D Insurance Broker

The new Public Procurement Act, adopted in February 2016, provides for the use of an insurance contract as a performance guarantee for a public procurement contract. Article 111 of the new Public Procurement Act provides for three types of performance guarantee under a public procurement contract:

Previously, the available options were limited to a bank guarantee or cash deposit. The introduction of a guarantee in the form of insurance is new in Bulgaria, but has long been established practice in other European countries.

This allows the contractor to retain working capital and therefore participate in many more projects than would otherwise be possible. This is especially important for SMEs, whose capacity to take on other work is often completely restricted after they undertake a single larger project.

Surety bond insurance is a tripartite agreement between the contracting authority, the contractor and the insurer, guaranteeing performance of the contractor’s obligations. It is not a conventional form of insurance, but is offered as such because it is essentially a risk-transfer mechanism. A distinctive feature of this type of agreement is that it is always concluded between three parties, while payment of compensation activates the insurer’s right of subrogation against the insured. Surety bond insurance cannot exist independently and is always concluded as an addendum to a signed performance contract.