In a recent 2025 decision, the Council of State (hereinafter, the “CE”) ruled on the statute of limitations applicable to performance bonds that guarantee contracts governed by the public procurement regime.

The case originated from a works contract executed in 2009 and completed on May 6, 2011. The contracting entity (insured and beneficiary under the performance bond) had conducted two administrative proceedings for contractual breach by the contractor: the first concluded with the insurer’s payment of the indemnity in 2012, and the second, through two administrative resolutions issued in October 2014 and January 2015, ordered once again the payment of the indemnity under the performance bond. The insurer that issued the policy filed a claim seeking the annulment of these two latter administrative acts.

In judicial proceedings, the court of first instance denied the insurer’s claims. This decision was overturned by the CE, which made the following clarifications:

1. Application of Article 1081 of the Commercial Code

The statute of limitations applicable to actions arising from the insurance contract is governed by the provisions of the Commercial Code, even when the insurance is taken out within the framework of state contracts.

Although the special regime on public procurement provides for a particular procedure for the declaration of the loss through an administrative act, the existence of such procedure neither modifies nor excludes the application of the substantive rules on prescription established in the Commercial Code.

Consequently, the authority of the state entity to declare the loss and notify the insurer does not entail that the period to claim the payment of the indemnity may be indefinitely extended, nor does it alter the moment from which the statute of limitations of the insurance contract begins to run.

2. Validity of the policy and timeliness to file the claim

The CE clarified that the contractor’s obligation to keep the guarantees in force until the settlement of the state contract must not be confused with the statute of limitations applicable to actions arising from the insurance contract.

The former constitutes a contractual obligation of the contractor, whereas the latter determines the period within which the beneficiary or insured (in this case, the state entity) may demand payment of the indemnity. These are, therefore, distinct and independent obligations.

3. Applicable statute of limitations and computation

In this case, the ordinary statute of limitations provided under Article 1081 of the Commercial Code applied, which is two years counted from the moment when the insured became aware or should have become aware of the breach that constitutes the loss.

In works contracts, knowledge of the breach is consolidated upon the signing of the certificate of completion or acceptance of the work to satisfaction. Thus, in this proceeding, such knowledge occurred on May 6, 2011; consequently, the statute of limitations expired on May 7, 2013. The administrative resolutions issued in 2014 and 2015 that ordered the insurer to pay the indemnity were issued when the insurer’s obligation had already prescribed.

4. Conclusion

The CE declared the nullity of the administrative acts ordering payment of the indemnity and ordered the state entity to reimburse the insurer for the sums paid, duly updated in accordance with the Consumer Price Index (CPI).