Legislative amendments in the context of City Insurance bankruptcy

The following the legal acts were adopted by the Romanian Government at its meeting of 02.02.2022, in the context of City Insurance S.A.’s bankruptcy declared by the court of first instance[1]:

• Government Emergency Ordinance no. 19/2022 on certain measures relating to the performance guarantees in public procurement and sectoral contracts; and
• Government Decision no. 297/2022 for amending and supplementing the annexes no. 1 and 2 to the Government Decision no. 1/2018 for the approval of the general and specific conditions for certain categories of procurement contracts related to the investment objectives financed from public funds.

I.           Government Emergency Ordinance no. 19/2022 on certain measures relating to the performance guarantees in public procurement and sectoral contracts

1. In the Romanian Official Gazette, Part. I, no. 216/04.03.2022, the Government Emergency Ordinance no. 19/2022 on certain measures relating to the performance guarantees in public procurement and sectoral contracts has been published (hereinafter referred to as “GEO 19/2022”) and entered into force on the same day.
2. GEO 19/2022 applies to the following types of contracts related to investment objectives / projects financed, in whole or in part, from public funds:

• Public procurement contracts of works, supply and service regulated by Law no. 98/2016 on public procurement (hereinafter referred to as “Law 98/2016”);
• Public procurement contracts, including sectoral public procurement contracts of works, supply and service regulated by GEO no. 34/2006 for the award of the public procurement contracts, public works concession contracts and service concession contracts, approved by Law no. 337/2006;
• Sectoral public procurement contracts of works, supply and service regulated by Law no. 99/2016 on sectoral public procurement (hereinafter referred to as “Law 99/2016”);
• Public procurement contracts of works, supply and service, in the fields of defence and security, regulated by GEO no. 114/2011 for the award of certain works, supply and service contracts by contracting authorities or entities in the fields of defence and security, approved by Law no. 195/2012.

3. The aforementioned types of contracts have to be ongoing at the time the GEO 19/2022 entered into force, i.e. on 04.03.2022, and a new performance bond is required due to the withdrawal of the authorization to operate of the insurer company which issued the primary performance bond.
4. At contracting authorities’ request, starting from 04.03.2022[2] and until 11.05.2022[3], but no later than 31.01.2023, the contractor has to provide a new performance guarantee in any of the following ways:

• by bank transfer or by a guarantee instrument issued by a credit institution in Romania or in another state or by an insurance company;
• by successive deductions from the amounts due for partial invoices, if such possibility is provided within the tender documentation or, even if such possibility is not mentioned in the tender documentation, if the parties so agree by entering an addendum to the contract. The GEO expressly states that this kind of amendments agreed by the parties are not substantial changes of the public procurement contracts.

In the latter situation (in which such possibility is not mentioned in the tender documentation), the contracting authority will be the one determining the mechanism to provide the new performance guarantee, considering both the complexity of the contract and the risks involved and also the physical and value stage of the performance of the contract.

• by combining two or more of the constitutive modalities provided by law, if they are constituted at the same time, if the parties so agree by entering an addendum to the contract. The GEO expressly states that this kind of amendments agreed by the parties are not substantial changes of the public procurement contracts.

Similarly, in this case, the contracting authority will be the one determining the combining mechanism and the order of performance.

II.         Government Decision no. 297/2022 for amending and supplementing the annexes no. 1 and 2 to the Government Decision no. 1/2018 for the approval of the general and specific conditions for certain categories of procurement contracts related to the investment objectives financed from public funds

5. Government Decision no. 297/2022 for amending and supplementing the annexes no. 1[4] and 2[5] to the Government Decision no. 1/2018 for the approval of the general and specific conditions for certain categories of procurement contracts related to the investment objectives financed from public funds (hereinafter referred to as “GD 297/2022”) has been published in the Romanian Official Gazette, Part. I, no. 211/03.03.2022 and entered into force in the same day.
6. GD 297/2022 applies to new tender procedures and also to ongoing procedures for the award of public procurement contracts and sectoral public procurement contracts, at the time of its entry into force, if:

• In open tender, the bid have not been submitted;
• In other tender procedures, the applications (“candidature”) have not been submitted.

7. In such cases, the contracting authority is entitled to amend the tender documentation by including the changes made by GD 297/2022, until the closing date of the submission of the bid / of the applications. The contracting authority shall publish an erratum at least 3 days before the deadline, extending, where appropriate, the time limit for the submission of the bid / applications.
8. GD 297/2022 has been amended both annexes of GD 1/2018 in the same manner, as follows:

• Sub-clause 15.1:
• The performance guarantee shall be issued in 5 working days from the date of signing the contract, and not at the date of contract signature.
• The performance guarantee shall be submitted to the employer and to the supervisor within 3 days after the expiry date for its issuance, and not at the date of contract signature.
• Unlike the original form, the mechanisms of the performance guarantee issuance are expressly provided in the contract, respectively:
• by guarantee instrument and
• by successive deductions from the amounts due for the payment certificates, if both parties agree and if such possibility is provided within the tender documentation.

In the latter case, the contractor shall open an account at employer’s disposal, at a credit institution agreed by both parties or at the State Treasury. The initial amount shall not be less than 0,5 % of the contract price. The account will be funded by successive deductions from the amounts due to the contractor for each payment certificate up to the value of the performance guarantee. The account is interest bearing in contractor’s favour. The amount will be retained not later than the issuance of the payment certificate at the final taking over.

• Sub-clause 15.2: The second thesis of the sub-clause related to the expiry date of the performance guarantee shall apply only if it is provided by guarantee instrument.
• Sub-clause 15.3: The sub-clause related to the enforcement of the performance guarantee shall apply only if it is provided by guarantee instrument.
• Sub-clause 15.7: The sub-clause related to the case in which the issuing company of the performance guarantee can no longer fulfil its commitment, shall apply only if it is provided by guarantee instrument.
• Sub-clause 50.1: The payment application shall include the amounts retained, if the performance guarantee is established by successive deductions.
• Sub-clause 50.3: A new provision is included in the sense that if the performance guarantee is provided by successive deductions, the employer shall fund contractor’s account opened at employer’s disposal, by the deductions of the amounts due to the contractor for each payment certificate, up to the value of the performance guarantee.

9. Most of the changes were already provided by Articles 39 - 42 of Government Decision no. 395/2016 approving the Methodological Norms for the application of provisions concerning the award of public procurement contract/framework agreement set forth under Law no. 98/2016 on public procurement and Articles 45 - 48 of Government Decision no. 394/2016 approving the Methodological Norms for the application of the provisions concerning the sectoral public procurement contract/framework agreement set forth under Law no. 99/2016 on sectoral public procurement.
10. Concluding, GD 297/2022 expressly includes in the conditions of contract governed by GD 1/2018 the guarantee issuance mechanisms, with provisions that were basically already laid down by the Government Decision no. 395/2016 and Government Decision no. 394/2016.

[1] Please note that as of 09.02.2022, Bucharest Tribunal decided, by an enforceable judgment rendered in case file no. 27011/3/2021, to open the bankruptcy procedure against City Insurance S.A. The decision has been appealed on 21.02.2022 by the Financial Supervisory Authority, but until today, no decision was rendered by the court of appeal.

[2] The day EGO 19/2022 entered into force,

[3] The expiration of 90 days from the date Bucharest Tribunal decided to open the bankruptcy procedure against City Insurance.

[4] Annex 1 is related only to the execution of works.

[5] Annex 2 is related to the design and build.

Read more