Economic balance in Colombian government contracts: when the Council of State treats it as a breach
The contractor won its claim for extra time on site, but the path the court took carries a warning for anyone performing long-term public contracts.
📌 In one sentence
The Council of State recognized the contractor's cost overruns caused by the public entity's delays, but treated them as a breach of contract rather than as a standalone loss of the contract's economic balance, and gave full effect to the amendments signed without reservations.
What happens when a construction contract runs longer for reasons outside the contractor's control, and the contractor asks for the financial terms of the deal to be restored? The Third Section, Subsection A, of Colombia's Council of State answered that question in a case brought by two members of a consortium against Bogotá's Urban Development Institute (IDU). The outcome favored the contractor; the reasoning, however, deserves attention.
What happened on site
During performance there were delays in delivering the designs, obstacles to approving traffic management plans, land that was not available and several extensions and suspensions. The contractor argued that none of this was attributable to it and that the entity had failed in its duty to plan, so it claimed the costs of staying longer on site.
The entity defended itself with an argument repeated in many disputes: the amendments and extension records were signed by mutual agreement, the contractor did not ask to suspend the works when it should have, and some of the delays were its own. The first-instance court sided with the entity.
What the Council of State decided
On appeal, the court reversed that ruling and held the IDU liable for the extra time on site. However, it clarified that performance difficulties alone do not amount to a loss of economic balance. When the claim is based on the entity breaching its obligations or planning poorly, the analysis must be made as a breach of contract.
A good call: a fixed global price clause does not shift to the contractor the risk of an imbalance caused by the entity itself.
A risk: amendments and extensions signed without reservations were treated as valid agreements that limit what can be claimed.
Our reading
By taking the whole debate into the field of breach, the decision pushes into the background the contractor's right to maintain the contract's financial balance, which article 27 of Law 80 of 1993 protects even when the entity has not acted unlawfully. And requiring proof that the real cost significantly exceeded the bid, without a clear standard to measure it, places a heavy burden on the contractor.
⚠ The practical warning
What you sign during performance can close the door to future claims. An amendment or extension signed without reservations may be read as acceptance of the new conditions.
What this means for your company
If your company performs government contracts in Colombia, especially long-term construction contracts, the way you document the entity's delays during performance may define what you can recover at the end.
- Include express reservations in every amendment, extension or suspension record when the facts are not attributable to you.
- Record in writing, with dates, every delay by the entity: designs, permits, land or approvals.
- Keep track of the additional costs each extra day on site generates.
- Get advice before signing a contract amendment, not once you are already in litigation.
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Camila Cubillos
Lawyer · Partner, OC Consultores Tax & Legal
info@tusconsultoresoc.com
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