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Treatment of the Tanzanian government under contract law

2019-09-21 11:16:32

By Lilian Kyaruzi

The Tanzanian government frequently uses contracts with private sector contractors as a mechanism for delivering infrastructure and public services in Tanzania. In this third part of our ongoing 11-part article series on government contracting, I discuss the treatment of the Tanzanian government, as a contracting party, under contract law. 

Under the Law of Contract, is the government of Tanzania accorded special treatment? Should the Law give a government contract a distinct status in contrast to a contract between private persons say for the provision of interior design services? It is utterly plausible that one would think so when the government enters into contracts.

In reality, government contracts are executed for the benefit of the people of Tanzania, and the contractor is paid by the allocation of public funds approved by the Parliament in yearly Budget Plans. 

Yet, under Tanzanian law the involvement of the Tanzanian government in the contracting process triggers the ordinary principles of the Law of Contract, with limited exceptions. This means that the State is liable for breach of contract and is subject to legal remedies such as the grant of declaratory relief emanating from contract administration.

This principle is also echoed under section 12 of the Government Proceedings Act, Cap 5 (“the GPA”), which empowers the court to make all such orders as it has power to make in proceedings between private persons. Since section 16(1) and (2) provides for issuance of a certificate for payment of money by way of damages, or other reliefs, or of costs awarded to satisfy a court order against the government, the government cannot contend that there are no funds available in the state coffers to avoid liability to pay. 

Tanzania recently enacted special pieces of legislation; namely, the Natural Wealth and Resources (Review and Re-Negotiation of Unconscionable Terms) Act, 2017 and the Natural Wealth and Resources (Permanent Sovereignty) Act, 2017 that recognize that in contracts relating to natural resources and in public private partnership agreements, there’s a need to safeguard the public interest through renegotiation or removal of contract terms that the Tanzanian government deems ‘unconscionable’, or through the prohibition of investors from resorting to international arbitration fora. 

And by virtue of sections 3(1) and 6(4) of the GPA, government contracts are treated uniquely, requiring all civil proceedings in, inter alia, contract to be instituted in the High Court of Tanzania within the area where the claim arose.  

Moreover, the government can invoke the English Common Law doctrine of executive necessity to end an otherwise enforceable contract if it fetters statutory executive discretions and powers. The rationale here is that it would be incongruous for a government elected by Tanzanians to asseverate that it could not undertake a project that the ‘public interest’ needs e.g. constructing a wastewater infrastructure system in a Dar es Salaam city suburb, for the reason that it has executed a private contract that impedes it from doing so. 

The courts in Tanzania have seldom considered the doctrine of executive necessity. In the Australian case of NSW Rifle Association Inc. v Commonwealth of Australia, the Supreme Court of New South Wales clarified that government policy imperatives don’t imply that contractual obligations can be disregarded, save in some exceptional situations.

The case suggests important lessons for Tanzanian government decision makers by underscoring the significance of a termination for convenience clause in all major government contracts. The clause must precisely state what situations will give rise to a termination right; and how to aptly exercise that right in accordance with the contract, together with any implied obligation of good faith and reasonableness. 

Tanzania is in fierce competition with other developing countries for foreign investment. Investors will be unenthusiastic about tolerating sovereign risk if the government breaches a contract due to changes in policy. All the more reason for termination for convenience clauses to justify compensating contractors where the executive necessity doctrine would otherwise be invoked to release the government from liability for compensation!

The Tanzanian government, including public procuring entities, also needs to comply with the mandatory provisions of the Public Procurement Act, Cap 410 and its regulations and rules.

Lilian Kyaruzi (law@liliankyaruzi.com) is a Legal Director at Isidora & Company and an international development enthusiast.

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