Colombian Construction Arbitration Showcases a Unique Local Flavour

The recent Vías de las Américas v Agencia Nacional de Infraestructura award issued by a Bogotá-seated tribunal in relation to a highway project addressed several issues that form the meat and potatoes of construction arbitration. They included delays in the commencement of works, out-of-scope works, ordinary rehabilitation as opposed to structural strengthening of infrastructure, and operation and maintenance duties following partial completion. While those aspects are certainly interesting, this post focuses on a local ingredient instead: the risk of land acquisition overruns. While being characteristic of Colombian infrastructure concessions, this is a rare element on the global plane. The award thus provides an interesting window into how Colombia has advanced an ambitious infrastructure investment programme in the past decade.

General Background of the Project and the Dispute

In 2010, the predecessor of Colombia’s infrastructure agency (Agencia Nacional de Infraestructura, “ANI”) awarded a contract to build, revamp and maintain a portion of the highway connecting Colombia’s northwest regions on the Caribbean coast with the Magdalena River, which is key for connectivity with the centre of the country. The contract’s description included that the contractor would “at its own risk” also engage in “land and social management” and “obtaining and/or amending environmental licences”, in addition to the construction, operation and management of the project. The project was affected by several issues, including challenges securing environmental licences, delays, flooding due to the La Niña phenomenon, out-of-scope works and the land management issues expanded on below. These issues gave rise to separate arbitration proceedings during the contract’s performance. The award issued in May 2026 resolved the last dispute launched by the contractor following the termination of the concession in March 2022.

Background of Colombia’s Approach to Public-Private Partnerships

In most countries, the government will launch competitive bids for infrastructure projects after it has fully done its homework securing all major permits (e.g., environmental licenses) and conditions (e.g., securing the necessary land rights) that are necessary for the construction works to begin. Starting in 2012, Colombia took a different approach and adopted a legal framework to systematically allocate to the private contractor all the necessary: (i) social (e.g., negotiation with affected communities, including ethnic groups); (ii) environmental (e.g., obtaining licenses and undertaking environmental offsets); (iii) land (e.g., identifying and acquiring the necessary real estate); and (iv) network (e.g., safeguarding public utility infrastructure like sewage pipes and energy lines) activities that are a prerequisite for construction. Before Law 1508 of 2012 on public-private partnerships, Colombia had flirted with this idea in a few infrastructure concessions. The Transversal de las Américas concession agreement of 2010, which led to this arbitration, is one of those precursors that laid the groundwork for what became the new normal.

The Land Acquisition Issues in Dispute

Assigning social, environmental, land, and network activities to the private contractor entails establishing a detailed allocation of risks in the respective concession agreement. The Transversal de las Américas concession agreement estimated land acquisition costs of approximately US$8.5 million (at current exchange rates). It established that the contractor would bear 20 percent of acquisition cost overruns. In turn, ANI would bear all acquisition cost overruns exceeding 120 percent of the contractual estimate.

The contract also differentiated the acquisition cost overruns from the ordinary land management activities that the contractor had to perform on ANI’s behalf. These managerial activities included preparing the necessary acquisition documents and the underlying technical and legal work, as well as engaging in voluntary purchase procedures or in the administrative and judicial procedures necessary to secure acquisition of the real estate from reluctant owners. The contractor bore these ordinary management costs as part of the concession price.

In the end, the cost overruns for land acquisition were massive in relative terms, with the total actual cost amounting to approximately US$99 million. The contractor bore its 20-percent share of the cost overruns and requested ANI to fund the excess. Under the contract, ANI had to disburse the funds needed to cover its share of the acquisition cost overruns within 30 days, but on average ANI did so only between 68 and 99 days after receiving the relevant notice. In the meantime, the contractor resorted to a revolving credit facility to secure the necessary funds to move forward with the land acquisition.

The main reason for the land acquisition cost overruns was the low estimate set out in the concession agreement. This issue had largely formed the basis of a prior arbitration launched by the contractor in 2015, which had concluded in 2016 with a settlement of approximately US$15.8 million in the contractor’s favour. In this arbitration, ANI argued that the 2016 settlement had disposed of all land-related issues as of August 2016. The contractor emphasised that it sought damages for breaches after the settlement, including subsequent delays in funding acquisition cost overruns and payments to occupants of properties who had no title over the land.

This was an additional, contractually interesting (but monetarily insignificant), reason for the land acquisition cost overruns. In rural properties, occupants without legal title had undertaken works including corrals, fences, wells, irrigation systems and crop plantations. During the relevant timeframe, Colombian regulation was not clear on the compensation owed to occupants of this nature. The contractor had sought, unsuccessfully, to clarify the issue with ANI several times. Eventually, the contractor paid out approximately US$170,000 to those occupants. The contractor argued that the payments were necessary to avoid social conflict and move forward with the land acquisition process.

The Tribunal’s Findings

The Tribunal recalled the jurisprudence of Colombia’s highest administrative court (the Consejo de Estado) on the allocation of risks in State contracts. It emphasised that when risks have been assigned to the parties under the contract, and they materialise during its execution, they must be approached from the perspective of the substantial contractual obligations. Accordingly, the general description of the object of the contract, that activities were undertaken “at the contractor’s risk”, could not override the straightforward interpretation of the contract’s clauses dedicated to land risk allocation. Furthermore, the fact that the contractor’s land management activities were an obligation of result (as opposed to best efforts) had no bearing on the allocation of the financial risks.

The Tribunal found that claims related to the inadequacy of the contractual estimate of the land acquisition costs were barred due to the 2016 settlement, but that distinct breaches after August 2016 were not. After the settlement, ANI continued to make reimbursements for land acquisition overruns outside of the contractual deadline. That delay caused the contractor to continue to incur borrowing costs. These costs (plus default interest) amounted to approximately US$3.2 million.

The Tribunal also found that the issue of payments to occupants without legal title was not captured by the 2016 settlement. It agreed with the contractor that the payments were necessary to complete the land acquisition process. Together with interest, these costs added approximately US$370,000 to the award.

The Vías de las Américas v Agencia Nacional de Infraestructura Award in the Wider Context of Colombia’s Infrastructure Push

As a pioneer in the assignment of social, environmental, land and network activities to the private contractor, the Transversal de las Américas contract was followed by dozens of substantial infrastructure concession agreements in the following years under the “4G” programme launched in 2013 and extending until 2021 (approximately). The term “4G” is a shorthand for the “fourth generation” of concession agreements, which are characterised by this novel risk distribution. Around 30 4G contracts, with a total capex of approximately US$14 billion, were awarded under this programme.

Undertaking social, environmental, land and network activities as a private party can be challenging, especially in Colombia where many projects were designed to improve connectivity in provincial areas and works require delicate environmental impact assessments and negotiations with communities, including ethnic groups. However, the policy decision to systematically entrust these activities to private contractors allowed Colombia to more rapidly address systemic infrastructure deficiencies. It also means that the similarities among the 4G contracts (and indeed they follow versions of the same template) give rise to similar disputes. While many of the issues in dispute will be the same as those found in construction arbitrations globally, a few will carry a distinctly local flavour.

This blog post represents only the author’s views and not necessarily the views of Freshfields or any of its clients.