Dissolution of Contracts: Changes in the Rules

The reforms to the State Contracting Law under discussion in Guatemala establish five criteria for the Government to terminate the contract with a company in advance.

Friday, March 29, 2019

The proposal is currently under discussion in the Public Finance and Currency Commission of the Congress of the Republic, and among its main objectives is to solve the problems arising from litigation between contractors and state entities, because of issues related to unfinished works.

Elperiodico.com.gt reviews that "... The causes are the fulfillment of contractual obligations (before the scheduled date), by mutual agreement, by unilateral termination of the contracting entity, termination of the contractor or dissolution of the legal person contractor, and the impossibility of compliance with the contract and the prohibitions established in Article 80 concerning the registration in the Register of Prequalified, qualification in Guatecompras, payment of taxes and social security obligations, have a final judgment and be a State worker, among others."

Irene Flores, a consultant with the Center for National Economic Research (CIEN), explained that "... The management of contracts in the State is a real problem and it is not only about hiring, but also about the administration of those contracts. In the case of infrastructure, the contracts are modified in times and amounts, they reach cases in which they are duplicated and that does not allow them to be liquidated, which opens spaces for claims against the State, in some cases is because of poor management and inaccurate decisions."

Another of the changes contemplated by the initiative of the law is the modification of Article 55 in order to provide for an inspection procedure to be applied to receive the work carried out in the case of works unfinished for any of the reasons that terminate a contract in advance.

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The Guatemalan government will liquidate the works contract to extend 100 km of the CA2 East highway, which connects the department of Escuintla and the border with El Salvador.

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