Termination of Administrative Contracts on Grounds of “Unforeseen Technical or Economic Circumstances”: Economic Equilibrium and the Duty to Indemnify

Abstract

This article examines the Ecuadorian legal regime governing the unilateral termination of administrative contracts concerning “unforeseen technical or economic circumstances” of the Organic Law of the National Public Procurement System, a provision comparable to termination on grounds of “convenience” or “public interest” as recognized in other legal systems. This article argues that this regime, in its current design, entails a significant risk of causing unjust harm to the contractor, as it fails to clearly define either the scope of the State’s duty to compensate or the appropriate legal‑procedural mechanism to make such compensation effective. On this basis, the article analyzes: (i) the notion of an administrative contract under Ecuadorian law and the principle of economic‑financial equilibrium, which is essential in public procurement; (ii) the Administration’s exorbitant prerogatives and, in particular, the one that allows it to unilaterally and prematurely terminate an administrative contract—with special attention to the aforementioned ground and to the foundations of the indemnification duty aimed at compensating the contractor when such ground is invoked—and (iii) the main avenues of claim currently available to the contractor, highlighting the uncertainty that characterizes the existing system and the obstacles each alternative faces.