Cabinet Decree on the Contractors’

On 12 December 2017, the Cabinet of Ministers issued decree No. 17 of 2017[1] containing compensation rates pertaining to the contractors’ compensation law issued in July of this year. The decree is the fourth of its kind since the law was enacted, as the Cabinet has previously issued three similar decrees, the last of which was issued on 13 November 2017.

Background

The Law on Compensation for Contracting, Supplies and Public Service Contracts (the "Compensation Law")[2] was issued in July 2017 in an attempt to bring about economic stabilization to contracts entered into between the State and contractors, suppliers, and providers of public services. This followed the economic reform decisions that were taken in the fourth quarter of 2016 including the floatation of the currency, introducing a Value Added Tax, and reducing the fuel subsidy bill; and the resultant inflationary impact. To soften that impact on businesses, the government introduced the Compensation Law in order to compensate contacting and supplying companies for part of the adverse repercussions of the economic reform program. In essence, the Law created a new committee – the Higher Committee for Compensation (the "Committee") – within the Ministry of Housing, Utilities and Urban Communities. The Committee sets the terms, standards, and compensation percentages for damages resulting from economic decisions issued within the 9-month period running from March to December of 2016, with the aim of addressing any financial imbalances in supply, contracting, and public service contracts that the State was party to, for works implemented starting 1 March 2016 and until the end of contract implementation. This is on the condition that there are no delays in implementation that are attributable to the contractor/supplier.

Implementing Decrees

In application of the Law, the Cabinet issued three consecutive Executive Decrees No. 13 of 2017 (published on 1 October 2017),[3] No. 14 of 2017 (published on 23 October 2017),[4] and No. 16 of 2017 (published on 13 November 2017).[5] Decree No. 13 of 2017 set out the terms for the application of the compensation offered by the government, eligible contracts, and the procedures for receiving compensation. Accordingly, an applicant must submit a compensation request containing the contractual information, the damage showing a disruption of the financial balance of the contract, and an estimate of the requested compensation amount. The request must be submitted on the template annexed in the decree, enclosing the relevant documents, and it must account for sums paid in advance as well as any price differential derived from the application of the Public Procurement Law No. 89 of 1998 in order to avoid double compensation. Public entities addressed by the Law must allocate sums in their budgets for compensation purposes, and compensation payments must be made within 90 days from the date of the submission of the compensation request. Excluded from the compensation scheme is: contracts where there is a delay in performance that is attributable to the contractor; contractor making no claim; claims exceeding 125% of initial quantities; disputed contracts; fraud, contractor failure to honor its obligations, or contractor bankruptcy (other than as a result of the adverse economic conditions which the Law is attempting to rectify). Also in October 2017, Decree No. 14 of 2017 was issued determining the percentage of compensation for types of contracts, such as pipes works, intersection of a tunnel with a road, concrete bridges, etc. The compensation percentage is based on the date of contract conclusion, and the amount of compensation is proportional to the length of the time-period starting 1 March 2016. Decree No. 16 of 2017 issued on 13 November 2017 contained a list determining compensation percentages depending on other types of contracts, and decree 17 0f 2017 issued on 12 December 2017 contained a similar list containing different types of contracts and their corresponding compensation rates.

Conclusion

The above compensation mechanism is in general a welcome step, as it compensates contractors for part of their losses resulting from the floatation of the currency, even if the amount received seems relatively low. It is also likely that the speed of responsiveness of different public counterparts to submitted applications will vary in outcome depending on each counterpart. Finally, it is important to note that public counterparts will first consider price adjustment that have already been made in accordance to price stabilization clauses already in the contracts – where they exist – before awarding compensation under the Compensation Law.   [1] Cabinet of Ministers Decree No. 17/2017 on Applying the Annexed Rates Pertaining to the Law for Compensation in Contracting, Supply, and Public Service Contracts, Official Gazette, Issue No. 49 (bis) (b), 12 December 2017. [2] Law No. 84/2017 on Compensation in Contracting, Supply, and Public Service Contracts, Official Gazette, Issue No. 27 (bis), 9 July 2017. [3] Cabinet of Ministers Decree No. 13/2017 on Applying the Annexed Standards, Terms, and Rates for Compensation Pertaining to the Law for Compensation in Contracting, Supply, and Public Service Contracts, Official Gazette, Issue No. 39 (bis) (b), 1 October 2017. [4] Cabinet of Ministers Decree No. 14/2017 on Applying the Annexed Rates Pertaining to the Law for Compensation in Contracting, Supply, and Public Service Contracts, Official Gazette, Issue No. 42 (bis) (a), 23 October 2017. [5] Cabinet of Ministers Decree No. 16/2017 on Applying the Annexed Rates Pertaining to the Law for Compensation in Contracting, Supply, and Public Service Contracts, Official Gazette, Issue No. 45 (bis) (d), 13 November 2017.