Mexico City, April 4, 2023.
On March 28, 2023, an initiative with a draft decree presented by the President of the Republic was published in the Gazette of the Chamber of Deputies, which reforms, adds and repeals various provisions on administrative matters, in order to strengthen the State's steering role and the capacity for action of the Federal Government's agencies.
It is proposed to reform 23 laws that govern the relations of private parties with the State in matters of licenses, permits, concessions, contracting and public bids (national and international). It is stated that the purpose of this initiative is to regulate the reversal of acts of corruption and prevent or remedy acts contrary to the public or social interest; this by strengthening the powers of the Federal Public Administration.
The reform initiative seeks to increase the State's powers applicable to the aforementioned matters, granting it broad discretion in granting or assigning them, and gives it the power to unilaterally cancel them and establish limits and/or eliminate the payment of damages and indemnities that may result from such cancellations.
Assignment of contracts
Regarding the assignment of contracts, it establishes the possibility that the Federal Executive may assign and/or award directly to parastatal entities the rendering of public services, as well as the use, exploitation and exploitation of assets subject to the public domain regime, for reasons of public utility and interest, general interest or national security.
Although this allocation is currently regulated, the new proposal eliminates the exceptional nature of this case and provides for the possibility that these awards may not have a fixed term.
International tenders
In this regard, it is proposed that the State may acquire medicines and other goods through international public bidding without the need to exhaust national public bidding when it conducts a market research and determines that better conditions of price, quantity and quality can be obtained.
Compensation for early termination
Regarding the contracts to be signed, it is stated that all of them must contain an early termination clause called "exorbitant clause", which allows establishing a limit to the amount of compensation to be paid by the State for breach of contract, even when it is ordered to do so in court or through arbitration (national or international).
Eliminates the possibility of paying damages to the contractor when the early termination is motivated by the public, general or social interest, the preservation of common goods, or the safety and integrity of persons and national institutions or it is considered that the investment made has been recovered.
Commencement of construction without permits and expropriation proceedings
On the other hand, the Decree states that the State may authorize the commencement of works even when it does not have permits to do so, justifying the notorious urgency, or because it considers that the exercise of social rights and the economic development of the country or the defense of sovereignty and national security must have priority.
It also eliminates the obligation to follow the procedures for the acquisition and/or recovery of property by the State, modifying the General Law of National Property and the Expropriation Law. In the case of the latter, the elimination of the mandatory application of international treaties signed by Mexico and the arbitration agreements entered into pursuant thereto stands out.
Annulment of administrative acts and judgment of detrimental nature
Regarding the annulment of current administrative acts, on the one hand, it contemplates broad powers of the Federal agencies to annul them through an administrative procedure followed before them, when they consider that the individuals did not comply with the new conditions established by the State and/or supervening events occur.
Meanwhile, a different law (Federal Law of Administrative Litigation Procedure) intends to remove the extraordinary nature of the trial of lesivity and provide it with greater strength.
This lawsuit already exists in our legislation. It is filed by the authorities to annul an act or authorization issued by the State, when they consider that it was issued contrary to the law; but it is very infrequent because it is limited to cases where it is proven that the act is clearly contrary to the law, and it can be filed up to 5 years after the act was issued or the authorities had knowledge of it.
With the proposed amendments, it is indicated that the judgment of nullity would now be admissible only by stating that the act causes damage to the State, or that it harms the public interest.
Finally, regulations are included for public servants regarding their current and future performance and remuneration.
The bill was submitted to the Chamber of Deputies and published in the Parliamentary Gazette on March 28, and will now be submitted to the corresponding commission for its subsequent discussion and approval. Subsequently, it will be sent to the Chamber of Senators to follow its legislative course, and will ultimately be enacted by the Federal Executive. We estimate that the legislative process could conclude during the current period of sessions, that is to say, during the month of April and/or at the latest in the second period (September-December).
We believe that if approved without any changes, this Decree, in addition to discouraging investment and competitiveness, could generate various effects on individuals. Specifically, by eliminating the hierarchical order of the international treaties that Mexico has committed to respect in commercial matters; and, in general, by establishing a high degree of discretion in the interpretation of concepts such as "public utility", "urgency", "public interest", "national security", "supervening event", "damage or injury to the general or social interest".
The lack of clarity, definition and interpretation of these concepts means that different authorities define them in each case, which may be considered a violation of legal certainty and unequal treatment for the actors involved.
These effects may be challenged by means of an indirect amparo proceeding or other means of defense, as the case may be, against the first concrete act of application. Within such means of challenge and until the constitutionality of the reform is resolved, it is feasible to obtain a suspension to prevent its application.
The firm's administrative and litigation attorneys will be following up on the Initiative and we remain at your service to address any matter related to the foregoing.
Sincerely yours:
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
