In a recent 2025 legal opinion, the National Public Procurement Agency – Colombia Compra Eficiente (hereinafter, the “Agency”) clarified the procedure that state entities must follow to declare the occurrence of a loss and claim the indemnity covered under the construction stability and quality coverage of a performance bond.

In the case under consultation, the construction contract was executed under the special regime set forth in Article 66 of Law 1523 of 2012, and the works executed collapsed during the validity of the construction stability coverage.

In this regard, the Agency made the following considerations on insurance matters:

1. Unilateral declaration of the loss
   
   The occurrence of the loss may be unilaterally declared by the public administration through an administrative act. This authority is provided for in the General Statute on Public Procurement (hereinafter, “GSPC”) and differs from the claim’s procedure set forth in Articles 1075 et seq. of the Colombian Commercial Code, which apply to insurance contracts entered by private parties.
   
   The administrative act issued by the public administration is sufficient to evidence the occurrence of the insured risk and operates as an order for the insurer to pay the indemnity.
    
2. Entities outside the general public procurement regime
   
   Although entities excluded from the GSPC do not have an express legal provision authorizing them to unilaterally declare the occurrence of a loss, the case law of the Council of State has recognized that, based on Articles 3 and 99 of Law 1437 of 2011, such entities may also declare the loss unilaterally without resorting to the contract judge. The unilateral declaration of the loss derives from an administrative privilege, not from a sanctioning power.
    
3. Difference between the performance coverage and the construction stability coverage
   
   The Agency clarified that declaring the occurrence of a loss is not a sanction, but rather a measure aimed at protecting the assets of the public administration.
   
   Thus, once a sanction has been imposed on the contractor, an entity subject to the GSPC may declare the breach, notify the insurer, and claim the indemnity under the performance coverage of the insurance, pursuant to Article 86 of Law 1474 of 2011.
   
   However, this provision does not cover losses occurring under the construction stability coverage, which refer to defects or flaws identified after the satisfactory delivery of the works, affecting their quality and requiring repair. For these cases, the general administrative procedure set forth in Article 34 of Law 1437 of 2011 applies.
    
4. Statute of limitations
   
   Finally, the Agency recalled that state entities have a limited period to exercise their powers and emphasized that the date on which the loss occurs should not be confused with the time frame the administration has to declare it.
   
   For an event to be deemed a loss, it must occur within the validity period of the insurance. However, its declaration and the claim for indemnity may be made after the expiration of the relevant coverage, provided that the administrative act is issued before the statute of limitations of the action derived from the insurance contract, pursuant to Article 1081 of the Colombian Commercial Code.