New notification on government contracts outlaws lack of termination provisions

In June the President signed a new notification issuing guidelines to government departments and organizations in relation to the execution of international convention and ‘commercial contracts.’ The notification was published in the gazette last month, and aims to codify existing internal governmental practices. The Notification contains a number of new elements that local and foreign investors should keep in mind when executing or negotiating contracts with the government.

The Notification prompts government departments and agencies to consider a number of criteria before executing a contract, which are common sense in most jurisdictions, such as doing a feasibility study (“FS”) beforehand or ensure that the project has a positive impact for the country. What is new is that it provides that FS are to be re-evaluated by “experts”. This might mean that the government will hire independent consultants to review FS reports in the future, which would be a new practice.

The Notification also encourages government departments and agencies to tender projects rather than granting them directly. This reflects the intention of the current draft public procurement law that seeks to strengthen tendering requirements. This is further evidenced by the fact that the Notification provides that there should be no right for an investor to conduct a project just because he has conducted the FS for that project.

An interesting aspect of the Notification is that it seems to put a lot of emphasis on the termination of contracts. Government agencies are encouraged to terminate contracts when the private sector party is not complying with its obligations as well as to include early termination provisions in the body of the contract. In addition, it is also now requested that there should be no automatic extension of a contract at the expiry of the initial term.

While largely codifying existing practice or policy, the Notification evidences that the President – who has been recently nominated – wants to encourage the government to strengthen its control over government contracts concluded with the private sector.