The exceptional transitory provisions on the release of public works bonds

The economic circumstances of the country and the serious financial crisis that has hit the entire construction sector has led to the government deciding to adopt measures that will enable the adverse effects of these circumstances on the lives of the companies to be minimised, therefore enacting exceptional transitory provisions regarding the release of the bonds provided for public works contracts, and affording some breathing space for them to carry out their activities in works other than public works.

These provisions apply only to public works contracts that have already been executed (under Decree-Law 59/99, of 2 March, and the Public Procurement Code) or to be executed by 1 July 2016. In other words, the new provisions will apply not only to new contracts but also to public works contracts that have already been executed, are in force and whose warranty period for proper performance of the works has not yet expired.

The exceptional provisions which have been approved provide that the site owner may authorise the staged release of the bonds provided under the contracts referred to above one year after the work has been provisionally accepted for a period of five years as follows:

1st year: Release of 30% of the total bond value;

2nd year: Release of 30% of the total bond value;

3rd year: Release of 15% of the total bond value;

4th year: Release of 15% of the total bond value;

5th year: Release of 10% of the total bond value.

This rule applies to contracts to be executed up to 1 July 2016.

As regards existing contracts, the number of full years which have elapsed since the acceptance of the work is counted and the corresponding amount is taken into account, with the remaining amount being released in the manner referred to above.

In the event that part of the bond has already been released by the site owner, the amount in question is taken into account and an adjustment made to bring it into line with the set percentages, depending on the number of full years that have already elapsed.

Naturally, the bond will only be released if the work has no defects for which the contractor is responsible or, if defects do exist, these are considered irrelevant by the site owner.

With regard to the procedure to be used to implement the release, the lawmakers have placed most of the obligations on the site owner. The process begins with an application from the contractor to the site owner by means of registered post with acknowledgement of receipt requesting, to this end, the inspection of all the works of the contractor. After this application has been received, the site owner has 30 days to order the inspection to be conducted, calling upon the contractor to be present with at least five days’ prior notice of the scheduled date by means of recorded delivery letter with acknowledgement of receipt. It should be noted that the presence of the contractor is not absolutely necessary for the inspection and, if he is not present, he inspection will be conducted in the presence of two witnesses who sign the record sheet. After the inspection, the site owner has thirty days to communicate the decision regarding the release of the bond to the contractor by means of recorded delivery letter with acknowledgement of receipt or by e-mail with a read receipt. If this decision is not communicated or if the inspection is not ordered within the established period, the release of the bond is deemed to have been authorised.

To this end, it is sufficient for the contractor to present to the bond issuer the communication with the decision or the proof of delivery of the application (or of the inspection record sheet), which documentation may be subsequently analysed and checked by the issuer.

These transitory and exceptional provisions are already in force and we will soon see whether the adopted measure will meet the objective of mitigating the negative effects of the current economic and financial crisis on construction companies or whether the effects will be practically non-existent in practical terms.

Ana Nobre de Sousa