On January 23, 2025, the Bolivian government issued Supreme Decree No. 5321 (DS 5321), allowing public entities to modify unit prices in ongoing public works contracts signed within the scope of Supreme Decree No. 0181 on the Basic Standards of the Goods and Services Administration System (NB-SABS).

Preliminary considerations. 

Dentons advised the Bolivian Chamber of Construction (CABOCO) and the Departmental Chamber of Construction (CADECO), in preparing the regulatory proposal that led to the enactment of SD 5321.

Our associate Diego Simbron led the project of the drafting of the initial version of the Supreme Decree which, in coordination with our partner Jorge Inchauste and our senior associate Luis Gutiérrez, was presented and shared with the corresponding units of the Ministry of Economy and Public Finance, through the representatives of CABOCO and CADECO at the national level.

Consequently, this publication analyzes: (i) The justification of the project prepared by Dentons, (ii) The content and scope of the SD 5321, (iii) The modifications made to the initial proposal and their impact on the implementation.

Analysis.

The justification of the project.

Construction companies have struggled to continue executing public works due to a sharp and sustained increase in the prices of essential inputs. In response, the Bolivian Chamber of Construction (CABOCO) and the Departmental Chamber of Construction (CADECO) sought Dentons’ legal assistance to develop a regulatory mechanism that would authorize public entities to legally modify unit prices in contracts. This modification would apply to inputs, materials, goods, equipment, and other imported products necessary for the completion of ongoing projects.

Bolivia’s construction industry heavily relies on imported materials, as most essential inputs are not manufactured domestically. Under established international commercial practices, companies must acquire these materials using foreign currency, primarily U.S. dollars. The shortage of foreign currency has directly and severely impacted construction companies’ ability to import materials. The scarcity of dollars has increased procurement costs, forcing companies to purchase dollars in parallel markets, where exchange rates can reach 200% of the official rate. This situation has driven up production costs, reducing the competitiveness of national companies and making projects substantially more expensive. Furthermore, delays in material imports have become more frequent, as foreign suppliers demand payment in U.S. dollars. Companies unable to access this currency fail to meet contractual obligations, leading to project delays or cancellations, contractual fines and penalties, and the deterioration of strategic business relationships with international suppliers.

Between January and August 2024, construction materials saw an average price increase of 52%, affecting steel, asphalt, PVC, sanitary, electrical, and finishing materials, according to CADECO La Paz. Without regulatory intervention, the construction industry in Bolivia faces severe risks, including fines and contractual penalties, execution of performance guarantees, disqualification from bidding in the State Contracting System (SICOES), bankruptcy and insolvency, suspension of contracting processes or administrative contracts due to force majeure, and failure to pay workers.

Public entities will also experience significant consequences, such as the interruption of public investment projects, the declaration of void bidding processes due to a lack of interested contractors, budget execution shortfalls, and increased expenses related to legal disputes arising from contract non-compliance and delays. Considering the current social and economic conditions in Bolivia, regulating the authorization for modifying contracts to adjust unit prices for essential inputs, materials, equipment, and other imported goods is necessary to ensure the continuation and execution of public works contracts.

SD 5321 and its scope.

SD 5321 aims to: (i) establish operational mechanisms for the adjustment of unit prices of imported construction materials, machinery and equipment, and (ii) grant an additional advance for the acquisition thereof (imported construction materials, machinery and equipment), in the work contracts being performed, signed by public entities¹.

Such a price adjustment may be made only once, within the framework of SD 5321, provided that these are works contracts within the framework of Supreme Decree No. 0181.

The deadline for the signing of all the amending contracts provided for in SD 5321 is May 30, 2025.

a. Procedure

The adjustment of unit prices of imported construction materials, machinery and equipment will proceed by means of an amending contract, according to the price variation determined by the contracting public entity, following a technical, financial and legal report. The negotiation may include the modification of the deadline for completion of the work.

It should be noted that, in accordance with SD 5321, the contractor must update the Contract Performance Guarantee, according to the variation of the total amount of the contract.

SD 5321 does not include further regulation regarding the steps to be followed to request the modification.

b. Additional advance.

In addition, SD 5321 sets forth the possibility of granting one or more additional advances to the contractor, provided that the total cost of the imported materials is not exceeded. These advances must be backed by an amending contract. 

The contractor must present an Additional Advance Guarantee, renewable, irrevocable and immediately executable, either a Guarantee Slip, a First Demand Guarantee, or a Surety Policy, at the contractor's choice, applying the rules provided in Supreme Decree 0181 for the Guarantee of Correct Investment of the Advance.

c. Price adjustment for imported fuels.

In accordance with the Second Additional Provision of SD 5321, until May 30, 2025, said regulation also authorizes the signing of amending contracts for the adjustment of costs of imported fuels, such as gasoline, diesel, and diesel resulting from the mixture of biodiesel with base oil diesel.

The adjustments will be monthly and to be applied to the cost of the input for machinery and equipment for works in progress, according to the value of the invoices or import policy.

The modifications made to the initial proposal and their impact on the implementation.

a. Exceptionality.

One of the main modifications made to the initial project is the exceptionality provided for in SD 5321. The text of the current regulation clearly provides that the modifications allowed are temporary and exceptional.

The initial draft provided for a modification to the content provided for in Supreme Decree 0181, in order to establish a procedure that allows the negotiation of modifying contracts for conditions that directly influence the unit prices provided for in the proposals.

However, having modified this section, the possible benefits of SD 5321 become temporary and limited to a limited period, such as May 30 of this year.

b. Procedure.

One of the aspects susceptible to criticism of the current text of SD 5321 is that the procedure set forth in the initial draft was eliminated. It contained the steps to be followed by the contractor to request the modification, this with strict deadlines for the contracting entity to conclude the procedure of signing the modifying contract.

However, SD 5321 no longer has such regulation. Therefore, the negotiation procedure is at the discretion of the public entities, transferring the burden of the modification term to the contractor.

c. Scope of the rule.

Another relevant aspect modified in the initial draft is the scope of SD 5321. It is evident that the purpose of the regulation is to cover any public institution as a contractor of works.

However, the current wording leaves open the possibility that some of these entities may question being covered by the adjustment, since the regulations applicable to public procurement are not only provided for in the framework of Supreme Decree 0181, as set forth in Article 2 of SD 5321.

Accordingly, it should have been made clear regarding the mandatory nature of the application and scope of the rule, in order to avoid obstacles to a procedure that must be concluded by May 30, 2025.

Price adjustment clauses.

One of the aspects that could bring permanent relief to builders was the feasibility of including price adjustment clauses in works contracts with public entities, which allowed for a detailed contractual procedure, which determined each party's responsibilities and tasks. Despite this, SD 5321 does not provide for this possibility,

As a conclusion, SD 5321 represents a significant regulatory step by acknowledging the urgent need for public procurement reforms in Bolivia. However, its temporary nature and lack of procedural clarity limit its effectiveness. To address economic challenges in the construction industry, future reforms should prioritize permanent structural changes.

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