Specific arrangements for the suspension of public contracts

Specific arrangements for the suspension of public contracts

After the declaration of the state of alarm, the global economy as well as the activity of the companies have received a great blow. With all this, companies can suffer a legal impact in different areas (contractual, procedural, labour, administrative, data protection and even criminal), which is why decisions should be taken and certain actions should be taken, taking into account their business and social impact but with clear legal aftermaths

As a result, many concerns arise about public or private contracts that feed the SMEs. According to some law firms, the COVID-19 pandemic, may be considered the cause of force majeure that prevents the fulfilment of these contractual obligations. 

When we talk about force majeure, we are talking about involuntary events, which are unpredictable or unavoidable facts. They can be catastrophic events (such as fires, wars, plagues…) or non-catastrophic impossible events. In any case, involuntariness is essential, otherwise there is no force majeure. 

In this situation, law firms such as MA Abogados, are recommending their business customers to try to reach agreements in good faith between the parties that avoid litigation. Especially in the case of contracts between private parties, legislation and jurisprudence point out that unforeseeable and unavoidable events such as the brutal spread of the Covid-19 entail a substantial alteration of the initial conditions in which the contract was signed. They would therefore fall within what the Supreme Court considers to be force majeure, which would make it possible to suspend that contractual obligation by exempting it from liability for non-compliance. The General Council of the Spanish Bar Association is recommending the use of mediation to reduce litigation. Reasonable solutions must be sought in accordance with the seriousness of the situations. 

In the case of business contracts with the public sector, the situation is more complex since the causes for defining a situation as force majeure, according to the 2017 public sector contracts law, do not include a pandemic like Covid-19. However, the causes include fires caused by lightning, natural phenomena with catastrophic effects, or destructions caused in times of war, serious disturbances of public order, or tumultuous robberies. MA understands that this regulation only refers to cases in which the subcontractor is entitled to compensation covering the damage suffered in the performance of that contract due to the above-mentioned causes. But it “does not exclude the application of the broader concept of force majeure” when examining the reasons for a breach of contract that results in penalties for the subcontractor or even in the possible early termination of the contract by the contracting authority. This law firm considers that it is reasonable to require and negotiate in addition an economic rebalancing of the contract to compensate for the imbalance caused by the situation of force majeure. 

In the case of companies with contracts with the public administration, there is a specific regime for the suspension of public contracts that involves the extension of deadlines and compensation of salaries to avoid loss of employment. Measures are established to avoid the negative effects on employment and business viability, arising from the suspension of public contracts, preventing the termination of such contracts by all entities that make up the public sector and thus preventing the COVID-19 and the measures adopted by the State, the Autonomous Communities or the entities that make up the local administration and all their public bodies and public law entities from having a negative structural impact on this part of the productive fabric. 

Sources: El Confidencial, Alicante Plaza, RRHHDigital

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