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The Colombian Executive issues new directive regulating arbitration clauses in government contracts

In November 2014, the Colombian Executive, by way of Presidential Directive No. 4 of 2014, established new guidelines that government agencies need to follow to enter into arbitration agreements.

Key provisions include:

(a)    Arbitration agreements

To enter into an arbitration agreement, the contracting government agency must first issue an explicit decision containing a comprehensive analysis explaining why arbitral jurisdiction is more favorable than the domestic jurisdiction of administrative law courts in that particular case. Thus, every time that a government agency decides to enter into an arbitration agreement, the officers of such agency must include in the contract file, adequate documentation justifying the arbitration agreement.

(b)    Appointment of arbitrators

To appoint arbitrators, the chief officers of the contracting agency must obtain the President’s approval by sending the list of potential arbitrators and the biographical information of each arbitrator to the President’s office with a summary of the arbitral process. The same process must be followed if an arbitrator needs to be replaced.

(c)    Disqualification of arbitrators

Under the new directive, no government agency is allowed to appoint as arbitrator any lawyer that acts as opposing counsel in any legal process against any government agency.

Although the effect of this directive is yet to be seen, its likely effect is that it will limit the use of arbitration agreements in Colombian government contracts. Indeed, the preamble to the directive establishes that the directive’s objective is to guarantee the judicial protection of the [Colombian] State’s interests. Since the directive does not distinguish between domestic and international arbitration, one of the possibilities is that foreign investors may be deterred from contracting with the Colombian State.

For further questions please contact Diego Perez Ara or Carlos Martinez-Betanzos.