Amendments to public procurement law in view of draft “Anti-Crisis Shield 4.0”

A draft version of the so-called “Anti-Crisis Shield 4.0” has just reached the parliament (the “Draft Bill”). It introduces further amendments to the existing special purpose act, including ones that concern the public procurement law (“PPL”).

The Draft Bill amends the Act of March 02, 2020 on Special Solutions Related to Prevention and Combating of COVID-19, Other Infectious Diseases and Crisis Situations Arising from them (the “Act”).

Below you will find a summary of the suggested changes.

INITIATION OF PUBLIC PROCUREMENT PROCEDURE

Article 40 section 1 of PPL is about to change – when commencing an unlimited public procurement procedure, the contracting authority will no longer be obliged to place a relevant notice at a publicly available location within its registered office. It will be enough to publish it at the website. Other announcement-related obligations (the requirement to send a notice to the Public Procurement Bulletin and the European Union’s Publication Office) will remain unchanged.

EMPLOYEE CAPITAL PLANS

Article 7 of the Employee Capital Plans Act of October 04, 2018 has been modified, so that employee capital plan management/maintenance agreements will not be governed by the Public Procurement Law Act of September 11, 2019 (the “New PPL”) if the contract value is lower than the EU thresholds. The amended article 7 will become effective as of January 01, 2021.

AMENDMENTS TO AGREEMENTS

1. The Draft Bill entails automatic amendments to the agreement in case – after determining that circumstances related to COVID-19 affect proper performance of the agreement – the contracting authority (in cooperation with the contractor) introduces the amendment referred to in article 144 section 1 item 3 of PPL.

2. Voluntary nature of amendments
In case it is found that circumstances related to COVID-19 may affect proper performance of the agreement, the contracting authority may (in cooperation with the contractor) amend the agreement in accordance with article 15r section 4 of the Act, i.e. (i) change the completion date for the contract or its part, or temporarily suspend the performance of the agreement or its part; (ii) change the manner of performance of deliveries, services or construction works; (iii) change the scope of the contractor’s services, and introduce a corresponding modification of the contractor’s fee or the manner of its settlement – as long as the increase in the fee, caused by any subsequent change, does not exceed 50% of the initial value of the agreement.

CONTRACTUAL PENALTIES

1. Contractual penalties.
During the state of epidemic threat or the state of epidemic, and for 90 days after its end, the contracting authority cannot set off the contractual penalty related to non-performance or improper performance of the agreement against the contractor’s fee or other claims, and cannot seek satisfaction from the performance bond – as long as the event in relation to which the contractual penalty has been stipulated took place during the state of epidemic threat or the state of epidemic.

2. Period of prescription.
During the state of epidemic threat or the state of epidemic, and for 90 days after the end of the later state, the period of prescription for the contracting authority’s claims (for payment of a contractual penalty) and the validity term of a performance bond do not start to run; if a given time limit has already started running, it becomes suspended. The expiration of the time limits discussed above can occur no earlier than 120 days after the end of the later of the aforesaid states.

ADVANCE PAYMENTS AND PARTIAL PAYMENTS

The contracting authority will be paying the fee in instalments – after performance of a specific part of a public contract, or may pay advances towards the contract performance – in case of public contracts executed for a term of over 12 months. In such case, the contracting authority:

1. shall specify (in the agreement) the percentage of the total fee, due for the completion of specific parts. The final part of the fee can be no higher than 50% of the total fee due to the contractor;

2. shall specify that the advance payment can be no lower than 5% of the fee due to the contractor;

3. shall specify that in case of construction works agreements covering a term of over 12 months, with respect to which the contracting authority intends to make payments in instalments, the contracting authority may indicate (in the terms of reference) the value of the final part of the payment, which can be no higher than 50% of the fee due to the contractor.

BID SECURITY

The requirement to provide a bid security will be voluntary in nature, irrespective of the contract value.

PERFORMANCE BOND

1. In general, the contracting authority may require a performance bond: (i) corresponding to 5% of the total price specified in the bid or the maximum nominal value of the contracting authority’s obligation resulting from the agreement; or (ii) corresponding to 10% of the above – if justified by the scope of the order, or by the risk related to the contract performance, as detailed by the contracting authority in the terms of reference.

2. The contracting authority can make a partial return of the performance bond after the contract has been partially performed, as long as such possibility is covered by the terms of reference.

It is also worth noting that the National Appeals Chamber resumed its operations.

