Poland: 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.