Public procurement: COVID-19’s impact for TZ gov’t contracts

Sunday April 5 2020



Lilian Kyaruzi (law@liliankyaruzi.com)

Lilian Kyaruzi (law@liliankyaruzi.com) 

By LILIAN KYARUZI law@liliankyaruzi.com

Africa’s gross domestic product (GDP) in 2020 will likely reduce by 3 to 8 percentage points (Jayaram, K., Leke, A., et al. “Tackling COVID-19 in Africa: An unfolding health and economic crisis that demands bold action.” McKinsey & Company, April 2020). Public procurement—that is, the purchase of goods, services and works by governments—contributes circa 14.9 percent of GDP in Sub-Saharan Africa, according to World Bank data.

The activity has not been spared by the ongoing COVID-19 pandemic. This is not to say that government contracts have been robotically suspended. Nevertheless, because of the resultant quarantine and travel bans, many contractors in the region are finding it difficult to keep their businesses running in the usual way. 

Procuring entities and government contractors in Tanzania must be attuned to the pandemic’s impact. In addition, both parties must, in general, be reasonable in their approaches to avoid being in substantial and persistent breach of contract during this unexpected snare. Under the Law of Contract Act, Cap 345, the non-performance of contractual obligations generally amounts to a breach of contract. However, a ‘force majeure’ clause, operating under the common law doctrine of ‘frustration’ may offer relief to government contractors. 

Unlike in some other countries, the government of Tanzania has not publicly declared that the COVID-19 crisis constitutes an event or a circumstance of force majeure for government contracts. Yet this does not negate a contractor from pleading force majeure, which may work to excuse all or part of its obligations.

The specific consequences of the ‘excuse’ will depend, in part, on the governing law and jurisdiction of the contract since courts in different countries have interpreted it differently. Consider, for example, a force majeure clause that explicitly sets out the specific events or circumstances constituting force majeure. Depending on the impact of this clause, a party may be relieved of its contractual liability.

But what happens when an epidemic or pandemic is not listed as a relevant event or circumstance? The party against whom the force majeure clause is invoked may object that the current outbreak of COVID-19 is not a force majeure event or circumstance. This may lead to litigation in the parties’ chosen jurisdiction, which or may not be Tanzania.

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On the whole, courts in Tanzania recognize that force majeure is a creature of contract; stated differently, that the contract must expressly provide for events or circumstances in respect of which force majeure can be invoked. For such invocation to be successful, performance must become physically or legally impossible, not just more difficult or unprofitable. Furthermore, it is clear from case law that force majeure should typically be the only cause for why a contractor has failed to perform a contractual obligation.

Measures that government contractors could take in the wake of non-performance owing to COVID-19 include establishing whether there is a force majeure clause in the contract and, if so, what the notification requirements are, including the time limit within which a force majeure may apply. It is very crucial to comply with these provisions. 

Other measures are contacting the procuring entity without delay and suggesting remedial options; pursuing measures reasonably necessary to prevent or limit damage; documenting reasons for non-performance; and taking lawful action to stave off debarment and being blacklisted by the Public Procurement Regulatory Authority (PPRA) from future tenders on account of poor performance.

For new government contracts, it is wise to check whether such contracts have a force majeure clause that could cover COVID-19 and whether there is a causal connection between the force majeure event and non-performance. 

By way of example, the 2017 FIDIC contracts—which are increasingly used in government construction projects in Tanzania—use the term ‘exceptional event’. This term is defined as an ‘exceptional event or circumstance’ that is beyond a party’s control; could not have reasonably been provided against before entering into the contract; having arisen, could not reasonably have been avoided or overcome; and is not substantially attributable to the other party. These events may include the COVID-19 pandemic.

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Lilian Kyaruzi (law@liliankyaruzi.com), a corporate lawyer, is a director in Isidora & Company and the Taxation and Development Research Bureau.