At https://www.uzp.gov.pl/strona-glowna/slider-aktualnosci/zasady-bezpieczenstwa-w-krajowej-izbie-odwolawczej/zasady-bezpieczenstwa-w-krajowej-izbie-odwolawczej you can check the applicable safety rules. The key ones are as follows:

  • no more than 10 people at a time are allowed in the main hall, next to the Chancellery of the Public Procurement Office and the National Appeals Chamber;
  • no more than 6 people at a time are allowed in the corridors leading to the courtrooms;
  • no more than 1 person at a time is allowed in the toilets;
  • anyone visiting the National Appeals Chamber will be obliged: (i) to disinfect their hands upon entering the building (before getting into an elevator) and before entering a courtroom (disinfectants and soap are provided by the National Appeals Chamber); (ii) to have their temperature taken before entering a courtroom; (iii) to observe the social distancing principles, i.e. to keep a distance of at least 2 meters from others; (iv) to have and properly use personal protective equipment that allows one to cover their mouth and nose; (v) to wear disposable protective gloves.

We are ready to assist you in evaluating your particular situation. Please feel free to contact us any time by email or telephone.

Amendments to public procurement law in view of drafted “Anti-Crisis Shield 2.0”

A draft of so-called “Anti-Crisis Shield 2.0” has just reached the Sejm (the “Draft Bill”). The Draft Bill contains further amendments to the special-purpose act already in place, incl. ones revising the Public Procurement Law (the “PPL”). Below you will find a summary of the proposed changes.

AMENDMENTS TO PUBLIC CONTRACTS

1.1. It is still possible to modify a contract executed under PPL in terms of deadline, manner of contract performance, scope of services and preclusion of contracting authorities’ liability (incl. those that award utility contracts) for refraining from determination and pursuit of contractor’s financial obligations (e.g. contractual penalties), or for introduction of amendments to contracts – upon the conditions specified in the Draft Bill.

1.2. The Draft Bill expands the list of circumstances (related to COVID-19) which affect or may affect contract performance, of which the parties should notify each other. Based on the Draft Bill, the circumstances will include “other circumstances which prevent or materially hinder contract performance.”

1.3. The circumstances listed in the last version of the Anti-Crisis Shield, as well as the ones proposed in the new version will apply to subcontractors and further subcontractors equally.

1.4. The Draft Bill includes a new provision applicable to contractors based outside Poland which reads as follows: “where a contractor is based or carries out actions related to contract performance outside Poland, the documents issued by relevant institutions in the countries or such contractors‘ statements shall be required instead of the documents referred to in subsections 1 – 5. ”

1.5. The Draft Bill also modifies the rule of amending public contracts in terms of remuneration. The provision currently in effect: “a change of the scope of services provided by the contractor and a corresponding adjustment of the contractor’s remuneration, provided that the increase of the remuneration resulting from each consecutive change is not higher than 50% of the original contract value” will be replaced with the following provision: “a change of the scope of services provided by the contractor and a corresponding adjustment of the contractor’s remuneration or manner of settling the contractor’s remuneration.” This means that an adjustment of remuneration or the manner of settling the remuneration will go hand in hand with the change of the scope of the services – based on the special-purpose act (its former and new version) it is not possible to seek an adjustment of the remuneration (the manner of settling the remuneration) without changing the scope of the services as well.

1.6. Based on the Draft Bill, public contracts will be executed in accordance with the following provision: “During the state of epidemic threat or the state of epidemic and the ensuing travel restrictions, public contracts are executed in written form (or are otherwise null and void) or in electronic form with qualified electronic signature, provided that the contracting authority consents to such manner of executing the contract. ”

1.7. It is expected that the provisions of the Draft Bill will apply to those public contracts which are not covered by the provisions of the PPL.

1.8. The same rules of notification and contract amendment were introduced with respect to offset contracts executed on the basis of the Act on Selected Contracts Executed in Connection with the Performance of Contracts of Fundamental Importance for National Security of June 26, 2014.

1.9. On a side note, it is worth adding that in order to introduce amendments to a public contract, it is necessary for parties to reach an understanding and enter into an amending annex. This means that claims of one of the parties do not automatically lead to amendments. The same is true for changes that could be related to the current COVID-19 threat.

