Economic balance of contracts, relief to construction companies

The pandemic caused by covid-19, closure of ports in Asia and armed conflict between Russia and Ukraine, continues to affect the costs of raw materials and construction materials. For reference, the price of steel at the beginning of 2020 was 600 USD per ton, currently this item triples its value; or 1,177 dollars.

This represents a strong impact on the contractor’s economy in the execution of infrastructure projects with the state, based on the fact that these contracts were born with a price completely different from that current market.

In this sense, many of local contractors applying the principle in good faith, they continued with the implementation of the mentioned projects, assuming their financial costs, thus causing a violation of their finances, the unionized companies indicated Panama Chamber of Construction (CAPAC). This situation gave way to the application of the economic balance of the contract, a figure rarely referred to by contractors in the country, which represents a way out or relief from the financial stranglehold that contracting companies have the costs of fulfilling their obligations to the state.

They recognize the contractual balance General Administration for Public Procurement (DGCP) in the face of unpredictable events that affect the conditions of the construction company, such as the sudden increase in many construction materials construction in the post-pandemic period.

Contractual balance is how the bill of materials can be adjusted to actual market inflation to prevent construction companies from collapsing due to distortions such as occurred in the price of steel on international level.

DGCP claims that the contractual balance is a possibility that clients together with contractorsbe able to sign agreements and pacts that are necessary to be able to establish the balance of said agreements.

These agreements must be formalized in the manner provided for in the contract amendment; that is, with an addendum, pointed out the DGCP in the explanation given Minister of Housing, Rogelio Paredes. In view of this, DGPC quotes the clause verbatim: “in long-term public contracts, clauses and conditions aimed at maintenance, during the validity of the contract, the existing state of the contract at that time conclusion of the contract so that, if such conditions change due to extraordinary and unforeseeable events, it could be amended on Keep your balance.‘

65

million dollars is the cost of building the new regional center of San Miguelito.

5000

students will benefit from the new CRUSAM, as announced.

An expert economist on the subject explained that contractual equilibrium must occur when due to duly substantiated and proven causes not attributable to the affected person, it causes an imbalance in the contract; either in the economic field, for reasons rights recognized by the Law on Public Procurement, how are the interests moratoriums, extended presence, Financial expenses for factoring (when the contractor, in order to complete the works, turns to banking and financial entities, assigning and selling their accounts or contracts, in order to obtain financial liquidity and complete the work so as not to fail to fulfill state); moving the state, financial consequences of the impact on the economy in Panamanian companies (contractors), exposing them to bankruptcy, after years of experience.

He pointed out that an economic claim can be made in the same way, due to price variations, for example, the exponential growth in the prices of raw materials and construction materials that happened in the last three years, including steel, a situation that is located between stone and anvil for contractors; which causes costs not foreseen in the original proposal, which affects the execution of state works.

These contracts must contain amounts, conditions, form payment of additional costs and recognition financial costs and interest.

The spokesmen of many construction companies explain that it is not technically a question of raising the price of works, but of a fair way of recognizing the cost of construction to the contractor. material price inflation extraordinary events that cannot be attributed to the company. All according to official reports, such as the rate of Consumer price which broadcasts Chief Controller of the Republic.

Among the works subject to contractual balance is i construction of the San Miguelito Regional University Center (CRUSAM) which, despite the increase in the price of construction materials, maintained the pace of construction. It is a project worth 65 million dollars that will benefit more than 5,000 students and is already more than 70% complete.

“After twenty-seven years teachers, students and administrators of the San Miguelito Regional University Center, Finally, their great desire to have their own building, spread over 7.7 hectares, is being realized, something beautiful, something luxurious is being done and it will change all logic San Miguelito and North Panama,” said Eduardo Flores Castrorector of the University of Panama when the work is located in Las Cumbrecitas neighborhood, San Miguelito neighborhood.

The new university center will have laboratories, sports fields, hall, libraryclassrooms and a center for technological innovation, among other facilities.

Actions and decisions of legal representatives of subjects and their team work has an impact on the country’s economy, positive or negative for contractors; which is why it is important to remember that a civil servant should only do what the law allows, and he said recognition should not be delayed administrative affairs which entails or increases the payments that must be made to contractors, pointed out the representative of the construction company affected by the increase material prices.

business loans are adjusted first