Contracting with a foreign government is fundamentally different from contracting with a private party. Governments sometimes enjoy immunity, apply their own procedures, and have specific compliance requirements. In our practice, we advise Dutch clients on public contracts in the Middle East, Africa, and Latin America. A well-considered contractual structure and the correct dispute resolution route are essential — public contracts offer stable revenue but carry specific risks.
What is the legal problem?
Governments are not ordinary contractors. They can sometimes invoke sovereign immunity from jurisdiction and execution. Procurement rules restrict freedom of contract. Anti-corruption legislation imposes strict requirements. Changes in regulations can directly affect contracts. Internationally, risks vary significantly by country and sector.
What does the law say?
The United Nations Convention on Jurisdictional Immunities of States (2004, not in force) and national laws govern sovereign immunity. For commercial transactions (acta jure gestionis), immunity is generally excluded. Public procurement within the EU falls under Directive 2014/24/EU. Outside the EU, local law applies and sometimes the WTO Agreement on Government Procurement (1994). Anti-corruption rules: UK Bribery Act 2010, US FCPA, and the Dutch Economic Offences Act.
For investment protection, Bilateral Investment Treaties (BITs) provide access to ICSID arbitration under the Washington Convention 1965. The Netherlands has concluded over 90 BITs.
What risks do companies face?
Sovereign immunity can block the execution of judgments. Political changes can terminate or unilaterally modify contracts. Anti-corruption violations result in severe penalties under UK Bribery Act 2010 Section 7 and exclusion from future tenders. Unexpected tax and currency measures can render contracts worthless. In disputes, governments often receive priority in local courts.
Practical example from our practice
We advised a Dutch infrastructure supplier on a contract with a Central Asian government. The original contract referred to a local court. Upon a change of government, the contract was unilaterally amended. Local litigation yielded no results due to sovereign protection. Upon renegotiation, we incorporated: UNCITRAL arbitration in The Hague, an explicit waiver of immunity from jurisdiction and execution, and a fallback to ICSID. Subsequent contracts are protected. The client now builds structurally through a Dutch holding company due to the Dutch BIT network.
What can you do?
Research immunity and procurement rules per country. Demand an explicit waiver of immunity from jurisdiction and execution. Choose international arbitration (ICC, UNCITRAL, ICSID). Implement strict anti-corruption compliance, training, and due diligence. Work with local legal experts. Investigate the availability of investment protection through BITs. See also our article on anti-corruption provisions in international trade.