CONTRACTING AUTHORTIES’ LIABILITY

There have been no changes to the provisions involving the preclusion of contracting authorities’ liability, arising from the Liability for Breach of Public Finance Discipline Act, for amendments to a public contract and refraining from determination and pursuit of claims arising from non-performance or improper performance as a result of circumstances related to COVID-19.

NATIONAL APPEALS CHAMBER

1.1. The Public Procurement Office together with the National Appeals Chamber and the Ministry of Development are working on solutions that would allow the National Appeals Chamber to resume hearing appeals.

1.2. Based on the information available on the Public Procurement Office’s website, a temporary procedure has been developed, where the National Appeals Chamber is to issue rulings on the basis of documents provided by the parties, however, further organizational and legislative changes are required for the purpose of implementing this solution.

Given the foregoing, we recommend filing appeals online, using a qualified electronic signature.

We reiterate all our recommendations for contractors and contracting authorities, related to the current situation, as provided in the previous alerts (alert 1 i alert 2).
We are ready to assist you in evaluating your particular situation. Please feel free to contact us any time by email or telephone.

Amendments to public procurement law in view of “Anti-Crisis Shield” – UPDATE


As part of the so-called “Anti-Crisis Shield,” March 31 saw the Polish President sign an act (the “Act”) that contains modifications related to the public procurement law (“PPL”). Below you will find a summary of changes to the previous version of the “Anti-Crisis Shield” (the “Draft”) that we discussed in our alert of March 24, 2020.

  1. PRECLUSION OF THE APPLICATION OF PPL ACT – article 6 section 1 of the Act

    The Act does not introduce any modifications to the Draft. PPL will not apply to orders for services or deliveries which are necessary to prevent COVID-19 if the disease is highly likely to spread in a fast and uncontrollable manner, or if required for the purposes of public health protection. Please note that pursuant to article 46c of the Human Infections and Infectious Diseases Prevention Act of December 05, 2008, “public procurement regulations do not apply to orders for services, deliveries or construction works, issued with the aim of preventing or combating the epidemic within the territory covered by the state of epidemic threat or the state of epidemic.”
    This provision specifies a clearly broader range of orders that are exempt from the application of PPL during the epidemic since it includes construction works.

  2. AMENDMENTS TO PUBLIC CONTRACTS

    2.1. It is possible to modify an agreement executed under PPL in terms of deadlines and remuneration. Also, the Act precludes liability of contracting authorities (incl. those that award utility contracts) for refraining from determination and pursuit of contractor’s financial obligations (e.g. contractual penalties), or for introduction of amendments to agreements – upon the conditions specified in the Act. Both these solutions have remained unchanged from the Draft.

    2.2. The deadline has been extended for a party to a public contract to respond to the other party’s notification about the impact (whether actual or potential) of circumstances related to COVID-19 on proper performance of the agreement. The current term is 14 days from receipt of a notification, along with justification (and evidence, i.e. relevant statements or documents). The previous deadline was 7 days.

    2.3. On a side note, it is worth adding that in order to introduce amendments to a public contract, it is necessary for parties to reach an understanding and enter into an amending annex. This means that claims of one of the parties do not automatically lead to amendments. The same is true for changes that could be related to the current COVID-19 threat.

    2.4. It has been expressly stated that COVID-19 circumstances discussed in the Act cannot independently serve as the basis to exercise the contractual right of rescission.

  3. CONTRACTING AUTHORITIES’ LIABILITY

    There have been no changes to the provisions involving the preclusion of contracting authorities’ liability, arising from the Liability for Breach of Public Finance Discipline Act, for amendments to a public contract and refraining from determination and pursuit of claims arising from non-performance or improper performance as a result of circumstances related to COVID-19.

  4. NATIONAL APPEALS CHAMBER AND INSPECTIONS

    There are new regulations related to the National Appeals Chamber.

    4.1. During the state of epidemic, declared due to COVID-19, the National Appeals Chamber does not hold any sessions and hearings
    in the presence of parties and participants to the appeal procedure.

    4.2. The Act does not interrupt or suspend the period for submission of an appeal, meaning that contractors that want to use legal protection measures will be bound by the dates specified in PPL. In case of an appeal, the standard term will be 5 or 10 days of knowledge about the basis for appeal submission.
    We recommend filing appeals online, using a qualified electronic signature.

    4.3. The Act does not suspend the inspections of prior public contracts co-financed by the European Union, which are conducted by the President of the Public Procurement Office with respect to contracts whose value is equal to or higher than: (i) EUR 20,000,000 for construction works; and (ii) EUR 10,000,000 for deliveries and services. A post-inspection report should be delivered within 14 days of receipt of all relevant documents (or 30 days – in case of a particularly complex inspection).

