Table of contents:
- What is a payment guarantee for construction works?
- Is the State Treasury as the Investor obliged to provide a payment guarantee?
- When do the new regulations apply?
- Does the current legal framework preclude the possibility of obtaining payment security when the Investor is the State Treasury?
What is a payment guarantee for construction works?
According to Article 6491 § 2 of the Civil Code, a payment guarantee is either an insurance guarantee or a bank guarantee. The purpose of the payment guarantee is to secure the legal interest of the contractor or subcontractor. A payment guarantee constitutes a unilateral obligation of the guarantor to pay a specified amount corresponding to the amount of the contractor’s or subcontractor’s remuneration for the execution of construction works, upon the contractor’s request for the issuance of the guarantee.
Is the State Treasury as the Investor obliged to provide a payment guarantee?
By the Act of July 13, 2023, amending the Act on access to environmental information and its protection, public participation in environmental protection, and environmental impact assessments, as well as certain other acts, the legislator amended Article 6491 of the Civil Code by adding §11, according to which the right to request the presentation of a payment guarantee does not apply when the Investor is the State Treasury.
The new regulation entered into force on October 16, 2023.
As a result, the amendment excluded the right of the contractor or general contractor to demand the presentation of a payment guarantee provided for in Article 6491 § 1 of the Civil Code if the Investor is the State Treasury.
In the rationale for the proposed amendments to Article 6491 § 1 of the Civil Code, it was indicated that the original reason for introducing Article 6491 of the Civil Code was the need to prevent the failure of investors and contractors to regulate payment for work performed. However, the State Treasury does not bear the risk of insolvency and non-payment of remuneration. Furthermore, the rationale for the amendment highlighted the existence of another privilege of the State Treasury in the form of a prohibition on securing claims against the State Treasury in the course of security proceedings, as well as emphasized the frequent abuse by contractors performing work for the State Treasury of demanding the issuance of a payment guarantee. It was pointed out that such a request for the presentation of a payment guarantee often serves as a precursor to terminating the contract with the investor before the investor makes such a declaration, and aims to avoid liability for breaches of the contract by the contractor.
These arguments do not seem to be sufficiently convincing and justifying the introduced change.
When do the new regulations apply?
It is worth noting that the new regulation applies not only to contracts concluded after the entry into force of the amended provision but also to construction contracts concluded before the entry into force in respect of which the contractor has not requested the presentation of a payment guarantee.
Does the current legal framework preclude the possibility of obtaining payment security when the Investor is the State Treasury?
Although the newly added Article § 11 of Article 6491 of the Civil Code deprives the contractor or general contractor of the right to demand from the investor, who is the State Treasury, the right to request the presentation of a payment guarantee for construction works regulated by civil law, it should be noted that it seems that the new regulation does not prevent the parties from including in the contract provisions that would secure the contractor’s right to receive remuneration for the execution of construction works.