New Public Contracts Code

The new public contracts code i.e. Legislative Decree No. 36/2023 (the "New Code") was published in the Official Gazette on 31 March 2023.

The New Code, which consists of 229 articles, is divided as follows:

• Book I - Principles, digitisation, programming and design;
• Book II - The contract;
• Book III - Contracts in the Special Sectors
• Book IV - Public-private partnerships and concessions;
• Book V - Litigation and the National Anti-Corruption Authority. Final and transitional provisions.

The New Code will become effective on 1 July 2023 (Art. 229) and will repeal Legislative Decree No. 50 of 18 April 2016 ("the Existing Code"). This means that, as of 1 July 2023, the provisions of the Existing Code will continue to apply exclusively to proceedings that will be ongoing as at such date. The New Code also provides for an interim period in which certain provisions of the Existing Code shall continue to apply until 31 December 2023 (Art. 225).

Some of the main new features introduced by the New Code are summarised below.

Planning (Art. 39)

With regard to the planning of strategic infrastructures, the New Code provides for:

• the direct inclusion of strategic infrastructures in the economic and financial document issued by the Government;
• the reduction of design deadlines;
• the establishment by the Higher Council of Public Works (Consiglio Superiore dei Lavori Pubblici) of a special committee dedicated to the examination of such strategic infrastructures;
• a mechanism for overcoming qualified dissent in the steering committee (conferenza di servizi) through approval by decree of the President of the Council of Ministers.

Design Levels (Art. 41)

The design levels are reduced to two (technical and economic feasibility design as well as executive design) instead of the three levels (preliminary, final and executive design) provided for by the Existing Code.

Integrated Contract (Art. 44)

For construction contracts (appalti di lavori) (except ordinary maintenance contracts) the contracting authority may provide that the subject matter of the contract is the executive design and execution of the works on the basis of an approved technical and economic feasibility design.

Rotation Principle (Art.49)

With reference to contracts below the EU thresholds (please see next paragraph for details), according to the rotation principle, the award of a contract to the outgoing contractor is prohibited in cases where two consecutive awards relate to a contract in the same product sector, or in the same category of works, or in the same service sector. However, in motivated cases with reference to the structure of the market and the actual absence of alternatives, as well as the accurate performance of the previous contract, the outgoing contractor may be reinvited or be identified as a direct contractor.

Construction Contracts below the EU thresholds (Art. 50)

Currently, the EU threshold for construction contracts (including concessions) is equal to Euro 5,382,000 (Art. 14, par. 1, lett. a).

The New Code, with reference to construction contracts below such threshold, provides the following awarding procedures:

• for contracts below Euro 150,000: direct awarding, even without consulting more than one bidder, provided that the selected party has documented past experience suitable for the performance of the contract; such party may also be identified among those registered in lists or registers established by the contracting authority;
• for contracts between Euro 150,000 and Euro 1 million: negotiated procedure without prior call for tenders, after consulting at least five players (if any) identified on the basis of market surveys or through lists of players, (in this case the rotation principle does not apply when the market survey has been carried out without setting limits on the number of players having the necessary requirements to be invited to the subsequent negotiated procedure);
• for contracts between Euro 1 million and the EU thresholds: negotiated procedure without prior call for tenders, after consulting at least ten players (if any) identified on the basis of market surveys or through lists of players, , without prejudice to the possibility of using ordinary procedures (in this case the rotation principle does not apply when the market survey has been carried out without setting limits on the number of players having the necessary requirements to be invited to the subsequent negotiated procedure).

Price Revision (Art. 60)

The New Code requires to include price revision clauses (to be triggered upon the occurrence of a cost variation greater than 5 % and applicable to 80 % of the variation) in the tender documents in consideration for the rising cost of materials.

Grounds for exclusion (Art. 94-98)

The New Code includes several articles dedicated to the grounds of exclusion (automatic and otherwise) from the tender procedure, clarifying and specifying principles previously developed by case law and the Anti-Corruption Authority (ANAC).

Subcontracting (Art. 119)

The New Code abrogates the prohibition of the so-called cascade subcontracting (subappalto a cascata). However, contracting authorities may indicate in the tender documents the works or services that may not be further subcontracted.

Enforcement of the contract (Art. 124)

In the event of bankruptcy of the contractor, there will be no automatic annulment of the contract, but the contract may be entered into with the liquidator authorised to run the contractor's business provided that (i) the contract was awarded to the contractor before the declaration of bankruptcy and (ii) the entry into is authorised by the relevant court.

Economic and financial balance - Public contribution (Art. 177)

The New Code introduces significant changes concerning the limit on public contribution for the purpose of achieving economic and financial balance in concessions. In particular, the 49% limit provided by the Existing Code has been lifted. For public accounting purposes only, the Eurostat decisions shall apply. In any case, the possible recognition of a public contribution exceeding the percentage indicated in the Eurostat decisions and calculated in accordance with the methods provided for therein does not permit off-balance-sheet accounting.