We reiterate all our recommendations for contractors and contracting authorities, related to the current situation, as provided in the previous alert .

We are ready to assist you in evaluating your particular situation. Please feel free to contact us any time by email or telephone.

Suggestions for performance of public contracts


The Ministry of Development is working on the so-called “Anti-Crisis Shield.” The draft act amending the Act on Special Solutions Related to Prevention and Combating of COVID-19, Other Infectious Diseases and Crisis Situations Arising from them,” as well as amending selected other acts (the “Draft Bill”), covers (among others) the public procurement law (“PPL”) and agreements executed on its basis.

The final part of this report includes our recommendations for contractors and contracting authorities, which may help complete the ongoing projects despite the current state of epidemic. In our opinion, the Draft Bill does not introduce any revolutionary changes to PPL. It revolves predominantly around flexibility in cooperation of the parties to public contracts in light of the current situation. Identified areas of PPL modifications:
(i) no penalties for contracting authorities on the basis of the Liability for Breach of Public Finance Discipline Act for introduction of changes to public contracts; refraining from the pursuit of claims against contractors, which arise from COVID-19 and its impact on the performance of a given agreement;
(ii) highlighting certain options that have existed thus far, e.g. with respect to amendments to PPL contracts;
(iii) ordering the parties to PPL contracts to exercise due diligence when it comes to notifying each other about the epidemic’s impact on the performance of a given contract.

Basically, the Draft Bill provides some “tips for the future” as regards the course of contractual relations in ongoing projects.

Below you will find a list of changes, along with out comments.

  1. PRECLUSION OF THE APPLICATION OF THE PPL ACT – article 6 section 1 of the Draft Bill
    1.1. The Draft Bill modifies article 6 of the existing act by clarifying that PPL will not apply to orders for services or deliveries which are necessary to prevent COVID-19 if the disease is highly likely to spread in a fast and uncontrollable manner, or if required for the purposes of public health protection. Compared to the current version of the act, the change concerns the scope of orders. The act now says “goods or services” – this phrase will be replaced with “services or deliveries.”
    We consider this change to be positive. First of all, in PPL, “goods” are not the same as “deliveries,” and the former term may limit the list of items that can be ordered outside of the PPL mode in case of an emergency. As a reminder, “deliveries” are defined in PPL as “acquisition of things and other commodities, especially on the basis of an agreement for sale, delivery, rental or leasing (with or without the purchase option), which can additionally include deployment or installation.”
    Example: following the modification, if an order covers the acquisition of reagents for laboratory tests, the contracting authority will be able to purchase them together with necessary installation services outside the PPL mode (as long as this is required for public health protection purposes or prevention of COVID-19).
    1.2. Please note that pursuant to article 46c of the Human Infections and Infectious Diseases Prevention Act (the “Epidemic Act”), “public procurement regulations do not apply to orders for services, deliveries or construction works, issued with the aim of preventing or combating the epidemic within the territory covered by the state of epidemic threat or the state of epidemic.”
    This provision specifies a clearly broader range of orders that are exempt from the application of PPL during the epidemic since it also includes construction works.
  2. BANK GOSPODARSTWA KRAJOWEGO (BGK) – article 6 section 2 of the Draft Bill
    2.1. On a side note, it is worth noting that most of the measures implemented by BGK (Polish national development bank) so far are based on the structure of the fund (managed by BGK) and financial intermediaries (e.g. loan funds) selected by BGK, usually in the public procurement procedure.
    2.2. PPL will not apply to the selection of new financial intermediaries whose task will be to support SMEs affected by the consequences of COVID-19. Nevertheless, the selection procedures have to be open, transparent and non-discriminatory; also, they cannot result in any conflict of interest.
  3. AWARDING CONTRACTS EXCLUDED FROM PPL – article 6 sections 1 and 2 of the Draft Bill
    3.1. When awarding contracts which are exempt on the basis of article 6 sections 1 and 2 of the Draft Bill, contracting authorities and BGK will be obliged:
    3.1.1. to ensure transparency of the procedure and equal treatment of potential contractors, taking into account any circumstances that might have an impact on the procedure;
    3.1.2. not to share any contract-related information that is regarded as a trade secret (as defined in unfair competition combating regulations) if the entity interested in performing the order specifies – before the agreement is executed – that such information cannot be disclosed;
    3.1.3. to publish information about the fact that the contract was awarded or not awarded at its sub-page in the Public Information Bulletin, indicating the name of the other party to the agreement (if the contract was awarded).
    3.2. In this case, the preclusion of PPL does not mean that contracting authorities can give the order to any contractor, e.g. on the basis of the single-source procurement procedure. In our opinion, it will still be required to conduct the procedure (without the application of PPL) in a manner that ensures participation of at least several potential contractors.
    3.3. In case of construction works, the application of similar rules might be disputable. Construction works are governed by the Epidemic Act.
  4. AMENDMENTS TO PUBLIC CONTRACTS
    4.1. The Draft Bill includes:
    4.1.1. the possibility to modify an agreement executed under PPL in terms of deadlines and remuneration;
    4.1.2. preclusion of liability of contracting authorities (incl. those that award utility contracts) for refraining from determination and pursuit of contractor’s financial obligations (e.g. contractual penalties), or for introduction of amendments to agreements – upon the conditions specified in the Draft Bill.

