TEN QUESTIONS ON NEW FINANCING FRAMEWORK
FOR PAYMENTS TO LOCAL AUTHORITY CONTRACTORS
Royal Decree-Law 4/2012 of 24 February on
the information requirements and necessary procedures to establish a
funding mechanism for payment to local authority suppliers was published
in the "Official State Gazette" on 25
February 2012 (the "RDL 4/2012").
1.
WHAT IS THE PURPOSE AND SCOPE OF RDL 4/2012?
The RDL 4/2012
introduces a mechanism for the funding, payment and cancellation of
local authority debts with their suppliers. RDL 4/2012 is a general
outline, which will shortly thereafter "be set out in an agreement
of Government’s Delegate Commission on Economic Aaffairs] ["CDAE"]".
To ensure the
system’s effectiveness, RDL 4/2012 requires local authorities to
provide information specifying the actual amount of the debt with
suppliers.
The information
will allow the local authorities to develop an "adjustment plan", which
favourable assessment by the Ministry of Finance and Public
Administration will authorise long-term debt, subject to the fiscal and
financing conditions established.
2.
WHAT IS THE DEFINITION OF "LOCAL Authority" UNDER THIS FRAMEWORK?
This funding
scheme is aimed at:
1. Entities
forming part of the local government (municipalities, provinces,
islands), both at the supramunicipal level (e.g., metropolitan areas,
associations, districts, regions, etc.) and inframunicipal
institutions (neighbourhood councils, etc.), established or recognised
by the autonomous regions.
2. Agencies
and entities answering to the above local authorities registered in
the List of Local Public Sector Entities regulated by Royal Decree
1463/2007 of 2 November, approving the implementing provisions of Law
18/2001 of 12 December on budgetary stability.
3.
WHO IS ELIGIBLE FOR THIS FUNDING SCHEME?
Contractors of “works,
services or supplies within the scope of the revised Law on Public
Sector Contracts approved by Royal Legislative Decree 3/2011 of 14
November”. Despite the literal reference to the recent text, in
principle, it should be understood that contractors who, for temporary
reasons, are subject to prior laws governing public contracts, are also
eligible.
Obligations
undertaken with the General State Administration, autonomous regions,
other local authorities, the Social Security, or any agencies or
entities answering to the same are excluded. On the other hand, the law
does not expressly include concessionaires of public works or services,
lessors, or any other local contractor.
4.
WHAT ARE the eligibility REQUIREMENTS under the funding scheme
concerning THE OUTSTANDING financial OBLIGATIONS OWED TO contractors?
To be eligible
for the scheme, the following conditions must be met:
1. The
outstanding obligations must be due and payable
2. The
administrative registry of the local authority must receive the
corresponding invoice, the letter of amendment (where appropriate), or
payment request before 1 January 2012. The law does not expressly
refer to monthly or final certificates issued in connection with works
contracts.
5.
WHAT IF THE DEBTs ARE assigned TO A THIRD PARTY?
Under RDL
4/2012, both the party that was awarded the contract and the assignee
are considered contractors.
6.
HOW CAN CONTRACTORS find out if their debts ARE ELIGIBLE FOR FUNDING?
Prior to 15
March 2012, local authorities must submit a
certified list of all outstanding obligations
with the information enumerated in article 3 of RDL-L 4/2012 to the
Ministry of Finance and Public Administration.
Local
authorities will allow contractors to consult their inclusion in the
certified list. Those Contractors not included in the list may request
that the local authority issue an
individual certificate (the Minister of Finance and
Public Administration must approve the licence application prior to 12
March 2012).
Both the
issuance of the certified list and the individual certificates require
the local authority to include the outstanding obligations in the
accounts if this has not already been done.
7.
WHAT IF the individual CERTIFICATE IS not ISSUED WITHIN 15 CALENDAR DAYS?
The failure of
the financial controller to issue the individual certificate within 15
calendar days of its request implies a right to receive payment in the
terms specified in the application on the basis of “positive silence”.
8.
HOW EXACTLY DOES THE FUNDING work?
The operating
mechanism of the funding will shortly be addressed in an agreement with
the CDAE. Nevertheless, RDL 4/2012 establishes the following general
criteria:
1. It may be
carried out in successive periods that end no later than 2012.
2. It may
establish priority of payment criteria, including the discount offered
by suppliers, seniority, or the fact that payment was demanded in
court prior to 1 January 2012.
3. A minimum
discount may be established on the principal amount that the
contractor must offer at each stage..
4. Specific
instalments for small and medium enterprises and self-employees may be
established at each stage.
9.
HOW ARE ELIGIBLE DEBTS COLLECTED?
In principle,
suppliers whose debts are listed in the certified list sent from the
local authority to the Ministry of Finance and Public Administration, in
the same manner that those with individual certificates may collect the
debt "by presenting the collection for payment in credit
institutions”. The provision is expected to be subject to further
development based on the agreements that the Ministry of Finance and
Public Administration execute with participating credit institutions.
10.
WHAT IMPACT DOES THE PAYMENT OF THE OUTSTANDING OBLIGATIONS HAVE?
The payment of
eligible debts through this mechanism implies the extinction of the debt
incurred by the local authority with the contractor, including the
principal, interest, court costs and all other expenses. Moreover, as
indicated, it is possible that the funding mechanism agreed by the CDAE
may include additional discounts or limitations.
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