Temporary advances for public procurement

The war in Ukraine and the sanctions against Russia have led to significant - in some cases extreme - price increases and price fluctuations. Given the liquidity problems facing contractors, it is appropriate that a procurer, can accommodate its contractor with an advance payment. The Royal Decree or RD on the granting of an advance in public procurement due to the economic situation following the war in Ukraine came into force on 19 December 2022 and provides for this possibility until 31 December 2023.

Article 67 of the RD of 14 January 2013 defining the general rules of implementation of public procurement already provides for the possibility of granting advances. However, the existing possibilities are subject to strict and complicated conditions. In the exceptional cases where an advance is granted on this ground, conditions are also attached to it. Implementation thus entails an (additional) administrative burden. Nevertheless, the existing possibilities regarding advances also remain applicable.

1.   Which public contracts are eligible?

Contracting authorities may grant advances in the following cases:

• For contracts that were already in execution at the time this RD entered into force;
• For contracts that were already published (or should have been published) or for which the invitation to participate had already been sent at the time of entry into force of this Decree;
• For tenders that will be published today, provided that the possibility of an advance payment is provided for in the tender documents.

The royal decree makes no distinction based on the nature or object of the public contracts.

In principle, the RD is in force until 31 December 2023. However, there may be continued effect after this date. On the one hand, for the contracts that continue after 31 December 2023. On the other hand, it also applies to contracts for which the invitations are sent before 31 December 2023 regardless of the date of the effective award.

2.   Which public contracts are excluded?

• All public contracts with a performance period of less than two months;
• All public contracts that are excluded from the application of Article 12 WOO: low value public contracts (below EUR 30,000);
• Concessions falling within the scope of the law of 17 June 2016 on concessions;
• Framework agreements per se are excluded, but individual contracts placed under the framework agreement are eligible.

3.   Of what amount is the advance payment and within what time frame must the payment be made?

The maximum advance payment amount is 20 per cent of the original contract amount including VAT. The contracting authority obviously also has the option to award a smaller amount.

Article 2, §1 of the RD prescribes how the original contract amount is determined:

• For contracts with a term of less than 12 months, the advance on the awarded amount (incl. VAT) is calculated;
• For contracts with a duration of more than 12 months, the reference is an amount equal to 12 times the original contract amount (incl. VAT) divided by the duration of the contract expressed in months;
• For contracts of indefinite duration, the reference shall be the original monthly contract amount (including VAT) multiplied by twelve. If the order was concluded at a global price list, the original order amount is taken as reference.

The payment term of 30 days is stipulated in article 5 of the RD. The period starts from the decision to grant the advance payment. If the award of the advance is already provided for in the assignment documents, the period starts from the conclusion of the assignment. In case of late payment, in both cases the interest from article 69 of the Royal Decree of 14 January 2013 defining the general execution rules of public contracts is due. In addition, the lump-sum compensation for recovery costs is also due ipso jure.

4.   How are advances granted?

For contracts that were already in progress when the RD came into force, the contractor must submit a written, dated and signed application. This should also include all elements necessary to make the payment.

Contracts published today should include the possibility of obtaining an advance in the contract documents.

5.   How is the repayment of advances made?

The repayment of the advance will be offset against the amounts due to the contractor. Given the purpose of the measure - to avoid liquidity problems - it is not appropriate to provide for full repayment with the first invoice.
Refunds for ongoing contracts and placement procedures will be made in two stages:

• Reimbursement of the first half of the advance is made when the amount of services rendered reaches 30 per cent of the original order amount;
• Reimbursement of the second half of the advance is made when the amount of services rendered reaches 60 per cent of the original order amount.

In case of payment through a final invoice, the advance is logically settled at that time.

For contracts launched/being launched after entry into force, the percentage and conditions for reimbursement must be specified in the contract documents. It is advisable to opt for a dual reimbursement. If nothing is stipulated in the contract documents, the above 'reimbursement plan' will apply in any case.

6.   Suspension of payment?

Pursuant to article 4 of the RD, payment of the advance may be suspended in the following cases:

• If the contractor fails to fulfil his contractual obligations;
• In case of non-compliance with the provisions of Article 7 of the Law of 17 June 2016 on public procurement;
• When article 41 of the Act of 13 August 2011 on public procurement and certain contracts for works, supplies and services in the field of defence and security is breached.