    RE: 4.2.1 – amendments to PPL contracts
    a. Each party to a PPL contract is obliged to notify the other party about the impact of circumstances related to COVID-19 on proper performance of the agreement, if such impact has occurred or might occur (a/the “Notification”). This obligation applies exclusively to circumstances which have or might (in the future) have an influence on the performance of a specific order.
    b. The Notification should be accompanied by a statement (issued by the party itself or third persons) or documents related to the following in particular (please note that the list below is non-exhaustive):
    (i) the number and job positions of employees or individuals performing work on any basis other than employment agreement, who participate or could participate in the order performance, and who:
    – are subject to mandatory hospitalization due to COVID-19 prevention, or to quarantine or epidemiological supervision as a result of contact with individuals whose health has been threatened by COVID-19;
    – are exempt from the obligation to perform work due to the need to personally take care of a child, a child with a significant or moderate degree of disability under the age of 18, or a disabled child – in case a nursery, children’s club, kindergarten, school or another similar facility attended by the child is closed, or due to the fact that care cannot be taken by a nanny or a daily caregiver because of the spread of COVID-19;
    (ii) a decision related to COVID-19 prevention, issued by the Chief Sanitary Inspector or a person acting on his behalf, obliging the contractor to apply specific prevention or control measures;
    (iii) instructions issued by heads of provinces, or decisions issued by the Prime Minister, related to COVID-19 prevention – waste management;
    (iv) suspension of deliveries of products, components or materials, or difficulties in access to equipment or performance of transport services.
    c. The contractor may invoke all the aforesaid circumstances to the extent in which they also apply to the subcontractor or further subcontractor.
    d. Each party to a PPL contract may request additional statements or documents confirming the impact of circumstances related to COVID-19 on proper performance of the agreement.
    e. Having received such information, a party to the agreement shall be obliged to make – on the basis of the statements and documents available to it – an assessment of the impact on agreement performance. It is not allowed to leave the received information without any analysis and response. The deadline to respond is 7 days of receipt of the Notification.
    f. The Draft Bill indicates that the scope of permitted changes includes the amendments specified in article 144 section 1 item 3) of the PPL Act; the Drat Bill allows amendments in three areas:
    (i) changes to the performance date of the agreement or its part, or temporary suspension of performance of the agreement or its part. In case of temporary problems with agreement performance, arising from circumstances related to COVID-19 (e.g. disrupted supply chains or an insufficient number of employees), the parties will be entitled to modify aspects related to completion of the PPL contract. For example, they can suspend it (in total or in party) (i.e. refrain from actions aimed at agreement performance until the reasons for suspension cease to exist), or continue its performance (in total or in part), taking into account the limitations resulting from COVID-19, and extending the deadline for its completion. In our view, this amendment could be accompanied by a request to make relevant modifications to the remuneration, and to stipulate that the contractor is not liable for untimely performance of the contract;
    (ii) changes to the method of delivery or performance of services / construction works. This can make it possible for parties to a PPL contract to adjust the original requirements related to the manner of order performance to limitations arising from COVID-19. Examples: in case there is no access to a specific technology, equipment or materials, it will be possible to perform the contract using another technology, equipment or materials (equivalent to the previous ones). A change to the performance method might be definite or indefinite in time. A change to the manner of performance might also be related to a change in the order of individual stages.
    (iii) changes to the scope of contract and remuneration. A modification of the scope of contract can be temporary in nature, i.e. it can apply to the period over which circumstances related to COVID-19 occur (e.g. in case of deliveries and ongoing or periodic services). It can also be definitive in nature, meaning that the new scope of the agreement (e.g. reduction of the scope of a one-time delivery or service) will be final. Changes to the scope of the contract require corresponding changes to remuneration.
    g. Limitations applicable to changes: a fee rise resulting from each change cannot exceed 50% of the value of the original agreement.
    h. If a PPL contract contains provisions related to contractual penalties or compensation for non-performance or improper performance due to specific circumstances, the Notification should include information about COVID-19’s impact on proper performance, and the impact of amendments to the agreement on the validity of determination and pursuit of such penalties/compensation or their value.
    i. In case of a confirmed impact of the state of epidemic on the performance of a PPL contract, the contracting authority may refrain from determining and pursuing the contractual penalties or compensation, or adjust them accordingly – in case the contractor has contributed to the delay / improper performance of the agreement.

