Public procurement is an important mechanism for the implementation of public utility and infrastructure projects of the country, whether involving the construction of roads, bridges, hospitals, schools, irrigation systems, or other public utility systems, all of which use the State budget and are intended for the public benefit. Therefore, once an operator has been selected by a government agency and has entered into a construction contract, such operator has a duty to carry out the construction works in accordance with the terms and conditions of the contract, within the specified period, and in compliance with professional standards.
However, in practice, it has been found that certain contractors do not commence the construction works, abandon the works, or proceed with the works but are unable to deliver them within the specified period. As a result, the State suffers a loss of budget, is required to procure a new contractor, and the public is unable to receive the benefits of the project within the scheduled time. The important question is therefore not merely whether the contractor has “breached the contract,” but rather what forms of legal liability the contractor must bear toward the State and what measures the State may exercise in order to protect the public interest.
The Contractor’s Liability Is Not Limited to Contractual Liability
Although a construction contract entered into by a government agency is in the nature of an administrative contract, the essential basis of liability remains founded upon the principle that the contracting parties must perform their obligations in good faith and must act so as to achieve the purpose of the contract. Where the contractor fails to commence the works, suspends the works without reasonable cause, or is unable to deliver the works within the specified period, such conduct constitutes a breach of the contractual obligations and entitles the government agency to exercise its rights under the contract and the law.
Nevertheless, the liability of a contractor in a government project has special characteristics that differ from a contract entered into between private parties. This is because the State is not merely a contracting party that has suffered damage, but is also the representative of the public. A delay in or failure to complete the project therefore causes damage to the expenditure of the State budget, the provision of public services, and public confidence in the administration of State affairs.
Measures Available to the State When the Contractor Breaches the Contract
Where the contractor fails to perform the obligations prescribed under the contract, whether by failing to commence the works, suspending the works without reasonable cause, delaying the works to such an extent that delivery cannot be made within the contractual period, or performing the works in a manner that does not comply with the standards and specifications prescribed in the contract, the government agency, as the contracting party, is entitled to exercise legal remedies and contractual measures in order to protect the interests of the State and minimize any damage that may arise from the expenditure of public funds. Such powers are derived from the Public Procurement and Supplies Administration Act B.E. 2560 (2017), the regulations issued thereunder, as well as the conditions contained in the standard construction contract prescribed by the Comptroller General’s Department.
The first measure available to the government agency is the imposition of liquidated damages, which serves as a mechanism requiring the contractor to assume responsibility for delay or breach of contract. Such liquidated damages are generally predetermined in the contract as a daily rate calculated according to the period of delay. The purpose of liquidated damages is not to punish the contractor, but rather to compensate the State, at least on a preliminary basis, for the damage arising from the project’s failure to proceed in accordance with the implementation schedule. Nevertheless, liquidated damages may only be imposed where the delay is attributable to the contractor and not to a force majeure event or to the acts or omissions of the government agency itself, such as delayed site handover, amendments to the construction drawings, or suspension of the works for reasons not attributable to the contractor.
Where the breach of contract is so serious that the objectives of the contract can no longer be achieved, the government agency may exercise its right to terminate the contract in order to bring the contractual relationship to an end and proceed with the procurement of a new contractor to continue the project. Contract termination constitutes a measure that significantly affects the contractor, as the contractor may lose the right to receive payment for any undelivered portion of the works and may also become liable for the damages incurred by the State as a result of having to conduct a new procurement process. In many cases, the costs of such new procurement may be substantially higher than those under the original contract.
Following termination of the contract, the government agency may also exercise its right to forfeit the performance security furnished by the contractor as security for the due performance of its contractual obligations. The purpose of such performance security is to provide assurance that, should the contractor fail to perform its obligations, the State will have an immediate source of funds to mitigate its losses without having to commence legal proceedings for the recovery of damages in their entirety. Nevertheless, forfeiture of the performance security is not a measure that may be exercised automatically. It must be based upon the contractor’s breach of contract, and the government agency must have lawfully exercised its right to terminate the contract or other contractual remedies in accordance with the applicable law and the terms of the contract.
