What are Smart Contracts and what do they represent for lawyers?

By: Adolfo González-Ruiz

It is no secret that lawyers and the legal industry are in a restless mode due to the rapid growth of blockchain technology, including the use of Smart Contracts, which may mean a displacement of the need to hire lawyers in the not-so-distant future.

“Smart contracts” is a term used to describe computer code that automatically executes all or parts of an agreement and is stored on a blockchain-based platform. Smart contracts allow automating contractual processes and can be used for a wide range of activities, such as financial transactions, construction contracts, e-commerce, the real estate sector, leases of any kind, among others.

Smart contracts are based on blockchain technology, which allows keeping records of movements in a decentralized mode. This guarantees that once a smart contract is executed, it cannot be altered or deleted, thanks to the trust and security generated by blockchains.

Source: https://futuristspeaker.com/future-trends/smart-contracts-are-here-and-getting-smarter/

Blockchain technology plays a pivotal role in the creation and execution of smart contracts. A smart contract is a self-executing contract in which the terms of the agreement between the parties are written directly into lines of code. This code, and all transaction data related to the contract, are stored on a blockchain. All parties have access to the same information, and the contract cannot be altered without the consensus of the users. In addition, they can be programmed to automatically execute certain actions, such as the transfer of funds or cryptocurrencies, when certain conditions agreed in the smart contract are fulfilled. This tool provides security to the parties for the execution of the subject matter of the contract.

An easy way to explain how smart contracts work is as follows: imagine that Carlos rents his apartment to Maria for US$1000 per month. Both agree on a contract, and Carlos gives the keys to the apartment to Maria. In turn, Maria must make the monthly rent payment on the first five (5) days of the following month. When the payment date arrives, the smart contract executes the automatic collection through Maria’s wallet.

Summarizing, it is evident that the emergence of Smart Contracts is going to affect the legal industry because these types of contracts are drafted by an expert in coding, and the meaning of the words is no longer a matter of debate among lawyers, and there are already many platforms that generate Smart Contracts automatically. Therefore, in addition to law, lawyers will have to know about coding to be up to date with this new technology. We can also conclude that the world of law is turning to a fully digitalized and technological practice where we shall be dependent on computers, clouds, and software, in which the value of a law firm shall be focused on computer security that protects confidential client information.

Complaint Action Procedure in a Public Bidding

By Adolfo González-Ruiz

We have all read in the media about the complaint actions filed by companies in public acts, but do we really know the meaning of a complaint action and the grounds on which a bidder can impose such a remedy?

When a bidder, i.e. natural persons, legal persons or consortiums composed of such persons, participates in a contractor selection process, as is the case of a Public Bidding, and maintains grounds for disagreement with the process carried out by the Bidding Entity, the bidder is entitled to file a complaint action against the process based on Law 22 of June 27^th, 2006, amended by Law 153 of 2020 which regulates Public Procurement (the “Law”).

The Law sets forth that a complaint action may be filed against any legal or arbitrary act or omission occurred during the bidder selection process before it is awarded, declared void or cancelled, through a kind of remedy which must be filed before the General Directorate of Public Contracting (DGCP, for its acronym in Spanish) following the formalities and terms set forth by the Law. It is important to consider that when the DGCP admits a complaint action, the public act is suspended, i.e. the terms are suspended, if you forgive the repetition, until the remedy is resolved.

According to the new amendment to the Public Procurement Law, there are two types of complaint actions, against: (i) the list of charges, which is the document which establishes the requirements demanded by the bidding entity, including the terms and conditions, rights and obligations of the contractor and the procedure to be followed in the Public Bidding; or (ii) the assessment committee report, which is the document issued by the Assessment Committee with the analysis and results deriving from the review of the proposals in the corresponding selection process.

We proceed to analyze both types of complaint actions:

A. Complaint Action against the List of Charges:

The complaint actions against the list of charges have the particularity that only those bidders who have participated and signed the minutes of the previous meeting and validation can impose such remedy. In general, in practice, the validation meetings are held weeks after the publication of the public act at the “PanamaCompra” website, and their purpose is to grant the interested parties the right to consult with the Bidding Entity on all their doubts regarding the Public Bidding and the list of charges.

An action against the list of charges may be directed against an illegality or a section of the list of charges which contains a requirement infringing the Law. For example, in a hypothetical case where the list of charges details that the company’s financial statements may be submitted in a currency other than U.S. dollars, knowing that all financial statements must be submitted according to the legal tender. In this case, the bidder is entitled to file a complaint action before the DGCP with the purpose of ordering the bidding entity to remedy such section of the list of charges.

The terms established by law for the filing of the complaint action vary according to the type of contractor selection process. For example, in the case of minor contracts, bidders have one (1) business day prior to the submission of proposals to file the remedy. On the other hand, in best value bidding and public bidding the following terms apply:

• If the amount exceeds fifty thousand dollars (US$50,000.00) and does not exceed five hundred thousand dollars (US$500,000.00), not less than three (3) days prior to the day on which the contractor selection act is to be held.
• If the amount exceeds five hundred thousand dollars (US$500,000.00), not less than four (4) days prior to the day on which the contractor selection act is to be held.

