New Repricing Regime for Public Work Contracts

Decree 490, published in the Official Gazette on October 2, 2023 and in force since then, approved a new regime for repricing public works and public work consulting contracts of the Federal Public Administration, thus replacing the regulations in Decree 691/2016. Decree 490 was issued both as Presidential Decree and as Regulatory Decree of the Public Work Law.

Decree 490 applies to the Federal Public Administration but keeps the invitation for provinces, the City of Buenos Aires, municipalities, state-owned companies and corporations, corporations with majority-state participation, and trust funds fully or partially composed of assets and/or funds of the Federal State to adhere to it or to issue similar rules in their jurisdictions.

The recitals mention the importance of reviewing the current methodology to simplify the procedures involved, and to guarantee the preservation of the contract's economy and the regularity in the of the work plans and their timely fulfilment. In this sense, Decree 490 aims to give the investment processes greater certainty and greater transparency for the Repricing Regime.

Substantial aspects of the Repricing Regime

Decree 490 does not modify the scope of Decree 691: it also applies to the Federal Public Administration, meaning the central Administration and decentralized agencies (including social security institutions). However, there are some new relevant aspects to it.

First, if the public work contracts celebrated with the Provinces, the City of Buenos Aires, the Municipalities, or other public entities received financial assistance from the Federal Government, the jurisdiction responsible of completing the work must approve the Repricing Regime following the guidelines in it. Second, those receiving said financial assistance may request the Federal Government to recognize the impact of the approved repricing on the amount of the fulfilled financing agreement.

Decree 490 allows starting a Repricing Regime procedure when the alteration of the economic-financial equation is at least 2% when applying the mathematical expression in the Repricing Regime (Decree 691 determined a 5% threshold).

It also establishes the general principles that apply to the Repricing Regime: maintenance of the original economic-financial equation of the contract; commutativity of the public work contract; equity and good faith in its application and interpretation; the efficiency, effectiveness, and speed of the procedures in the Repricing Regime; transparency and publicity; and collaboration between parties.

As in Decree 691, the new prices  may be calculated weighting how these factors affect the total price:

1. cost of materials and other goods incorporated to the work,

2. cost of labor,

3. amortization of equipment and its repairs and spare parts, and

4. any other element that the principal owner may find significant.

The bidding documents for each procedure must include the weighting structure of the main inputs and the source of price information. The price information must be the one reported by the National Institute of Statistics and Censuses (INDEC) or by other official technical agency approved by the principal, depending on the case.

The cost-weighting structure of the contract will be considered: it will be composed of the most representative items of the work, defined by the principal, according to the type of work. As with Decree 691, increases in tax, customs, or social security contributions transferable to the final consumer will be recognized in the price paid to the contractor.

Another innovation Decree 490 introduces is that the costs of the contractual obligations not fulfilled in accordance with the approved work plan will be settled based on the prices equivalent to the month of completion, notwithstanding fines and penalties.

Regarding the procedure, Decree 490 states that the prices of completed items will be provisionally adjusted when the economic-financial equation is altered in a 2% threshold and this is proved with the corresponding certificate. However, the prices of the obligations of the contract that are pending to be fulfilled must be definitively repriced by the time the contract finalizes. The differences between the provisional and definitive adjustments must be settled at the values of the month of the last Repricing Regime.

Decree 490 also provides that, for each approved certificate, the principal must determine the new amount of the contractual guarantee. No payment can be made until the contractor files that new guarantee replacing the former one.

Regarding the definitive repricing, the contractor must submit the corresponding calculation digitally within 90 calendar days as of the execution of the provisional acceptance act.

Finally, in its transitory clauses, the Repricing Regime establishes how it will apply to selection procedures where there is no economic bid submitted, where there is an economic bid submitted but not awarded, and where there is an award or work in progress.

The economic context of recent years brought about the need to update Decree 691 and establish a new repricing regime that enhances the possibility of fulfilling ongoing and future public work contracts. It will be important to analyze the evolution of the macroeconomic conditions and the implementation of Decree 490 to verify whether the aim of maintaining the balance in the economic equation of contracts is achieved.