In addition to liquidated damages and the forfeiture of the performance security, where the damage suffered by the State exceeds the amount of the liquidated damages or the amount secured by the performance security, the government agency may also claim additional damages under the general principles governing liability for breach of contract. The burden of proof rests upon the government agency to demonstrate that such damages are the direct consequence of the contractor’s breach of contract, that the amount of such damages is certain or capable of calculation, and that such damages are not too remote under the principles of Thai civil law.
In practice, the State’s damages are not limited to the costs of procuring a replacement contractor. They may also include the increased contract price resulting from higher construction material costs or labour costs, additional expenses incurred in project supervision and project administration due to the prolonged implementation period, as well as the expenses associated with conducting a new bidding or procurement process. In the case of large-scale public infrastructure projects, delays may further deprive the State of the opportunity to commence public services as originally planned, thereby causing broader economic and social consequences. Although such losses may not be recoverable in every case, where the government agency is able to establish the causal relationship between the contractor’s breach and the damages sustained, the court may order the contractor to compensate the State for such additional losses in accordance with the applicable legal principles.
Apart from pecuniary liability, certain types of contractual breaches may also result in administrative sanctions affecting the contractor’s status, particularly the consideration of placing the contractor on the Debarred Contractors List (Blacklist) under the criteria prescribed by the Public Procurement and Supplies Administration Act B.E. 2560 (2017). Such a measure is intended to safeguard the public interest and maintain confidence that government agencies will contract only with contractors who possess the capability and responsibility required for the efficient implementation of public projects.
Debarment (Blacklist): A Measure for the Protection of the Public Interest
Apart from pecuniary liability arising from a breach of contract, the law governing public procurement and supplies administration also prescribes administrative measures designed to preserve the credibility and integrity of the public procurement system. Among these measures, the listing of a contractor as a debarred contractor (Debarment) serves as an important mechanism to prevent an operator who has failed to perform its contractual obligations, or whose conduct demonstrates a lack of integrity or responsibility, from entering into future contracts with government agencies during the period prescribed by law.
Under the Public Procurement and Supplies Administration Act B.E. 2560 (2017), a contractor does not automatically become a “debarred contractor” merely because it fails to complete the works within the contractual period. Rather, the determination must be based upon the facts and circumstances of each case and the statutory requirements prescribed by law. Such cases generally involve a material breach of contract, including the abandonment of the works without reasonable cause, refusal to perform contractual obligations, or other conduct that renders the government agency unable to achieve the objectives of the contract. Furthermore, the imposition of such a measure must be carried out in accordance with the procedures prescribed by law and must comply with the principles of legality, fairness, and the contractor’s right to be heard before an administrative order is issued.
Debarment is preventive in nature rather than punitive. Its primary purpose is not to punish the contractor for breaching the contract, but to safeguard the public interest and preserve the integrity of the public procurement system by preventing contractors with a history of failing to perform contractual obligations, or whose conduct has caused or is likely to cause damage to the State, from repeatedly participating in government procurement. This principle reflects the legislature’s emphasis on the efficient use of public funds and the protection of the interests of the public as a whole.
The legal consequences of being placed on the Debarred Contractors List are particularly severe for business operators. A debarred contractor is prohibited from participating in procurement processes conducted by government agencies for the period prescribed by law. Such restriction directly affects business opportunities, revenue, commercial reputation, and credibility. For contractors whose principal source of income is derived from public sector projects, the consequences may significantly affect the sustainability of their business operations and, in certain cases, may also impair their ability to obtain financing or maintain the confidence of private-sector business partners.
Because debarment substantially restricts the freedom to conduct business, the Supreme Administrative Court has consistently held that any decision to place a contractor on the Debarred Contractors List must comply with the rule of law and the principle of proportionality. A government agency is therefore under a duty to conduct a complete investigation of all relevant facts, provide the contractor with an opportunity to explain the facts and submit supporting evidence before issuing an administrative order, and determine whether the contractual breach was genuinely attributable to the contractor or resulted from force majeure or from the acts or omissions of the government agency itself. Where the government agency exercises its discretion without complying with these principles, or fails to take material facts into consideration, the debarment order remains subject to judicial review and may be revoked by the Administrative Court.
