Key changes in Public Procurement Law | In Principle

The Public Procurement Law amendment of 29 August 2014 introduces a number of important changes concerning non-price criteria, reliance on third-party capacity, abnormally low prices, trade secrets, grounds for exclusion, bid bond retention and wage indexation.

The Act of 29 August 2014 Amending the Public Procurement Law goes into force on 19 October 2014. Below we discuss some of the major changes being made to Poland’s Public Procurement Law.

Restriction on price as the sole criterion

During the work on the amendment, commentators often complained about contracting authorities’ overreliance on price as the sole criterion for evaluating tenders. The Parliament decided to address this situation by changing the wording of Public Procurement Law Art. 91. Under the amended wording of Art. 91(2), the evaluation criteria may be either price or price plus a list of other criteria set forth there. This is followed by a new Art. 91(2a) providing that price may be used as the sole criterion only in situations where the subject matter of the contract is widely available and has established quality standards.

Contracting authorities which are public finance sector entities or other state organisational units without legal personality must also explain in the protocol for the procurement how the operating costs were reflected in the subject matter description.

Reliance on third-party capacity

In procurement proceedings, an economic operator may rely on the knowledge, experience, technical capacity, personnel, and financial or economic capacity of other entities regardless of the legal nature of their relations.

However, under Art. 26(2b) of the law, the economic operator will have to prove to the contracting authority that it will have access to those resources during contract performance. The documents submitted to the contracting authority must confirm the real possibility of access to those resources to the extent necessary for proper contract performance. This means more specifically a written commitment by the third party the economic operator intends to rely on that it will provide the necessary resources.

The economic operator and the third party are jointly and severally liable to the contracting authority for a loss suffered by it because the declared resources were withheld. The third party can be released from this liability only if it proves that it was not to blame for withholding of the resources.

Abnormally low price

As explained by the Polish courts, an abnormally low price is a price that is “unrealistic, implausible compared to the market prices for similar procurements and possibly other bids submitted in the course of the procedure for award of the public contract” (Katowice Regional Court judgment of 28 April 2008, Case No. XIX Ga 128/2008, Lexis No. 2149136). Under Art. 89(1)(4) of the Public Procurement Law, an offer with an abnormally low price is subject to rejection. However, the August amendment specifies when the contracting authority should have doubts whether the tender price is abnormally low and initiate appropriate proceedings to clarify this issue.

Under the amended law, the contracting authority is required to seek a clarification from the bidder if the price offered seems abnormally low in relation to the subject matter of the contract and raises doubts whether it is possible to perform the contract properly for that price. The law now contains a threshold of 30% less than the contract value or the arithmetic mean of all submitted bids, below which the contracting authority must inquire into this issue.

Under Art. 90(2), the bidder bears the burden of proving that the price offered is not abnormally low. When inquiring into a possibly abnormally low price, the contracting authority will require the bidder to submit evidence relating to the elements of the offer affecting the price, and in particular:

• Savings associated with the chosen method of contract performance
• Chosen technical solutions
• Exceptionally advantageous conditions for contract performance available to the bidder
• Originality of the bidder’s project
• State aid granted under separate regulations
• Labour costs adopted in calculating the price (which cannot be lower than the legal minimum wage).

Trade secrets

Under Art. 11(4) of the Act on Combating Unfair Competition of 16 April 1993, information may be considered a trade secret if it meets three conditions:

• It has not been disclosed to the public.
• It is technical, technological or organizational information of the enterprise or has economic value, and
• The business has taken the necessary measures to maintain its confidentiality.

In accordance with the amended Public Procurement Law, if the economic operator wishes to ensure the confidentiality of its trade secrets, it must make a reservation of nondisclosure of specific information and demonstrate that the information is in fact a trade secret that satisfies these statutory conditions.

This means that the burden of proof that the information is a trade secret lies on the economic operator, which must prove that it meets the statutory requirements by the deadline for submission of tenders or requests to participate in the procurement proceeding. After that date, all non-reserved information will be disclosed even it actually does constitute a trade secret.

It should also be noted that when the tenders are opened, information concerning the economic operator’s name and address, the bid price, the term of the contract, the warranty period and the terms of payment cannot be reserved from disclosure. This is because the public procurement proceeding is open, and the possibility to make a reservation of non-disclosure of trade secrets is an exception to this rule.

Exclusion from public procurement proceedings

The amendment significantly affects the grounds for exclusion of economic operators from a public procurement procedure. Points 1 and 1a of Art. 24(1) (requiring exclusion of an economic operator which has caused a loss to the contracting authority, been assessed a contractual penalty, or had a public procurement contract terminated for wrongful conduct) are repealed, and a new paragraph 2a is introduced giving the contracting authority optional grounds for exclusion from public procurement proceedings.

The contracting authority may exclude from a public procurement proceeding an economic operator which within 3 years prior to initiation of the proceeding culpably and seriously violated its professional obligations, particularly when as a result of deliberate action or gross negligence the contractor failed to perform a contract or improperly performed the contract. The contracting authority may demonstrate this by any available evidence, but this ground for exclusion may be applied only if provided for in the contract notice, terms of reference or invitation to negotiations.

Under the second sentence of Art. 24(2a), an economic operator that meets these conditions for exclusion may avoid exclusion by demonstrating to the contracting authority that it has taken concrete technical, organizational and HR measures to prevent such violations in the future and has redressed the loss caused by its breach of professional duty or promised to remedy the loss.

Bid bond retention

The contracting authority will retain the bid bond, together with interest, if for reasons attributable to the economic operator it fails to submit documents, statements or powers of attorney listed in the amended Art. 48(4a) requested by the contracting authority, or refuses to agree to correct an error making the offer incompatible with the terms of reference or non-material changes in the offer preventing selection of the tender as the most advantageous.

Prior to entry into force of the August amendment, a bid bond by any bidder would be retained by the contracting authority if the economic operator failed to provide requested documents, unless it could prove it was not at fault. Under the amended provisions, the ability to retain the bid bond is limited to the contractor to whom the contract would have been awarded if it had complied with the contracting authority’s request.

Requirements concerning employment contracts

Under the amended Public Procurement Law, a contracting authority may require that the personnel performing a contract for works or services for the contractor or subcontractor are hired under an employment contract. However, such requirement must be justified by the subject or nature of the activities performed by the employees.

If the contracting authority chooses to include such requirements, Art. 36(2)(9)(d) requires the contracting authority to specify the number of persons and the nature of the tasks covered by this requirement. The contracting authority should also specify its power to monitor compliance with these requirements and penalties for non-compliance.

Indexation clauses in public contracts

The newly introduced Art. 142(5) provides that a public contract concluded for a period longer than 12 months should include provisions concerning the basis for making modifications in the contractor’s fee in the event of changes in VAT rates, the minimum wage, or social insurance or health insurance coverage or rates. A public contract must include an indexation clause if a change in these items would affect the cost of contract performance.

The amendment also simplifies the procedure for contracts below EU thresholds, providing only basic principles to be complied with and contract notice and contract award notice requirements. The possibility for the contracting authority to use standard templates for public contracts, regulations and other documents for the contract award procedure is also introduced. The President of the Public Procurement Office is required to prepare and distribute such templates.

The amendment enters into force on 19 October 2014. The prior rules will continue to apply to public procurement proceedings commenced before that date, as well as appeals to the National Appeal Board or the regional courts filed before that date, with the exception of the amended grounds for exclusion of economic operators from public procurement proceedings.

Joanna Florecka, Infrastructure & Transport and Public Procurement & Public-Private Partnership practices, Wardyński & Partners