Can the form in which the bid bond is paid be modified during the course of a procurement procedure?
The Polish Public Procurement Law does not answer this question, but that is not an absolute bar to changing the form of a bid bond after the bids are opened.
In the course of the procedure for award of a public contract, various circumstances might make it necessary to change the form of the bid bond paid in by prospective contractors. This might happen for example in a situation where a contractor interested in participating in a tender of high value learns of the tender late in the game and doesn’t manage to obtain a bank guarantee in time to secure its bid and is forced to secure its offer in cash. Then suppose that offers are binding for 60 days, but because of an appeal by bidders after the offers are opened the actual period when the contractor’s cash is tied up is prolonged. During this time the contractor succeeds in reaching terms with its bank for issuance of a bank guarantee to secure the bid. Can the contractor now replace the cash bond with the bank guarantee?
It seems that the answer to this question should be affirmative, and modifying the form of the bid bond even after the bids are opened should be permissible.
The Public Procurement Law does not address the issue of replacement of a bid bond after the offers are opened. It does not prohibit such changes, nor does it provide for the possibility of such a change. But this does not lead to an obvious conclusion that the form of a submitted bid bond cannot be changed.
To evaluate this issue properly, the purpose served by a bid bond in a tender procedure should be examined. First, the bond secures the interests of the contracting authority in the event of unjustified refusal to sign the contract by the contractor whose offer is selected as the most advantageous. Second, it eliminates from the procedure contractors who are not seriously interested in award of the contract by imposing a financial obligation on participants.
An argument in favour of permitting a change in the form of the bond is that contractors have a right to choose the form in which they will present their security, and restriction of this right is grounds for appeal (arbitral award of 1 August 2005, UZP/ZO-1976/05; National Appeal Chamber (KIO) ruling of 13 February 2009, KIO/UZP 140/09). If the contractor could submit security in any form permitted by the act, there is no basis for limiting the right to change the form of the bond after it is submitted. The change in form does not conflict with the essence of the security as such, and the contracting authority’s interests are still protected.
And in practice, situations often arise in which the bond originally submitted is modified at the request of the contracting authority. This may happen in the event of extension of the period for which offers are binding, or the period is extended de facto because appeals are filed. (Under Art. 182(6) of the Public Procurement Law, in the event of filing of an appeal after the deadline for filing offers, the period for which the offers are binding is suspended and does not continue to run again until the National Appeal Chamber announces its ruling.) If the bond is in the form of a bank guarantee, the contractor is then forced to modify the bond by extending the period of the guarantee accordingly. The contractor may submit an annex extending the existing bank guarantee or submit a new guarantee. It is also permissible in such case to submit a new bond in a different form. (In KIO 600/16, 4 May 2016, this issue was not the subject of the chamber’s ruling, but the chamber confirmed that the appellant had duly extended the binding term of the offer.)
For these reasons, it would be unjustified to limit the possibility of changing the form of the bid bond just because it is done at the contractor’s initiative. As the National Appeal Chamber has stated, “The Public Procurement Law absolutely requires that an offer be secured by a bond for the entire binding period of the offer, but without prohibiting the possibility of changing the form of the submitted bond. This possibility exists at every stage of the procedure, including also at a time when the originally designated binding period of the offer has expired” (KIO 115/09, 6 February 2009).
The only condition in changing the form of the bond is to maintain the continuity of the security. Under the law, the bond must be submitted prior to the deadline for filing offers and for the entire binding period of the offer. The security for the offer must be provided continuously, so that the offer is not left unsecured even briefly.
To avoid any objections as to the correctness of the bond submitted in a new form, the bond should first be submitted in the new form and then the originally submitted bond should be recovered. This practice is followed in real life. For example, in a proceeding by the Ministry of Justice for award of a public contract for data transmission services (BDG-II-3710-33/11), the contracting authority confirmed in a clarification to the terms of reference the possibility of changing the form of the bond after opening of the offers, and described in detail how such a change should be made. Similarly, in a procedure for a road project conducted by the municipality of Gołańcz (ZP.271.6.2016), the contracting authority specified in the terms of reference the possibility and rules for making changes in bonds.
It is thus apparent that doubts in interpretation resulting from the lack of a regulation addressing changes in the form of bid bonds during the course of the tender (as compared to Art. 149 of the Public Procurement Law, which permits a change in the form of the security for proper performance of the contract), the case law and practice resolve this issue in the contractors’ favour. Consequently, return of the existing security following submission of security in a different form is not the same as “return of the bond” in the ordinary sense referred to in Art. 46 of the act.
Serom Kim, Infrastructure, Transport, Public Procurement & PPP practices, Wardyński & Partners