Once the complaint action has been filed before the DGCP, it has a period of two (2) business days to admit or reject it. In case the DGCP admits the action, it must publish its decision in the “PanamaCompra” portal and the period of no more than five (5) days with the right to an extension of three (3) additional days to settle it begins. If the DGCP does not comply with the admission or inadmissibility in the period of two (2) days provided by Law, it is understood that the complaint action has been admitted and must be resolved according to the aforementioned periods. Likewise, if the DGCP does not admit the remedy, it must publish a resolution stating the reasons for its decision not to admit the same.

B. Complaint Action against assessment committee report:

Before going into this point, we reiterate that the verification or assessment committee’s report is the document issued and signed by the verification or assessment committee where the analysis and results arising from the review of the proposals within the contractor selection process are submitted. The report must indicate whether or not the bidder complies with the minimum mandatory requirements, detail the table of prices offered by each bidder and the qualification of the technical part. Since there are several modalities of public bidding, each report must be adjusted to the provisions of the Law according to each type of contractor selection process. The assessment committee’s report must be published in the “PanamaCompra” portal.

The new aspect introduced by Law 153 of 2020 for complaint actions against the assessment committee’s report is that, as a first step, the bidder must submit a report of remarks to the bidding entity, stating its reasons for disagreement resulting from the committee’s report, before filing the complaint action before the DGCP. The presentation of the new report of remarks is a prerequisite, established by law, in order to be entitled to file a complaint action. It was even added among the requirements to file a complaint action, to include evidence of the presentation of the remarks report to the bidding entity.

In contractor selection acts such as public biddings and public biddings for best value, the bidders have three (3) business days, counted as of the date on which the assessment report is electronically published in the “PanamaCompra” portal, to submit the remarks report to the bidding entity. Following its submission, the bidding entity has two (2) business days to decide whether to order a new partial or total report to the same assessment committee. If after the time has elapsed, the entity does not issue a decision, it is understood that the committee’s report has been accepted by the entity, which may award or declare the contractor selection process void within a term of two (2) days.

In the event that the entity admits the remarks report, the entity must publish a reasoned report stating the grounds and ordering a new partial or total analysis of the report subject-matter of the public bidding.

Under the Law, a complaint action may only be filed against the assessment commission’s report as long as the contract has not been awarded or declared void or cancelled. The DGCP has five (5) days with the right to an extension of three (3) additional days to resolve the remedy.

In the event that a new assessment report ordered by the DGCP is issued, no complaint action shall be admitted, unless such report (the “New Report”) has been issued in contravention of those previously ordered by the DGCP, and only the disputed points shall be analyzed in this new report.

Law 153 of 2020 establishes as a new requirement to file a complaint action against the New Report, the submission of a complaint action bond for 10% of the reference price of the public act. In the case of framework agreement public acts, the amount of the complaint action bond shall be established in the list of charges, which may not be less than five hundred thousand dollars (US$500,000.00) as provided by law.

It should be noted that the bidder benefiting from the assessment report that preceded the New Report is not required to submit the bond described above at the time of filing the complaint action against the New Report.

The resolution resolving a complaint action does not admit any remedy through governmental channels and takes effect as of the business day following its publication in the “PanamaCompra” portal.

By Adolfo Gonzalez-Ruiz – Associate

1. Is the General Directorate of Public Procurement (DGCP) working?

DGCP had closed its offices as of March 23^rd, but they maintain a telephone support service at (507)515-1500. Additionally, you can send written inquiries to the following emails:

Customer Service: info@dgcp.gob.pa.

Policies and Purchase Management Directorate: conveniomarco@dgcp.gob.pa

Legal Directorate: legal@dgcp.gob.pa

Contractor´s Selection Procedures Supervision Directorate: fiscalización@dgcp.gob.pa

Exceptional Procurement Procedure Directorate: dipec@dgcp.gob.pa

2.  Any law or decree has been published related to Public Biddings?

The Ministry of Health, through article 9 of Executive Decree No. 507 of March 24^th, 2020, ordered the suspension of all deadlines within administrative proceedings pursued by various institutions. Following Executive Decree No. 507 of March 24^th, 2020, the DGCP published Resolution No. DGCP-056-2020 of March 26^th, 2020, ordering the suspension of the deadlines stipulated in the Single Text of Law 22 of June 27^th, 2006, ordered by Law 61 of September 27^th, 2017, for the different stages of the contractor selection procedure currently in progress.

Subsequently, the Ministry of Health amended Article 9 of Executive Decree No. 507 of March 24^th, 2020, by means of Executive Decree No. 513 of March 27^th, 2020, including exceptions to the suspension in the case of contractor selection procedures that have passed the proposal stage, carried out for the contracting of works, purchases of equipment, hospital supplies, medicines; and other goods, services or items, which have passed the proposal stage.

