Government Contracts

Governments of developing countries occasionally enter into economic development agreements with foreign investors who provide capital and technological expertise that may not be readily available in such countries. Besides the normal economic risk that accompanies such enterprises, investors face the additional risk that the host government may attempt unilaterally to change in constitutes a general principle of law. However, their argument is flawed on at least two counts.

First, in French law not all government contracts are treated as administrative contracts. Some contracts are designated as administrative by specific statute, in which case the contractor is made aware of the applicable legal rules upon entering into agreement with the government. Alternatively, the contracting government agency can itself designate a contract is thus prevented from modifying those contractual terms that define the financial balance of the contract.

Second, the French law of administrative contracts, although adopted by several countries, is not so universally accepted that it can be embraced as a general principle of law. In both the United States and the United Kingdom, government contracts are governed by the ordinary law of contracts, with the result that the to modify or terminate agreements unilaterally derives from specific contract provisions, not from inherent state power.