Mexico City, April 4th, 2023.
On March 28th, 2023, a bill submitted by the Mexican President was published in the Gazette of the Chamber of Deputies. The bill aims to strengthen the powers of the State over public contractors and set out relevant changes and obligations for private parties.
The bill proposes the reform of 23 laws in total that govern the relations of individuals with the State in terms of licenses, permits, concessions, contracting, and national and international public biddings. The President states that the purpose of this initiative is to prevent corruption and to remedy acts against the public interest.
The reform seeks to increase the powers of the State, by granting it wide discretion over the assignment and cancellation of public contracts, especially the power to cancel them unilaterally, and establish limits and eliminate the payment of damages or compensations.
Public contract assignment
The proposed law establishes that the Federal Government may assign contracts to provide services directly to public entities, as well as the use and exploitation of certain materials or properties for public interest or national security.
Although this assignation is currently regulated, the new proposal eliminates the exceptional nature of said assignation and contemplates the possibility of giving it without a termination date.
International tenders
In this regard, the reform proposes that the State may acquire medicines and other goods in international public bidding without having to exhaust the national public bidding, if it conducts a "market investigation" determining that better price, quantity or quality conditions can be obtained from an international supplier.
Compensation
The reform indicates that all public contracts must contain an early termination clause called "exorbitant clause," which allows the Government to limit to the compensation that it should pay for breaching a contract, even when it is sentenced to do so by a Court or through arbitration (national or international).
It also eliminates the possibility of paying the contractor damages or losses when early termination is motivated by the public, general, or social interest.
Works without permits and expropriation procedures
The Decree states that the Government may authorize the beginning of a project, even when it does not have a license to do so, when it is considered that there is a notorious urgency, or it involves the exercise of social rights, economic development or national security.
It also eliminates the obligation to follow the procedures for the acquisition or recovery of certain types of real estate, modifying the General Law of National Assets and the Expropriation Law.
In that last law, the binding application of international treaties signed by Mexico and their arbitration agreements is eliminated.
Annulment of acts and permits
The statute contemplates powers of the Federal Government to annul acts and permits through an administrative procedure, when it considers that private parties did not comply with the new conditions established by the State or supervening events occur.
At the same time, the proposal contemplates the removal of the extraordinary nature of the annulment trial that the Government can file and gives it greater strength (Federal Law of Administrative Litigation Procedure).
This annulment trial already exists in our legislation and can be used in extraordinary cases. It is promoted by the authorities to annul an act, or a permit issued by the State when they consider that it was improperly granted, and it can be filed up to 5 years after being obtained.
With the proposed modifications, the trail now can be filed only by suggesting that the act causes damage to the State or the public interest.
Finally, regulations for public servants regarding their current and future performance and remuneration are included.
The bill was submitted to the Chamber of Deputies on March 24th and published in the Parliamentary Gazette on March 28th and will now be referred to the corresponding committee for further discussion and approval. Subsequently, it will be sent to the Senate to follow its legislative course, ultimately resulting in the enactment and publication by the Federal Government in the Official Federal Gazette. We estimate that the legislative process could conclude during the current period of sessions, which is during April or at the latest in the second period (September-December) but entering into force during the current year.
We believe that if approved as proposed, this Decree, in addition to discouraging investment and competitiveness, may generate various effects on private parties. Specifically, due to the elimination of the binding nature of international treaties in commercial matters; and by establishing great discretion in the interpretation of important concepts such as "public utility," "urgency," "public interest," "national security," "supervening event" "damage or injury to the general or social interest", etc.
The lack definition of these concepts can be considered a violation of legal certainty and unequal treatment for the actors involved.
These affectations may be challenged through amparo proceedings or by other means of defense, depending on the particularities of each case, upon entry into force or against its first concrete act of application. Within such means of judicial redress and until the constitutionality of the reform is resolved, we consider it possible to obtain an injunction (suspension) to avoid its application.
The lawyers of the firm's administrative and litigation area will follow up on the Initiative, and we remain at your service to attend to any matter related to the above.
Sincerely:
Adolfo Athié Gerardo Nieto Juan Carlos Serra
aathie@basham.com.mx nieto@basham.com.mx serra@basham.com.mx
Diana Rangel
drangel@basham.com.mx
Pablo Chevez
pchevez@basham.com.mx
Rodrigo Ruiseñor
aruisenor@basham.com.mx
