News regarding payments to contractors and subcontractors – Summary

"The objective of the session has been to debate and analyze the regulatory changes produced in the Public Sector Contracts Law after the approval of Law 18/2022, assuming the contracting authority a proactive position of control of compliance with payment terms from contractors to their subcontractors and suppliers, and imposition of penalties"

The last 12 of December, FIDE held the sessionNews regarding payments to contractors and subcontractors”. As speakers, they intervened Diego Pérez, Director of the Legal-Institutional Division of AIReF and State Attorney and Francisco Pleité, Magistrate and Doctor of Law. moderated the session Alberto Palomar placeholder image, Lawyer in the Administrative Law Area, Professor of Administrative Law at the Carlos III University of Madrid and Academic Advisor of FIDE.

The objective of the session was to debate and analyze the regulatory changes produced in the Public Sector Contracts Law after the approval of Law 18/2022, assuming the contracting body a proactive position of control of compliance with the payment terms of contractors to their subcontractors and suppliers, and imposition of penalties. Likewise, the repercussion of this new regulation on Public Administrations, contractors and subcontractors has been assessed.

Specifically, two areas have been differentiated in which these novelties on public contracts are reflected:

  • At the legislative level
  • On a practical level

At the legislative level, public procurement has acquired a new purpose, since it is not only the mechanism for the purchase and sale of goods and services of the Public Administrations, but has also become a strategic instrument for the achievement of other objectives ( sustainable development, public policies, etc.).

The legislation has undergone numerous modifications to protect subcontractors and suppliers. Law 18/2022, of September 28, on the creation and growth of companies, seeks to preserve the indemnity of subcontractors (usually SMEs) and guarantee payments. In contracts for works and services of special economic relevance, contractors must provide certificates accrediting the payments made to their subcontractors and suppliers.

Public Administrations must impose ex lege Penalties to contractors for non-compliance with their payment obligations to their subcontractors on time, although for reasons of legal certainty it is recommended that such penalties be specifically provided for in the bidding documents. In general terms, the

The legislator seeks to guarantee compliance within the term of the payment obligations of the contractors to the subcontractors, who may exercise not only judicial actions, but also arbitration, to claim in this area.

The Administration stands as guarantor of the payment obligations corresponding to the contractor, through verification actions, imposition of penalties and provisional retention of the definitive guarantee.

For practical purposes, in relation to payments from the Administration to contractors, the Judgment of the Court of Justice of the European Union of October 20, 2022 pronounces on three controversial issues and susceptible to numerous interpretations related to payments to contractors in public contracts:

  • if the €40 to be paid to the contractor as collection costs is for each invoice issued

Although joint claims can be made, the amount of €40 must be paid for each invoice issued.

  • whether or not the provision of article 198.4 of the LCSP is in accordance with community regulations, by establishing a 60-day payment term as a general rule.

The community judicial resolution consolidates the commitment of the European legislator for the 30 days of payment. In general, a rule of 30 days for acceptance and 30 days for payment does not conform to the precepts provided for in Directive 2011/7/EU, of February 16, 2011, which establishes measures to combat the delinquency in commercial operations.

Although it is true that the establishment of 30 days for the acceptance of the public work or service and 30 days for payment is not in accordance with the provisions of the aforementioned Directive, there are two cases in which an extension of the term could be considered. the 60 days:

  1. The extension of the payment up to 60 calendar days for the commercial and health sectors, subject to the transmission by the affected Member State of a mandatory report to the European Commission that will be approved later with the European Parliament.
  2. The existence of an express agreement in the contracts or specifications provided that it is not abusive to creditors.

If the contractor is entitled to collect VAT interest, even if the amount has not been paid to the Tax Agency.

The VAT is included in the price of the service, so this presumption is based, although the Supreme Court had been holding that the contractor must prove that he paid the VAT to compute late-payment interest.

Additionally, this accreditation has been refined. Although, late-payment interest claims to municipalities are rare.

In its ruling, the Court of Justice of the European Union clarifies that the contractor has the right to collect VAT interest, even if the amount has not been paid to the Tax Agency.

The conclusions drawn regarding the new mechanisms introduced on public contracts are the following:

  1. The problem is one of legal certainty, since there will be many claims in this matter.
  2. The late payment has raised fears among contractors and subcontractors.
  3. Hiring has been configured as a procedure in which the burdens and responsibilities for managers are constantly increasing.

These are the developments related to payments to contractors and subcontractors that will affect public contracts as soon as the practical application of the new Law on Public Sector Contracts and the pronouncement of the Court of Justice of the European Union is carried out.

This summary has been made for Fide by Jose Carlos Perez Arias, Lawyer, Managing Partner of SMARTLOU and Doctoral student in Law (UC3M).

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