From the contractor’s perspective, contract administration after the award of a government contract is no less important than winning the procurement itself. Contractors should establish an effective project monitoring system and maintain complete records of correspondence, meeting minutes, progress reports, and documentary evidence relating to any obstacles encountered during the performance of the works. Contractors should also promptly notify the government agency of any event that may affect the project schedule or the quality of the works. Such documents may constitute crucial evidence demonstrating that any delay or failure to complete the project was not solely attributable to the contractor, and may therefore directly affect the determination of contractual liability, contract termination, and any subsequent debarment proceedings.
Can the Contractor Be Released from Liability?
Although the law governing public procurement and supplies administration empowers government agencies to exercise various measures for the protection of the State’s interests where a contractor breaches the contract, the law does not intend to impose liability upon the contractor in every circumstance without regard to the cause of the breach. The fundamental principles of contract law and administrative law continue to adhere to the principle of fault-based liability, under which a contractor is liable only where the failure to perform or the delay in completing the works results from acts or omissions within the contractor’s control, and not from circumstances beyond its control or from acts of the government agency that directly affect the performance of the contract.
In practice, there are several situations in which a contractor may be relieved from liability. These include force majeure events under the Civil and Commercial Code, unforeseeable natural disasters, epidemics or public emergencies affecting the transportation of construction materials or the availability of labour, as well as circumstances in which the government agency fails to hand over the construction site within the agreed timeframe, makes substantial changes to the construction design during the execution of the project, orders a temporary suspension of the works, or takes an unreasonable period of time to approve construction drawings, material specifications, or the contractor’s requests, thereby causing the project schedule to be delayed.
In such circumstances, where it can be demonstrated that the delay was not attributable to the contractor’s default, the contractor is entitled to apply for an extension of time in accordance with the contractual provisions. In certain cases, the contractor may also be entitled to relief from liquidated damages or to compensation for additional costs incurred as a consequence of the acts or omissions of the government agency. Such entitlement, however, does not arise automatically. The contractor must comply strictly with the procedures and time limits prescribed by the contract, including giving written notice of the delaying event within the specified period, submitting a formal application for an extension of time, and providing sufficient supporting reasons and documentary evidence. Failure to comply with these contractual procedures may result in the contractor losing the right to rely upon such circumstances, even where the delay was not caused by the contractor.
The Supreme Administrative Court has consistently held that, before imposing liquidated damages, terminating the contract, or placing a contractor on the Debarred Contractors List, the government agency must conduct a complete examination of the factual causes of the delay. Where the evidence establishes that the delay resulted wholly or partly from the acts or omissions of the government agency, the agency cannot lawfully shift the entire burden of liability onto the contractor. The exercise of administrative discretion must therefore be based upon a complete assessment of the relevant facts and must comply with the principles of good faith, proportionality, and fairness, rather than relying solely upon the fact that the construction works were not completed within the contractual period.
Another significant issue concerns the burden of proof. As a general principle, where the contractor asserts that it should not be held liable, the contractor bears the burden of proving that the delay or damage was not caused by its own fault. Proper project documentation is therefore of paramount importance. Contractors should maintain systematic records of notices, correspondence exchanged with the government agency, minutes of meetings, site inspection reports, photographs recording the progress of the works, variation orders, and documentary evidence relating to site handover, approval of construction drawings, and delivery of construction materials. Such documents frequently constitute the principal evidence relied upon by the Administrative Court in determining whether responsibility for the delay rests with the contractor or with the government agency.
From a risk management perspective, many contractors focus primarily on winning the procurement process but overlook the importance of contract administration after the award. In reality, maintaining comprehensive project records, documenting significant events, and communicating regularly with the government agency are factors that may ultimately determine the outcome of future disputes to the same extent as the applicable legal principles. Complete documentary evidence not only reduces the risk of liquidated damages or contract termination but may also play a decisive role in protecting the contractor from being placed on the Debarred Contractors List and in preserving its eligibility to participate in future government procurement projects.