    RE: 4.2.2 – preclusion of liability
    According to the Draft Bill, amendments to the agreement and refraining from determination and pursuit of claims arising from non-performance or improper performance as a result of specific circumstances will not constitute a breach of the public finance discipline. This means that if a contracting authority – acting on the basis of the Draft Bill – decides that non-performance or improper performance of a PPL contact results from COVID-19 and, consequently, refrains from the pursuit of contractual penalties or compensation, or amends the agreement, such contracting authority will not be liable for a violation of the public finance discipline.
    In our opinion, this solution should encourage contracting authorities to use the tools offered by the Draft Bill.

RECOMMENDED ACTIONS – CONTRACTORS:
1. Reviewing executed agreements in terms of deadlines, contractual obligations, schedules and liability (incl. contractual penalties).
2. Examining the current situation in terms of human/technical resources with respect to employees, associates, subcontractors, suppliers and supply chain.
3. Ongoing communication with the contracting authority to determine further steps, share information, and take actions aimed at amending the agreement (incl. with respect to the means/form of such communication).
4. Collecting documents that confirm the epidemic’s impact on agreement performance (such documents and statements can definitely be made in an electronic form).
5. If necessary: (i) preparing a detailed explanation of one’s position, covering all applicable circumstances that may affect proper performance of the agreement; (ii) suggesting the draft version of the amended agreement in order to facilitate communication with the contracting authority.

RECOMMENDED ACTIONS – CONTRACTING AUTHORITIES
1. Contracting authorities that are running a public procurement procedure should consider provisions permitting amendments to the agreement on the basis of the Draft Bill.
2. Contracting authorities that have entered into public contracts should: (i) conduct a detailed analysis of their provisions in terms of the possibility to introduce amendments on the basis of the Draft Bill; (ii) engage in discussions/negotiations with contractors; (iii) prepare its employees for an efficient assessment of Notifications; (iv) inform employees responsible for supervision and coordination of PPL agreements about changes covered by the Draft Bill, especially lack of liability for violation of the public finance discipline.

We are ready to assist you in evaluating your particular situation. Please feel free to contact us any time.

Coronavirus and public procurement procedure

What about agreements executed under public procurement law act? Potential actions for contractors and contracting authorities

Undoubtedly, we are and will continue to be affected by the COVID-19 (“coronavirus”) pandemic and the state of epidemic threat, introduced in Poland on March 13, 2020. Complications might result from distorted supply chains, employee absences and transport problems. Consequently, there is a high risk of a drop in productivity. It is almost certain that some obligations will not be performed in a timely fashion. This includes obligations arising from agreements executed on the basis of the Public Procurement Law Act (“PPLA”), which might give rise to contractors’ substantial liability and contracting authorities’ problems related to public finance discipline.

The special-purpose act of March 07, 2020, whose article 6 touches upon issues related to public tenders, is not of much help as regards the above. It only points to the possibility to preclude the application of PPLA for orders of goods or services that are necessary to combat coronavirus, under specific conditions:
i. if the disease is highly likely to spread in a fast and uncontrollable manner; or
ii. if required for the purposes of public health protection.

The special-purpose act does not cover problems related (in particular) to the performance of existing agreements, ongoing public procurement procedures and opening of bids.

