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False Performance Bonds in Public Procurement: Legal Consequences for Contract Awards and the Limits of Curative Measures

April 20, 2026

The increasing use of false performance bonds in public procurement confirms that invalid guarantees constitute an incurable defect capable of undermining both the validity of the tender and the lawfulness of the entire procurement procedure.

The use of false performance bonds in public procurement has become a systemic issue in recent years, particularly following the unprecedented inflow of public resources under Italy’s National Recovery and Resilience Plan (PNRR), which has significantly accelerated procurement procedures.

Under Italian law, insurance and insurance brokerage activities may only be carried out by insurance companies and intermediaries authorised and registered with IVASS, the Italian Insurance Supervisory Authority.

Despite this regulatory framework, unauthorised operators continue to offer counterfeit guarantees or unlawfully use the identity of duly authorised insurance companies.

According to publicly available data and specialist publications, the performance bond market is now estimated to generate approximately €1.5 billion in annual insurance premiums and is increasingly exposed to sophisticated fraudulent practices.

Joint warnings issued by IVASS, the Bank of Italy and the Italian National Anti-Corruption Authority (ANAC), culminating in the updated Guidelines published on 18 July 2025, confirm not only the persistence but also the growing sophistication of this phenomenon.

Recent cases involving guarantees apparently issued by foreign insurers demonstrate a qualitative evolution in fraudulent conduct. Fake websites, forged documentation and sophisticated digital infrastructures are increasingly used to simulate legitimate insurance intermediaries and offer unauthorised insurance products.

To protect contracting authorities and market operators, IVASS publishes online an updated list of unauthorised insurance websites together with cease-and-desist orders and public notices concerning illegal operators.

The risk is therefore far from theoretical. Performance bonds that appear formally valid may ultimately prove unenforceable when called upon, exposing both contracting authorities and economic operators to significant legal and financial consequences.

In this context, the performance bond—traditionally regarded as a guarantee of reliability—may instead become a source of systemic vulnerability.

Performance bonds in public procurement are intended to protect contracting authorities against the risks arising from non-performance, delayed performance or defective contractual execution by the contractor.

They ensure that public authorities can promptly recover financial losses or activate the measures necessary to safeguard the continuity of public services and the proper use of public resources.

Under the Italian Public Contracts Code, economic operators are required to provide guarantees at various stages of the procurement process, including:

  1. participation in tender procedures (bid bond);
  2. execution of the contract (performance bond);
  3. payment of the final balance;
  4. guarantees linked to contract termination or proper performance for general contractor arrangements and certain large-scale projects;
  5. advance payment guarantees.

The Code provides a detailed framework governing bid bonds under Article 106, while Article 117 establishes the general requirements applicable to performance bonds.

In particular, Article 106(3) requires guarantees to be digitally issued and electronically signed, and to be capable of online verification with the issuing institution or managed through blockchain-based platforms compliant with AGID technical standards.

provvedimento di cui all’articolo 26, comma 1”.

Performance bonds must also comply with the standard forms introduced by Ministerial Decree No. 193 of 16 September 2022, which, although originally adopted under the previous Public Contracts Code, continues to provide the benchmark contractual models for guarantees and insurance policies.

The current regulatory framework—comprising the Public Contracts Code, the Italian Banking Act (TUB) and the Italian Insurance Code—clearly identifies the entities authorised to issue guarantees, namely authorised banks, licensed financial intermediaries, major guarantee consortia (confidi) and insurance companies authorised to issue surety bonds.

This is not a merely formal requirement. Rather, it ensures that guarantees are backed by financially sound institutions subject to prudential supervision.

Accordingly, where a guarantee is issued by an unauthorised or non-existent entity, the defect cannot be regarded as a simple documentary irregularity. Instead, it constitutes an original and fundamental defect affecting the validity of the tender itself.

Italian administrative case law has consistently confirmed this approach, treating false guarantees as a defect that fundamentally invalidates the tender.