Analysis of Supreme Administrative Court Precedents: The Scope of Governmental Powers to Terminate Contracts, Forfeit Performance Security, and Debar Contractors
Although the Public Procurement and Supplies Administration Act B.E. 2560 (2017) empowers government agencies to adopt various measures for the protection of the State’s interests where a contractor breaches a public contract, such powers are not absolute and may not be exercised without limitation. Rather, they must be exercised in accordance with the rule of law, the principles of legality, good faith, proportionality, and procedural fairness, all of which have been consistently affirmed in the jurisprudence of the Supreme Administrative Court.
The decisions of the Supreme Administrative Court demonstrate that the determination of whether a contractor has breached a government contract cannot be based solely upon the fact that the construction project was delayed or remained incomplete. Instead, the Court requires a comprehensive examination of all facts and circumstances throughout the duration of the contract, including whether the government agency itself contributed to the delay, and whether the agency complied with all statutory and contractual procedures before exercising its powers.
1. Contract Termination Must Be Based upon Legitimate Grounds and Lawful Procedures
The termination of a government construction contract constitutes an exercise of administrative power that significantly affects the contractor’s legal rights. Such termination not only brings the contractual relationship to an end but may also give rise to liability for damages, forfeiture of the performance security, and subsequent consideration for debarment.
For this reason, the Supreme Administrative Court has consistently held that a government agency must establish that the contractor has committed a material breach of contract and that all contractual procedures have been fully observed before terminating the contract. Such procedures include issuing appropriate warning notices, granting the contractor a reasonable opportunity to remedy the breach within the prescribed period, and giving proper consideration to the contractor’s explanations and supporting evidence.
Where the facts reveal that the delay resulted from the government’s own acts or omissions—such as delayed site handover, revisions to the construction drawings, suspension of the works, or other actions attributable to the government agency—it may be unlawful to conclude that the contractor alone is responsible. In such circumstances, the exercise of discretion to terminate the contract may be held unlawful and the termination order may be revoked by the Administrative Court.
2. Forfeiture of Performance Security Requires a Clear Legal Basis
The purpose of a performance security is to protect the interests of the State by ensuring the contractor’s due performance of its contractual obligations. It is not intended to function as an automatic penalty whenever delays occur during the execution of the works.
The Supreme Administrative Court has repeatedly held that the forfeiture of performance security is lawful only where the government agency can establish that the contractor was genuinely in breach of contract and that the termination of the contract or the exercise of other contractual remedies was itself lawful. If it is subsequently established that the loss was not caused solely by the contractor, or that the contract termination was unlawful, the forfeiture of the performance security lacks a proper legal foundation, and the Court may order that the performance security be returned to the contractor.
This principle reflects that, although the performance security serves as an important mechanism for protecting the State’s interests, its forfeiture must remain consistent with the principles of proportionality and fault-based liability, rather than being employed as an excessive or punitive sanction.
3. Debarment Must Comply with the Principles of Administrative Fairness
Debarment constitutes one of the most severe administrative measures available against a contractor because it restricts the contractor’s eligibility to participate in future government procurement, thereby affecting business opportunities, commercial reputation, and long-term economic interests.
Given the substantial impact upon the constitutional freedom to conduct business, the Supreme Administrative Court has placed particular emphasis upon procedural fairness in the exercise of administrative discretion. The Court has consistently held that the government agency must conduct a complete investigation of all relevant facts, provide the contractor with an adequate opportunity to explain the circumstances and submit supporting evidence, and determine whether the breach genuinely resulted from the contractor’s own fault or from force majeure or the acts or omissions of the government agency.
Where the government agency fails to consider material facts, refuses to consider the contractor’s explanations, or is unable to establish that the contractor was responsible for the breach, an order placing the contractor on the Debarred Contractors List is liable to be set aside by the Administrative Court on the grounds that it violates the principles of legality and administrative fairness.
Practical Observations
The jurisprudence of the Supreme Administrative Court demonstrates that the Court has never denied the State’s right to protect the public interest. Rather, it has consistently required that every exercise of governmental power be grounded upon the rule of law and a reasonable exercise of administrative discretion.
