BY Phillip Karugaba AND Rehema Nakirya Ssemyalo
Some lessons in contracting with government
Like in many countries, Uganda’s government is the single largest spender of money, and as such, contracting with government or governmental agencies can present great opportunities for businesses.
This field is governed by multiple laws and it is important to ensure legal compliance, as these contracts could be queried in court or by the government ombudsman, the auditor general or a parliamentary oversight committee. A lot of time and effort could then be expended trying to retrospectively justify departures from compliance and political pressure may also be brought to bear. The consequences of getting it wrong may lead to protracted litigation and a total loss.
Below, we look at some factors a counterparty to a government contract should consider.
Has the contract been properly procured?
Contracting by government is regulated by the Public Procurement and Disposal of Public Assets Act, 2003. The driving principles of this legislation is to ensure transparency, competitiveness, economy and efficiency. This Act sets out the process to be followed when government or a government entity requires works, goods or services.
As a general rule, services or works must be procured through open bidding (domestic or international). Restricted bidding (domestic or international) is permitted where the value or circumstances do not justify or permit open bidding. In this case, bids are obtained by direct invitation without open advertisement. The Act also permits sole source procurement where exceptional circumstances prevent use of competition.
The courts have ruled that a contract procured by government or a government entity outside this legislation is a nullity even for those contracts awarded by high political offices.
Infrastructure related contracts are governed by the Public Private Partnerships Act, 2015, which contains similar provisions for procurement but is tailored to suit complex, larger transactions.
We have observed an increase in cases of fraud against foreign investors by persons who claim to act as “sourcing/procuring agents”. The “sourcing/procuring agents” forge solicitation documents and obtain payments from foreign investors. A counterparty should run a search on the website of the procuring and disposing entity to confirm that the request for proposal for any specific works, goods or services is genuine.
Who is the proper contracting party and signatory?
It is a general principle of the law of contract that to execute a valid contract, the party must have capacity to contract. Therefore, a counterparty must ensure that it contracts with the proper government entity and that the person(s) signing on behalf of the government entity are duly authorised to do so.
There are different categories of procuring and disposing entities, including ministries, district or municipal councils, statutory corporations, companies incorporated under the Companies Act, which are majority owned by the government.
A counterparty will need to review the applicable legislation to confirm the proper signing authority. For example, under the Constitution, it is the permanent secretary of the ministry that has authority to validly sign a contract on behalf of the ministry. Under the procurement legislation, the general rule is that the accounting officer of the procuring entity is the proper signatory to the contract. The accounting officer and the permanent secretary are usually the same person.
This is supplemented by sector-specific legislation that may contain specific provisions on the signatory to the contract. For instance, under the Kampala Capital City Authority Act, the executive director is the proper signing authority. Under the Local Governments Act, the chief administrative office of the respective local government unit is the proper signing authority and under the Bank of Uganda Act, it is the governor or such other person as may be authorised by the board.
Additional restrictions apply on the capacity of government or government entities to borrow or provide guarantees. Contracts for loans by the central government can only be signed by the Minister of Finance, Planning and Economic Development with the approval of Parliament. Local governments can only borrow money with the approval of the Minister of Finance.
Legal advice of the Attorney General of Uganda
Subject to certain thresholds and limited exceptions, the Constitution requires the legal advice of the Attorney General of Uganda to be obtained before any agreement is entered into by government or a governmental entity. Once satisfied with the terms of the contract, the Attorney General of Uganda will clear the contract for signature. This approval is usually in the form of a single page letter giving approval for the signing of the contract. Non-compliance means that the contract is a nullity.
A contract of a sum of UGX200-million or less and certain contracts executed by the National Social Security Fund are exempted from this requirement.
Where is the money to fund the contract?
The Public Finance Management Act, 2015 requires a government contracting entity to have in hand the necessary funds for a contract before signing. For contracts binding the government to a financial commitment for more than one financial year, special approval of parliament is required.
Currency of the contract
There is a standing instruction from the Ministry of Finance, Planning and Economic Development that all contracts with the government must be entered into in Uganda Shillings. Financing agreements with development partners that require the use of other currencies in the bidding process are exempted from this requirement.
Governing law and dispute resolution
There is no law requiring the government to contract under Ugandan law. Similar to contracts between private parties, the choice of law and the forum for dispute resolution, where the government is a counterparty, are matters of contract.
In practice, the Attorney General of Uganda insists on Ugandan law as the governing law of contracts to which the government is party. Foreign law may be accepted with respect to financing agreements where the lender requires the contract to be governed by foreign law and also with respect to bilateral treaties or agreements between sovereign states.
The Attorney General of Uganda will also not agree to submit to the jurisdiction of a foreign court but would agree to international arbitration. Uganda is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). A New York Convention award is recognised and enforceable in Uganda.
Enforcement against government
A claim in contract can be made against the government, subject to limitation and certain restrictions on enforcement of judgments or arbitral awards. Civil proceedings by and against the government are instituted by and against the Attorney General of Uganda. Reliefs by way of injunction or specific performance may not be made against the government. Further, the government property is protected from execution process.
This is intended as a checklist for any counterparty with the government to ensure that it has entered into a contract which is legally binding and enforceable against the government. This will hopefully eliminate disruptions in service delivery caused by protracted litigation and also eliminate losses to counterparties. Knowledge of these factors will also prevent fraud by persons who claim that they can obtain government contracts on behalf of an investor.
Head of ENSafrica Advocates | Uganda
+256 772 785 332
Rehema Nakirya Ssemyola
Partner | Uganda
+256 772 506 802