Risky business
Doing business with the government is not without risk. One would think that, if there is one solid creditor, it would be the country. But it isn’t, and it does not even have anything to do with the question whether there is money in the bank.
Take the case of the Curacao Wegenmaatschappij (CWM), the road building company of Curacao. On July 27, 2012, Minister Jacinta Scoop-Constancia (Public Health, Environment and Nature) gave CWM a contract worth 1.5 million guilders for the upgrade of the Wilhelminaplein, a prominent square in the center of Willemstad.
The company went to work but when it sent in its invoices, the new government refused to pay. CWM went to court and when the ruling came down this week, it heard some really bad news: the government is within its rights not to pay the invoices.
Why? The court found that there was no reservation in the 2012 budget for the project, that the minister was not authorized to sign off on the contract, that the kingdom instruction was violated and there is no evidence that the minister of finance was involved in the process.
“The system of the law establishes that this contract is void,” the court ruled, adding that not paying the invoice was not unlawful.
How could this happen? According to the court ruling CWM did not pay attention. The letter of Minister Scoop-Constancia of July 27, 2012 “did not refer to an authorization by national decree, as mentioned in article 33, paragraph 3 of the Constitution.”
CWM should also have considered that there was no reservation for the project in the budget. “CWM knew that the intention was to have the government-owned companies Curoil and Refineria do Kòrsou take care of the payment, or that the money would come outside of the budget from “a kitty from Schotte.”
Because of the extensive media coverage, CWM also knew before it received the contract that there was an instruction from the kingdom government; the country was not allowed to enter into new financial commitments.
The court notes that CWM also should have had some doubts about the kingdom’s view on payments by the government through government-owned companies from future dividends.
The court concludes that through its attitude, CWM had put its fate in the hands of the government. Apparently, the company thought that everything would work out just fine as long as the Schotte government remained in power; but it didn’t.
On the other hand the court ruled that the country had enriched itself unwarranted. “It cannot be said that CWM has forced the enrichment upon the country; the initiative came, with a lot of publicity, from the government. The government grated permits and supervised the project. The next government let CWM continue with the work.”
Unwarranted enrichment results in the system of the law to an obligation for the payment of damages, the court ruling states. And while CWM stepped into “a rickety little boat,” the court ruled that the constitutional limits on authority and the rules for guaranteeing decent public finances must be obeyed.
The court set the compensation for the contractor at 750,000 guilders – half of the contract’s value. CWM can claim this money per January 1, 2018, so that the government can incorporate this commitment in the budget for that year.
The CWM-case shows that companies have to be careful when they accept large contracts from the government. Is the minister authorized to sign the deal? That ought to be the first question that comes to mind. If companies engage in deals behind closed doors, thinking that the government will pay anyway, this case shows that they could be in for a nasty, and above all costly, surprise.