Accordingly, even where a contractor has breached the contract, measures such as contract termination, forfeiture of performance security, or debarment will be lawful only if the government agency has complied with all procedures prescribed by law, has thoroughly examined all relevant facts, and has established that the damages sustained were in fact caused by the contractor’s breach.
Conversely, where the delay or damage results from the acts or omissions of the government agency itself, or where the agency exercises its powers without complying with the statutory requirements or procedural safeguards, such administrative actions remain subject to judicial review by the Administrative Court and may be annulled or modified. This approach maintains an appropriate balance between the protection of the public interest and the protection of private rights, which remains one of the fundamental principles of Thai administrative law and good governance.
Conclusion
Being selected as a contracting party by a government agency is not merely a commercial opportunity; it also constitutes participation in the performance of public functions involving the expenditure of public funds and the provision of public services for the benefit of society as a whole. Consequently, the legal relationship between the State and its contractor possesses distinctive characteristics that differentiate it from ordinary commercial contracts between private parties. Although it is fundamentally governed by the principles of contract law, the exercise of contractual rights and the performance of contractual obligations must also take into account the public interest, the principles of good governance, and the efficient administration of public affairs.
From the perspective of legal liability, a contractor that fails to perform its contractual obligations may be exposed not only to civil liability for damages but also to administrative measures and statutory sanctions under the public procurement regime. These include the imposition of liquidated damages, termination of the contract, forfeiture of the performance security, claims for additional damages, and placement on the Debarred Contractors List. Each of these measures may have a significant impact upon the contractor’s commercial standing and its eligibility to participate in future public procurement projects. Furthermore, where the facts reveal fraudulent conduct, bid-rigging, the submission of false documents, or other criminal offences in connection with the procurement process, the persons concerned may incur concurrent civil, administrative, and criminal liability. This demonstrates that the legal consequences arising from breaches of government contracts are considerably broader and more severe than those arising from ordinary commercial disputes.
Nevertheless, the protection of the State’s interests does not imply that government agencies may exercise their powers without limitation. As consistently recognised by the Supreme Administrative Court, any administrative measure affecting the rights of a contractor must comply with the principles of the rule of law, legality, proportionality, and procedural fairness. Before exercising any contractual or statutory remedy, the government agency must conduct a comprehensive investigation of the relevant facts, provide the contractor with an adequate opportunity to present explanations and supporting evidence, and carefully determine the true cause of the contractual breach. Conversely, where the contractor establishes that the delay or failure to perform resulted from force majeure or from the acts or omissions of the government agency itself, the contractor remains entitled to the legal protections afforded under Thai law.
From a practical perspective, the risks associated with government contracts can be substantially mitigated through effective contract administration from the outset of the project. Contractors should carefully assess their financial capacity, personnel, equipment, technological resources, and subcontracting arrangements before undertaking public projects. They should also ensure strict compliance with contractual procedures and maintain complete documentary records, including correspondence, meeting minutes, progress reports, variation orders, and other project records throughout the execution of the works. Such documentation frequently becomes indispensable evidence in establishing the relevant facts and safeguarding the contractor’s legal rights should disputes subsequently arise.
Ultimately, participation in public procurement should not be viewed merely as competition on the basis of price. Equal importance should be given to the contractor’s ability to perform its contractual obligations throughout the entire duration of the project. Contractors that undertake a realistic assessment of their capabilities, maintain robust contract management systems, and implement effective risk management practices are significantly better positioned to avoid contractual disputes and to perform government projects successfully and sustainably. At the same time, government agencies must exercise their statutory powers within the framework of the law and in accordance with the principles of good governance, thereby maintaining an appropriate balance between the protection of the public interest and the protection of the rights of contracting parties. Such balance remains one of the fundamental pillars of a transparent, fair, and credible public procurement system, benefiting the public sector, the private sector, and society as a whole.
Disclaimer
This article has been prepared solely for the purpose of providing general legal information and does not constitute legal advice for any specific case. Legal advice should be obtained from a legal professional in order to ensure that it is appropriate to the facts and objectives of each individual. All rights reserved under the Copyright Act B.E. 2537 (1994).
Author: Pinprapus Chartikavanich
Date: 23 July 2026