Most notably, the Council of State (Section V, judgment No. 5194 of 13 June 2025) reaffirmed that the provisional guarantee constitutes an essential component of the tender and cannot subsequently be replaced or supplemented. Because its function is substantive—demonstrating the bidder’s financial reliability—a counterfeit guarantee is inherently incapable of fulfilling its purpose.

As a consequence, a tender supported by a false performance bond is defective from the outset and cannot be considered valid for participation in the procurement procedure.

The issue becomes even more complex where the falsity only emerges after contract award or during contract performance.
In such cases, consequences arise on multiple levels:
administrative, through the possible annulment of the award by way of self-review;
accounting, through potential liability for damage to public finances, as recognised by the Italian Court of Auditors;
criminal, where the conduct may amount to aggravated fraud against the public administration.

The possibility of curing such defects therefore becomes a crucial issue.

Although Article 101 of the Public Contracts Code allows contracting authorities to request the regularisation of documentary deficiencies, this mechanism cannot be used to remedy defects affecting essential elements of the tender.

Likewise, the so-called procedural clarification developed by case law may only clarify the content of an existing tender and cannot be used to replace or validate a guarantee that was originally non-existent or invalid.

Italian administrative courts have consistently held that provisional guarantees are not merely ancillary documents and that their absence or invalidity cannot be remedied after submission of the tender. 7627).

Accordingly, a clear distinction must be drawn between:
formal irregularities, which may in certain circumstances be cured; and
the complete absence or falsity of the guarantee, which constitutes a radical and incurable defect.

This interpretation has also been endorsed by ANAC, whose opinions and subsequent guidance expressly exclude any possibility of regularisation where guarantees prove to be counterfeit.

The systemic implications are considerable. False guarantees distort competition, expose contracting authorities to uninsured financial risks and jeopardise the sound management of public funds, particularly those financed through European programmes.

Against this background, the principle of administrative diligence assumes central importance.
Contracting authorities are required to carry out not merely formal checks but substantive verification of the authenticity and validity of guarantees, consistently with the principles of effectiveness, mutual trust, market access, good faith and legitimate expectations embodied in the Public Contracts Code.

In this respect, the full digitalisation of verification procedures should no longer be regarded as a mere organisational improvement but rather as an essential safeguard for ensuring timely and reliable controls.

This obligation is also rooted in the constitutional principles of good administration and impartiality under Article 97 of the Italian Constitution, requiring contracting authorities to exercise an enhanced standard of diligence proportionate to the public interests involved.

Italian case law has repeatedly confirmed that the verification of guarantees cannot be limited to documentary inspection but requires substantive confirmation that the guarantee genuinely exists and is legally enforceable.

A false guarantee must therefore be regarded as legally non-existent and incapable of protecting the public interest, exposing the contracting authority to financial loss and potentially giving rise to liability before the Court of Auditors.

Responsibility for verifying the validity of guarantees rests directly with the contracting authority and cannot be delegated or avoided by relying on the apparent authenticity of the documentation or on third-party intermediaries.

The Court of Auditors has likewise recognised accounting liability where public officials failed to adequately verify guarantees that subsequently proved ineffective.

The emerging legal framework therefore reflects a model of active public administration, in which verification of guarantees forms an integral part of the procurement function and represents a prerequisite for the legality of administrative action.

This approach is fully consistent with the established case law treating the performance bond as an essential element of the tender, incapable of being remedied where it proves false or non-existent.

A clear principle therefore emerges: a false performance bond constitutes a radical and incurable defect capable of invalidating both the tender and the entire procurement procedure.

The legal system is moving towards an increasingly strict approach, justified by the substantive function of procurement guarantees, the need to protect the public interest and the growing sophistication of fraudulent practices.

In this context, verifying the authenticity and legal validity of performance bonds is no longer a procedural formality but an essential condition for ensuring the legality, reliability and integrity of public procurement.

The increasing complexity of fraudulent schemes requires stronger control mechanisms, supported by interoperable digital verification systems and a renewed emphasis on administrative diligence as a cornerstone of substantive legality.

Only in this way can public interests, fair competition and the overall integrity of the public procurement system be effectively safeguarded.

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