Prohibition of extension of concessions (Art. 178)

The New Code includes a general prohibition to extend the term of concessions except in case of extraordinary and unforeseeable events that significantly affect the economic-financial balance of the concession.

Contracts awarded without a tender as referred to in Article 186, par. 2, cannot be extended under any circumstances.

Only in case of motorways and only for the time period strictly necessary to carry out the procedures to select the new concessionaire at the end of the concession, the operation of the motorway is entrusted to the Ministry of Infrastructure and Transport (MIT) which, in relation to the specific nature of the motorway section, in order to ensure adequate safety and road safety standards, assesses the most suitable model of transitional operation, also in relation to the economic conditions.

Concessions (Art. 186)

With reference to concessions having a value above EU thresholds, already in force at the date of entry into force of the New Code and not awarded in accordance with EU Law, the concessionaires must contract out (appaltare) to third parties (through public tendering procedures) between 50% and 60% of the works, services and supplies. The obligation does not apply to the so-called special sectors (railways, airports, gas, electricity).

Contract Revision (Art. 192)

The contract may be revised to the extent strictly necessary to bring it back to the levels of balance and risk transfer agreed upon at the time of its entry into, upon the occurrence of extraordinary and unforeseeable events (including changes of law or regulation), which significantly affect the economic-financial balance. In any event, the New Code prohibits changes that alter the nature of the concession as well as substantial changes that, had they been included in the initial tender procedure, would have allowed other bidders to be admitted or awarded.

Project Finance (Art. 193 and 194)

The New Code simplifies the rules and details certain procedural steps that have been interpreted by the case law in the past, as summarised below.

The joint venture members of a bidder may change until the submission of the bid.

The role of institutional investors is strengthened. Such parties can deliver project finance proposals without prejudice to the need, in the subsequent invitation to tender, to partner with players having the requirements provided by the tender documents (availment – avvalimento - can also be used for the purpose of meeting tender requirements).

The New Code eliminates the possibility for public authorities to start project financing initiatives (so that only private initiative is permitted). However, public authorities may solicit private parties to promote initiatives aimed at implementing the projects included in the public-private partnership planning instruments.

It is confirmed (with respect to the Existing Code) that the promoter which does not win the tender may exercise the pre-emption right (diritto di prelazione).

For contracts with a value above the EU threshold (i.e., Euro 5,382,000), the contractor shall establish a SPV in the form of a joint stock company (S.p.A.) or limited liability company (S.r.l.). The call for tenders shall indicate the minimum share capital of the SPV. In the case of a bidder consisting of several entities, the percentage of the share capital of the SPV to be owned by each such entity shall be indicated in the bid, otherwise the bid will be excluded. The SPV steps into the concession without the need for approval by the awarding authority. The concession contract sets out the requirements for the transfer of the SPV's shares, it being understood that the shareholders who have contributed to the qualification requirements are obliged to participate in the SPV and guarantee the proper fulfilment of the concessionaire's obligations until the works test certificate (certificato di collaudo dell'opera) is issued.

Project Finance - Project Bonds (Art. 195)

SPVs which are specifically set up following the award of a concession may issue bonds and debt securities (even in derogation of the limits set out in Articles 2412 and 2483 of the Italian Civil Code) provided that they are intended for subscription by the institutional investors and professional clients indicated in Article 6, paragraphs 2-quinquies and 2-sexies, of Legislative Decree No. 58 of 24 February 1998 (TUF), and in the implementing regulations, or by their parents and subsidiaries. The New Code has thus broadened, compared to the Existing Code, the range of possible subscribers of project bonds (previously limited to institutional investors only).

Such bonds may be issued exclusively to finance or refinance the debt for the construction of the infrastructure or works related to the public utility service of which the SPV is in charge.

Assignment/pledge of SPVs' receivables (Art. 199)

Differently from the Existing Code which required the consent of the grantor in its capacity as assigned debtor, all the receivables of the SPV, present and future, including those from the grantor and other public authorities, may be pledged or assigned by way of security by the SPV to banks or other financing entities, without the consent of the grantor/assigned debtor, even when the receivables are not yet due and payable (liquidi ed esigibili).

General Contractor (Art. 203 and 204)

The role of the general contractor is reintroduced. The general contractor is awarded a global services contract, i.e. a contract whereby the general contractor is required to pursue an administrative result, in consideration for a remuneration determined in relation to the result obtained and the activity normally required to obtain it.

Authors: Elena Giuffrè, Partner; Carloandrea Meacci, Managing Partner; Umberto Antonelli, Partner; Annamaria Pinzuti, Partner