Guarantees for the execution of high-value works

NORMATIVE REFERENCE
Art. 104

GENERALITY
The “performance guarantee” and the “resolution guarantee” represent one of the main innovations introduced by the new Code of Public Contracts.
These guarantees are aimed at ensuring a particular instrument of protection for the Public Administration concerning the execution of contracts solely related to works of significant economic relevance. Therefore, they do not apply to contracts concerning supplies or services.
These two guarantees effectively replace the so-called “global execution guarantee” — provided for by Legislative Decree 163/2006 — which was never actually implemented.
Both guarantees are provided — instead of the definitive guarantee referred to in Article 103 — for the awarding of work contracts to general contractors of any amount, and, when provided by the notice or competition announcement, for contracts with a bidding base exceeding €100 million.
Both guarantees can also be requested in the event of contract termination with the original contractor if the work is awarded to a new party.

THE PERFORMANCE GUARANTEE
Establishment: It must be established in the same manner as the traditional definitive bond referred to in Article 103, paragraphs 1 and 2.

MAXIMUM AMOUNT:
Fixed at 5% of the contract amount, without applying increases based on the percentage of the discount; reductions are not provided based on the progress of the work.

RELEASE:
It is effective from the date of finalization of the contract and ceases to be effective on the date of issuance of the provisional testing certificate or regular execution certificate, or, in any case, up to 12 months from the completion date of the works as indicated in the relevant certificate.

CONTENT:
It guarantees the fulfillment of the obligations and burdens assumed with the signing of the contract and the compensation for damages resulting from any non-fulfillment, particularly concerning the reimbursement of higher amounts paid by the contracting authority compared to the final settlement results of the executed services, as well as those paid for non-compliance with the rules and regulations regarding the protection, safeguarding, insurance, and physical safety of workers.
Therefore, coverage for the higher costs possibly incurred for completing the contract in case of contract termination to the detriment of the contractor is excluded. This coverage is instead guaranteed by the resolution guarantee.

THE RESOLUTION GUARANTEE
Nature: It is accessory to the performance guarantee and operates in cases of contract termination provided for by the civil code and the Code of Public Contracts itself.

MAXIMUM AMOUNT:
Set at 10% of the contract amount, with an absolute maximum limit of €100 million.

RELEASE:
Effective from the date of finalization of the contract, this guarantee is also not subject to reductions based on the progress of the work, and it is released:

on the date of issuance of the completion certificate;
following enforcement or three months after the date of re-awarding the work to another party.

CONTENT:
The policy guarantees, within the limits of the actual damages suffered:
the costs for re-awarding procedures by the contracting authority, as well as any additional costs between the original contract amount and the contract amount for the re-award.

Type
Contract Guarantees.

Group
Public Contracts.

Legal References
Legislative Decree 18.04.2016 No. 50 “Code of Public Contracts” Art. 104
Legislative Decree 19.04.2017 No. 56 “Supplementary and Corrective Provisions to Legislative Decree 18 April 2016 No. 50.”

Usual Contractor
The executor of the contracted works.

Usual Beneficiary
Public Contracting Authority.

Duration
Until the date of issuance of the provisional testing certificate or the completion certificate.

Extensions
Yes, extensions are provided.

Particular Clauses Usually Required
For the resolution guarantee, payment within 30 days instead of the usual 15 days provided for other surety bonds.

Specific Documentation to Acquire
Award letter;
Draft of the contract;
Work schedule.