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Breach of Contract by the Mexican State

WHAT LEGAL OPTIONS DO COMPANIES HAVE IN CASE OF BREACH OF PAYMENT UNDER AN ADMINISTRATIVE CONTRACT?




Introduction

As part of our professional practice, we have received many inquiries from suppliers of goods, services and public works. They want to know "what to do?" when they face contract breaches from the Federal or State governments. They are in an awkward position; the suppliers do not want to start a legal fight with their client while at the same time they need to be paid for the goods, leases, services and public works they have provided.


The reasons alleged to support the breach are commonly one of the following three:

  • Deficit in the budget of the government entity;

  • Absence of contract – the supplier provided services without a contract –;

  • Failure to execute amendment agreements to extend the continuity of the supply of goods and services – after the expiration of the contract, the supplier continued supplying the goods or providing the services –.

These scenarios open the door for a variety of legal procedures to request payment. Here is a brief analysis of the alternatives:


A. Conciliation Procedure before the Ministry of Public Administration

The Law of Purchases, Leases and Services of the Public Sector and the Law of Public Works and Related Services establish a conciliation procedure held in front of the Ministry of Public Administration. The procedure may be initiated at any time due to disagreements between the parties of a contract.


What are the advantages of this procedure?

The request for conciliation forces the public officers to attend to a hearing with the supplier and allows to gain knowledge of their actual position over the matter. The failure to attend results in administrative liability for the public officers. During the hearing, the supplier becomes aware of the specific reasons for the State to breach its payment obligations, allows to prepare evidence for an eventual litigation and it may even be an opportunity for a formal request of payment during the hearing. In many instances, it is possible to obtain the payment.


What are the disadvantages of this procedure?

The State may refuse to pay for the goods, services or works and the company will bear the burden of filing a lawsuit before administrative courts. The conciliation is not a litigation stage. In other words, it is not a judicial procedure resulting in a ruling. The Ministry of Public Administration bears no authority to compel the State to fulfill the contract, it solely acts as a mediator and does not act as a judge.


B. Payment Request Administrative Proceeding. How to initiate it?

The Second Chamber of the Supreme Court of Justice of the Nation ruled that a company may not directly demand the payment before the Federal Court of Administrative Justice in case of breach of a clause of a public works contract without prior express request of payment made to the public entity that is a party of such contract.

The payment request must be made in writing in a manner that generates a response of the authority. The response or resolution of the authority is deemed the origin of the damage caused to the private party which may be subsequently challenged before the administrative court; or otherwise, the failure to respond such request gives rise to the “assumption of a negative response” which gives ground to an administrative trial. The same logic applies to all the contracts of administrative nature, whether of goods, leases or services.


C. Filing a Claim before the Administrative Court: Who is competent to rule over the matter?

After the issuance of the case law 2a./J. 14/2018 (10a.) issued by the Second Chamber of the Supreme Court of Justice , all conflicts arising from a breach of payment obligation under an administrative contract shall be filed with the administrative courts –Federal or State–. All civil and commercial judicial procedures are excluded.

Other common doubt is the competence in federal matters, between the Administrative District Courts through a federal ordinary administrative trial, or the Federal Court of Administrative Justice. Our opinion is that the Federal Court of Administrative Justice is the competent court to rule over this kind of matters as it was ruled by the Second Chamber of the Supreme Court and its authority to recognize the subjective right of the claimant.


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Paola F. López Jiménez

paola.lopez@rplabogados.com

Rodrigo F. Martínez Vergara

rodrigo.martinez@rplabogados.com



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