Below you will find recommended actions for contractors to adequately assess the situation and mitigate/eliminate risks involving liability for (non-)performance of agreements (especially for delays in their performance), as well as recommended actions for contracting authorities, related to ongoing public tenders and existing agreements.

Contractor

[Limitation / preclusion of liability]

  1. It is highly advised to conduct a comprehensive analysis of provisions of executed agreements, especially in terms of liability for performance of obligations. We recommend focusing on contractual penalties, liability for damage (incl. its preclusion in case of force majeure), the manner of notifying the contracting authority about circumstances that prevent or hinder agreement performance, and suspension of agreement performance. There is no universal method that would make it possible to globally assess liability resulting from all agreements executed under PPLA. Each case needs to be examined on its own.
  2. If an agreement does not cover aspects related to liability, amendments or rescission (or contains insufficient provisions in that respect), applicable legal regulations will be used – mostly PPLA and the Civil Code; they offer the possibility to make relevant amendments to agreements.
  3. If an agreement includes provisions based on which the contractor’s liability is precluded as a result of force majeure, the contractor will be able to invoke such circumstances. In our opinion, the coronavirus outbreak meets the criteria necessary for it to be regarded as an unusual and extraordinary situation that is beyond any control of the contractor (force majeure). Once again, we wish to emphasize that each case will need to be assessed separately, e.g. in terms of whether other circumstances attributable to the contractor had not contributed to the contractor’s delays before the state of epidemic threat was introduced.
  4. If an agreement does not include provisions related to force majeure or does not preclude the contractor’s liability in case of force majeure events, it will be difficult for contractors to effectively invoke such circumstances to limit/preclude their liability. In such case, it might be necessary for a contractor to file a lawsuit, e.g. on the basis of article 357(1) of the Civil Code (rebus sic stantibus), or to consider rescinding the agreement in order to avoid substantial costs related to its performance.
    [Request to amend an agreement]
  5. It is required to analyze an agreement in terms of the possibility to amend it, e.g. as a result of circumstances that are beyond the parties’ control and could not be foreseen despite exercising due diligence.
  6. Irrespective of the basis for amendments, specified in the agreement itself, the contractor is entitled to seek amendments pursuant to PPLA. For example, on the basis of article 144 section 1 item 3 of PPLA, it is possible to amend an agreement if this proves necessary due to circumstances that the contracting authority could not expect. In such case, amendments can also apply to the remuneration but cannot change it by more than 50% of the original value – such amendment is independent from the provisions of the agreement itself.

Note: amendments to the agreement require both parties’ consent, meaning that nothing happens automatically here. Also, given the fact that force majeure is not the contracting authority’s fault, there is a potential risk that the contractor will be unable to seek additional remuneration from the contracting authority for periods of downtime (suspension) or for storage of the purchased devices/materials that cannot be installed or used for objective reasons.

As regards the impact of the current situation on the performance of construction works agreements, incl. ones executed on FIDIC templates, please read our legal alert covering the construction sector. Please note that FIDIC draft contracts include some provisions concerning an epidemic or force majeure. Irrespective of such provisions, the situation of each individual contractor always needs to be analyzed in detail.

Summing up, we cannot rule out the possibility that disputes with contracting authorities will arise in relation to delays resulting from the state of epidemic threat. In order to mitigate the risks, we recommend contractors to take the following actions in particular: (i) documenting all actions related to force majeure notifications sent to contracting authorities, and steps taken by contractors to properly perform agreements; (ii) ensuring due diligence in meeting the deadlines for such notices (or submitting the notices promptly).

Contracting authority

The current situation may also affect ongoing public contract award procedures handled by contracting authorities. The opening of bids usually entails direct participation of all parties involved.

Recommended actions:

  1. Extending the dates of submission and opening of bids (if possible);
  2. Online streaming of bid opening procedures – this solution allows everyone to learn basic details about the submitted bids in real time.
    At the same time, due to potential consequences related to performance of agreements in the future, contracting authorities:
  3. That are running a public procurement procedure should consider provisions permitting amendments to the agreement in case of force majeure, or suspension of its performance for the period over which a force majeure event persists;
  4. That have entered into public contracts should analyze their provisions in detail, in terms of potential amendments related to the state of epidemic threat, with a view to eliminating liability for improper performance of obligations arising from the Liability for Breach of Public Finance Discipline Act
    – as long as this is in line with their interest.

This legal alert only indicates the potential emergence of certain problems against the background of public procurement laws. We are ready to assist you in evaluating your particular situation.