Advance on Public Works: Guide to Calculating the Contractual Advance

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Bonds and Advances: Strong Guarantees for Safe Public Contracts

The advance on public works refers to the anticipated contract price set out in the procurement code. This tool allows contractors to receive an advance on a percentage of the contract performance cost. With many changes over time, the subject finds its latest regulation in art. 125 of the legislative decree 36/2023.

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What is the Advance on Public Works?

The advance corresponds to 20% of the contract’s value. It is a mandatory payment made by the contracting station to the contractor within 15 days from the start of the work. This amount is calculated as a percentage of the overall contract value. The main goal? To provide immediate financial resources to businesses to initiate work and meet commitments and schedules.

The 20% Bond Guarantee

The advance is linked to the presentation of a bond guarantee (either bank or insurance). The amount of this guarantee is equal to the advance, increased by the legal interest rate. As the work progresses, the guarantee amount should decrease, parallel to the recovery of the advance by the contracting stations. But be careful: if the work is delayed due to the contractor, they will lose the right to the advance.

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How is the Advance Calculated?

According to art. 125 of legislative decree 36/2023, the advance is calculated at 20% of the contract value. However, the bid documents can provide for an increase up to 30%. Important: the advance is determined by applying this percentage to the contract amount, regardless of the type of contract.

The advance on public works is an essential tool to support businesses in the initial phase of work. However, it’s crucial to understand how it’s calculated and the conditions for companies to benefit from it.

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Recovery and Contractual Advance in Public Works

In the process of disbursing payments related to public works, a crucial element is the recovery of the advance. This is clearly highlighted in the payment certificates prepared for the SAL, specifying the percentage of recovery of the advance applied to the amount mentioned in the “work and supply” section.

When it comes to the advance request model for public works, the document formalizes the request for the advance on the total amount of the granted financing. This request, formulated according to legislative decree 36/2023, must comply with several regulations and standards, both at the EU and national and regional levels. Key elements to include in the advance request are:

  • Mandatory bank bond or insurance policy.
  • A detailed summary of expenses and receipts.
  • A report on the progress of the work, if necessary.

In the digital age, procurement platforms play a crucial role in the contractual advance. These platforms ensure that electronic invoices are directly linked to the advances and payments of each contract. It’s essential that they are interconnected and share documentation with the common data environment, thus facilitating the information process of design and management of work.

To deeply understand the evolution of the advance in public works, it’s useful to examine its regulatory history. Introduced for the first time in 1923, the institution has undergone several changes over the years, from the discretionary power of the administrations in the presidential decree 627/1972 to the mandatory advance according to law 741/1981. Subsequent regulations have varied the percentage of the advance, with the latest legislative decree 36/2023 confirming a 20% percentage, extendable to 30% if adequately justified in the bid documents.

Lastly, in the advance process, the RUP plays a key role in issuing payment certificates. It checks the regularity of the executor and subcontractors’ contributions and sends the certificate to the contracting station. Despite this, the issuance of the invoice by the executor does not depend on the RUP’s certification.

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The Importance of Insurance Bonds for Contractual Advance in Public Contracts

In the world of public procurement, the insurance bond has taken on a leading role, representing a fundamental pillar in the safety and guarantee system between the parties involved. Starting from its definition, the insurance bond is a guarantee offered by an insurance company in favor of the client (often a public entity), ensuring that the contractor will carry out the task as agreed. Specifically, in the context of the contractual advance, it assumes crucial importance.

The contractual advance is a common practice in public contracts, where the contracting entity advances a portion of the contract amount to the contractor before the actual completion of the work or service.

This advance aims to provide the contractor with the necessary financial resources to start the job, covering initial expenses like purchasing materials or hiring labor.

However, the advance represents a risk for the public entity: what if the contractor does not perform the work as agreed or, even worse, goes bankrupt?

That’s where the insurance bond comes into play. This guarantee serves to protect the contracting entity from any non-compliance by the contractor. In case of non-compliance with contractual obligations by the contractor, the contracting entity can call the bond, thus obtaining compensation for the sums advanced.

The presence of an insurance bond has several key advantages:

  1. Security for the contracting entity: The bond ensures that resources are available to cover expenses in case of non-compliance by the contractor. In a way, it acts as a “financial parachute,” protecting public interests.
  2. Credibility for the contractor: By presenting an insurance bond, the contractor demonstrates a certain level of seriousness and reliability in their operations. It can also be a competitive advantage during the tender process.
  3. Flexibility in financial planning: The contractor, knowing that they have a bond in place, can plan and execute the initial stages of the work with more financial freedom, optimizing cash flow and investments.

In conclusion, insurance bonds play a fundamental role in the public procurement process, especially when advances are involved. They provide both security for the contracting entity and financial flexibility for the contractor. In a market where public contracts are increasingly competitive, having a strong insurance bond can make the difference.

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