By means of Executive Decree No. 534 of April 16^th, 2020 a new Article is added to Executive Decree No. 507 of March 24^th, 2020, adding Article 9-A whereby the suspension of deadlines of administrative proceedings does not apply in procurement procedures of the Ministry of Health, the Social Security Institution (CSS) and all their agencies.   whose purpose is the ordinary operation of the health system.

In relation to the Pre-Contractual or Contractual formalities convened for the acquisition of services or works, described in the previous paragraph, the formal requirements for participation may be temporarily adjusted, by reason of the Procedures Handbook issued by the DGCP.

For the purposes of the provisions of Article 9 of Executive Decree 534 mentioned above and when necessary, it is the responsibility of the Ministry of Health to reactivate the operation, activity and mobility of the awarded bidders, who so require in accordance with what is established in numeral 34 of Article 2 of Executive Decree 507 of March 24^th, 2020. This numeral deals with specific companies whose reactivation are authorized by the Ministry of Health by means of a resolution, for their operation, activity, and mobilization.

3.  Is it possible to carry out requests online?

Yes, DGCP is processing online requests related to certification of registered shares, claim action filings and Registration of Bidders on the web page of “PanamaCompra”.

4.  Is it allowed to file claims against public procurement proceedings before the DGCP? How do you file a Claim Action?

Yes, it is allowed to file a Claim Action online against the public acts in progress.

The procedure to file a Claim Action is the following:

• You must send an e-mail to fiscalización@dgcp.gob.pa where you must attach the claim action, power of attorney and evidence, legibly and following the formalities provided by Law.
• The email must have as subject heading: Filing of Claim Action.
• As of the date of sending the e-mail, the DGCP shall proceed with the publication of the claim action and the term for the admission or non-admission of such claim shall start counting.
• In the event that it is admitted, the bidding entity has a period of 3 working days counted from the day following the publication of the resolution to submit the Conduct Report.
• The other procedures established by law are followed.

Did you know that 20% of the Panamanian population are entrepreneurs? Our country, with almost 4 million residents and a dynamic market with large companies, concentrates its largest number of entrepreneurs in Panama City and Colon, according to a study performed in 2015 by the Global Entrepreneurship Monitor (GEM).

The term entrepreneur may be defined as: that individual who starts the operation of a business with little capital liquidity and assuming the commercial and economic risks that this entails, with the purpose of growing his company at the highest possible yield. Entrepreneurship is that activity that seeks to innovate in the market with some new and attractive product to the clients.

This global movement grows strongly and brings multiple economic and social benefits for countries. Nevertheless, despite the high volume of entrepreneurship in Latin America, we still face a challenge as a region: to foster a proper ecosystem so that each time we may create increased value in innovation and sustained growth. Panama supports entrepreneurship, and in this context, adjustments have been made to establish a legal framework, which gives support to entrepreneurs. If you are an entrepreneur and are interested in knowing more about these initiatives and how they can work for you, please let us know and we would be happy to guide you.

Although the local initiatives promote entrepreneurship in the country, as mentioned earlier we still face significant challenges in order to promote local entrepreneurship projects and make them even more valuable in the long term. We need to provide entrepreneurs with the necessary skills, abilities and tools, which will allow them to develop businesses that add value. We also have a great opportunity in developing education models that will strengthen our entrepreneurship ecosystem and will make it more efficient, strong and attractive.

Countries such as Colombia and Mexico have programs affiliated to the authorities that provide education plans and guide to entrepreneurship. These programs are connected to schools and universities in the country to provide support and tools to entrepreneurs.

In Panama, there is the Panama Business Accelerator (PBA) located at the Innovation Center of the City of Knowledge. Expert businesspersons and young entrepreneurs lead said program. It seeks to expand the entrepreneur´s vision fostering innovation through exchange of ideas, collaboration and creativity. There, “focus groups” are carried out, where the entrepreneurs meet for collecting ideas about any specific project or regarding any problem they wish to solve. They also provide workshops on different topics focused in entrepreneurship and, additionally, the Emprende Contest is carried out which seeks to reward the best innovative projects.

• To keep advancing in the subject, Panama must work in designing an entrepreneurship education plan. Besides AMPYME´s proposals, universities and high schools must be visited in order to educate students and motivate them to become entrepreneurs.
• Finally, it would be convenient to reinforce AMPYME´s law and work on the development of a law that creates the Entrepreneurship Authority for strengthening aspects and obligations such as entrepreneurs’ education. In order to keep transparency, the annual statistics on how these initiatives have impacted Panama´s society by supporting entrepreneurship and how more entrepreneurs have emerged in the country must be published.

In summary, an appropriate legal basis, which evolves in favor of education models adapted to the entrepreneurship reality, is an important factor in order to guide entrepreneurs’ local efforts increasingly towards an added value model. This is essential in order for entities to continue boosting this engine of our economy and its positive force on our society.