious administrative law (Lay 1437 of 2011), there, contractual actions may be brought against the administration or the contractor. These proceedings are held before administrative judges. Additionally, the administration may settle contractual disputes through arbitration if a binding arbitration clause is agreed.

Absent a valid arbitration clause, the contractual controversies action must be brought before special courts that hear disputes where one of the parties is a Government-owned Entity.

While a Government-owned Entity may subject contractual disputes to arbitration (including international arbitration), if the contract is to be performed abroad, Government-owned Entities are generally reluctant to agree on arbitration as means of dispute resolution. The rationale behind this is that arbitration is generally expensive and Government-owned Entities have limited budgets that will not allow them easily to pay for expensive arbitration procedures and the fact that arbitration panels tend to be more even-handed in disputes to which a Government-owned Entity is a party to.

Additionally, when the Government-owned Entity is subject to the Procurement Statute, there are material limitations as to the competence of an arbitration panel since matters such as the invalidity of administrative decisions could be deemed as not arbitrable. That results in numerous Suits to challenge the award granted by the Government-owned Entities based on the ground that the decision by the entity was illegal.

Once a contract has been awarded, it will be considered final and binding for the bidding company and the public entity. The awarding decision is not subject to reconsideration or challenge before the public entity within the tender process and may only be challenged before an administrative court by means of a contentious administrative action.

A contentious administrative action may only proceed when the administrative decision of awarding a contract: (i) infringed the rules on which it should have been based on; (ii) was issued by an incompetent authority; (iii) issued irregularly or in contravention of due process laws; or (iv) was issued under false motivations or by means of a deviation of powers by the person who issued the administrative decision.

Disputes concerning decisions by a public entity issued before the contract is awarded are subject to a 4 month statute of limitations as from the date the decision was notified or communicated. Such decisions include the decision to award the contract, the assessment of a specific proposal or the decision not to award the contract, among others things.

Disputes arising directly out of the awarded contract are subject to a two-year statute of limitation. The two-year period generally begins upon the termination of the agreement, although specific rules may apply depending of the cause of the dispute.

In order to request the annulment of a decision that awarded a contract, the decision must be binding and in force. Additionally, the claim must be filed within 4 months as of the date of notification of the decision.

It is not possible to file a lawsuit before administrative courts against administrative decisions issued within the public procurement procedure prior to the awarding of the contract unless the available remedies of reconsideration and appeal have been filed before the public entity.

Additionally, if the lawsuit to be filed against an administrative decision issued within a public procurement procedure seeks for the annulment of the administrative decision and for the reestablishment of rights, it is mandatory to carry our a conciliation procedure before the lawsuit is filed (pre-condition).

As a general rule, decisions may be subject to an annulment proceeding when they violate applicable laws, when the decision has been taken by entity acting outside their jurisdiction, in an irregular manner, or by false motivation, among others.

Therefore, in procurement proceedings, the eventual decision to award a contract may be attacked, among others, when it was issued while:

1. ignoring the proper procedure;
2. ignoring the objective selection principle when applicable;
3. through false motivation; and
4. in violation of applicable rules and laws.

As a general rule, any bidder has the right under the Statute of Public Procurement to challenge any administrative act or decision issued during the public procurement selection process (e.g., issuance of the terms of reference, evaluation reports and the act of award of the contract). The challenge must be filed before the contentious administrative judges after exhausting the administrative remedies before the contracting entity when applicable. A contentious administrative action may be filed before or after the contract is signed or its performance begins. The action does not suspend the subscription of the contract nor its performance. However, precautionary measures may be requested within the contentious action, requesting for the provisional suspension of the contract's performance in order to prevent any further damage that may arise from the contractual performance. It is worth noting that Colombian administrative courts are reluctant to grant these types of measures.

Depending on the merits of the case and the type of claim that is filed, success could result in that the selection proceeding as a whole is declared null and void, or that the sole decision to award the contract be overturned. If the party filed an annulment and reestablishment of rights claim, the plaintiff may be awarded damages.

If a party claims that the selection proceeding was unlawful and violated due process, the whole selection proceeding may be declared null, and may be repeated if necessary. If the selection proceeding is seen to be lawful, but the decision to award a contract was illicit, then only the decision to award the contract would be declared null. If the claimant considers that its offer should have been awarded with the contract and filed an annulment and reestablishment of rights claim, the judicial decision may order that the claimant be compensated for any loss arising from the decision.

Finally, if the administrative decisions supporting the awarding of the contract are annulled, the contract will be declared to be null and void as well. Regardless of an Annulment, the performance of the contract up to the point of the annulment will be recognized and duly paid to the Contractor.

Contractual claims or Annulment and Reestablishment of rights proceedings usually last around a year and a half before a first instance decision is made. If the decision is appealed, second instance proceedings can take from a year and a half to two years.

According to law 1150 of 2007 Article 9, the decision to award a contract must be announced in a public hearing where bidders are present. The winner is understood to be notified of the award in said hearing. Additionally, the awarding must be published in the SECOP which is accessible to the general public.

Review proceedings, understood as contractual claims or annulment and reestablishment of rights claims are common under contentious administrative law. These claims are usually filed against an administrative decision that awards a contract to a specific proponent or against any decision made by the public entity within the public procurement proceeding that is found to be unlawful. The Procedure and Contencious Administrative Code provides that pre contractual decisions and acts may also be subject to claims frrm the affected party.

It is common to request damages by means of an Annulment and Reestablishment of rights claim, under contentious administrative law.

None.