In the intricate mosaic of public procurement and public-private partnerships (PPPs), administrative bonds emerge as a cornerstone, underpinning the structural integrity of project delivery and contractual liability. Administrative bonds in Panama are required by the Unified Text of Law 22 of June 27, 2006, which regulates public procurement, ordered by Law 153 of 2020, as well as by Resolution No. 2259-2023-LEG/FySE of August 10, 2023, issued by the Office of the Comptroller General of the Republic, which regulates the bonds issued to guarantee the State contractual obligations, establishes their models and derogate Decree No. 33-Leg of September 8, 2020. Therefore, any project carried out under the country’s public procurement figure requires administrative bonds.
The administrative bond is a contract contained in a short and general text document, which binds the Guarantor, which may be constituted by one or more insurance companies or banking entities, who is the Guarantor of the fulfillment of an obligation of a natural or legal person, called Guarantor, towards a third party, constituted by the corresponding state entity and the Comptroller General of the Republic, called the Beneficiary State Entity.
The significance of administrative bonds
Administrative bonds in Panama are much more than a legal requirement: they are an indispensable tool for success in Panama’s complex world of public procurement.
Entrepreneurs and investors who venture into the field of public tenders, should know that administrative bonds play different roles:
- Risk management: Risks associated with non-compliance or breach of the contract are transferred to the guarantee. This risk transfer mechanism is crucial in projects involving significant financial disbursements and complex regulatory environments.
- Improved credibility: Participation in public contracts often requires demonstrating financial stability and operational reliability. Administrative bonds indicate a company’s commitment to meeting its obligations, thus increasing its credibility with government entities and the general public.
- Regulatory compliance: They ensure that companies adhere to relevant laws and regulations. This compliance fosters a fair and competitive environment for all stakeholders.
- Project continuity: In the event of non-compliance, the guarantor assumes responsibility for the completion of the project, either financially or by arranging for another contractor to take over. This safeguarding of continuity is vital for projects that are essential to society.
- Promote responsible bidding: They discourage frivolous or unqualified bids since it is necessary to demonstrate financial stability and operational capacity to obtain a bond. Viewed from another point of view, it reduces competition in tender bids.
- Trust-Building: They assure government agencies and the public that private companies are committed to their obligations, creating a foundation of trust essential to successful collaboration.
- Redhibitory defects or construction defects: Compliance guarantees play a fundamental role in the post-contractual stage, supporting the sustainability of projects even after contracts have been settled.
Facilitating administrative bond solutions
In Panama, we are specialists in public procurement and public-private partnerships. We have the experience and knowledge to advise entrepreneurs and investors who participate in public procurement procedures and the development of large infrastructure projects, so that they can be selected, thanks to the presentation of solid proposals that comply with all the standards of the specifications, contractual provisions and regulatory frameworks, and therefore, come to formalize contracts accompanied by administrative bonds that demonstrate to the contracting government entity, that the private company has the capacity and stability to meet their expectations, and therefore satisfy the public interest.
We aim to ensure our clients comply with their legal and contractual obligations; while positioning themselves competitively in the Panamanian economic sector.
In an environment where transparency, compliance, and financial security are fundamental pillars, professional advisors’ support can ensure the success of significant projects that leave a positive mark on Panama’s progress and well-being.
