Anti-Crisis Shield 4.0: vital changes in public procurement

The so-called “4.0 Shield” bill, which provides for, among other things, significant changes in the Public Procurement Law, was submitted to the Sejm. The latest solutions are primarily intended to improve the contractual situation of contractors, and to unblock activities of the National Chamber of Appeal.

Obligatory amendment of a public procurement agreement

Shield 1.0 solutions introduced so far failed to meet the contractors’ expectations. Although the possibility of amending the public procurement contract was introduced, in fact such a change was made dependent on the contracting authority’s decision.

Thus, even the occurrence of extraordinary circumstances on the contractor’s side, such as an absence of the staff, breakdown of the supply chain, administrative ban on trading in certain goods or a payment gridlock, did not impose on the contracting authority an obligation to modify the contract. If it was found that circumstances related to the occurrence of COVID-19 might affect or have already affected the proper performance of the public procurement contract, the contracting authority had the right (but not the obligation) to modify the contract.

Shield 4.0 provides that the contracting authority will have to obligatorily amend the contract if it is found that the circumstances associated with the occurrence of COVID-19 affect proper performance of the contract. However, a decision to amend the contract will rest with the contracting authority (after agreement with the contractor) if the circumstances related to the epidemic can only affect the performance of the contract.

Amended may be provisions of the contract regulating, in particular:

  • the date of the contract performance,
  • mode of the contract performance,
  • the scope of the parties’ performances,
  • temporary suspension of the contract.

The obligation to amend the contract under the provisions of Shield 4.0 is a substantial convenience for contractors. However, the boundary between considering whether the occurrence of COVID-19 did affect or merely could have affected the performance of the contract remains unclear and further disputes with the contracting authorities are not excluded.

Limitations in setting off contractual penalties and seeking satisfaction from security

The solutions of Shield 1.0 implemented so far provided for an obligation of mutual reporting between the contractor and the contracting authority on the impact of the circumstances related to the occurrence of COVID-19 on the performance or proper performance of the contract and an obligation to present the impact of the circumstances related to the occurrence of COVID-19 on the legitimacy of imposing and pursuing contractual penalties or damages, or on their amount.

In Shield 4.0, the legislator has expressly provided for a ban on setting-off of contractual penalties from the contractor’s remuneration or other claims if the proper performance of the contract was affected by circumstances related to the occurrence of COVID-19. This ban will be in force during the period of announcement of a state of emergency or epidemic in connection with COVID-19 and for 90 days after its cancellation. Moreover, the contracting authority will not be able to seek satisfaction from the performance bond if the event in connection with which this penalty was stipulated occurred during the period of declaration of the state of emergency or epidemic.

During the aforementioned period, the period of limitation of the contracting authority’s claims for payment of the contractual penalty will not run. The term of validity of the performance bond will not start and the one that started will be suspended.

It seems that the introduced changes do not mean the impossibility of calculating or claiming contractual penalties, but only a temporary limitation of the possibility to set them off.

Obligation to pay advances or remuneration in instalments

The Public Procurement Law provides for both the possibility of payment of remuneration in instalments and the possibility of paying an advance on account of the performance of the contract once the conditions specified in the Act are met. However, these solutions have not been applied frequently so far.

Shield 4.0 provides that in contracts concluded for a period longer than 12 months, contracting authorities will be required by law to pay remuneration in parts or to make an advance payment.  That contracting authority must specify in the contract the percentage of remuneration paid for the execution of individual instalments; the last instalment of the remuneration may not be more than 50% of the remuneration due to the contractor. At the same time, the advance payment may not be less than 5% of the remuneration.

The proposed solution is to contribute to the reduction of payment gridlocks, which in turn is to increase the liquidity of the public procurement market.

Security changes

Shield 4.0 also provides for changes in the amount of the performance bond – its upper limit will be 5% of the total price stated in the offer or the maximum nominal value of the obligation. If it is justified by the subject matter of the contract or the occurrence of a risk related to the execution of the contract, as described by the contracting authority in the terms of reference, this limit is 10%. It will also be possible to return a part of the security after the execution of a relevant part of the contract if the contracting authority has provided for such a possibility in the specification. The purpose of these regulations is to reduce the costs of contractors’ participation in tenders.

Additionally, the provisions of Shield 4.0 will abolish the obligation to demand a security deposit in tenders above the EU thresholds, which is a response to the growing costs of obtaining bank and insurance guarantees. Therefore, the contracting authority is no longer required to demand a security deposit but is still entitled to do so.

It is worth recalling here that according to the Public Procurement Office’s interpretation, contracting authorities cannot automatically apply the penalty of retaining the bid security deposit when:

  • a contractor refused to sign a public procurement contract on the terms and conditions specified in the tender,
  • a contractor did not provide the required performance bond,
  • the conclusion of a public procurement contract turned impossible for reasons attributable to the contractor.

In any case, the contracting authority should be required to analyze the specific factual situation and duly verify whether the obstacles are not caused by reasons beyond the contractor’s control. If the extraordinary circumstances were caused by the COVID-19 epidemic and directly and actually result in an inability to perform the contract on the original terms, the penalty of retaining the bid security deposit should not be applied.

Resumption of works of the National Chamber of Appeal (NCA)

After more than a month, operation of the NCA will be resumed – the Shield 3.0 bill, which is being negotiated in the Sejm, provides for repealing of the provision on the suspension of time limits in litigation, court proceedings and proceedings before the NCA. However, in accordance with the Shield 4.0 bill, the cases will be conducted in the absence of the parties and participants. The legislator has not decided to allow them to use means of distance communication to participate remotely in hearings.

The NCA will consider appeals in closed sessions during the period of epidemic emergency or state of epidemics in connection with COVID-19, and for 15 days from its recall.

The rules of procedure and deadlines will also be subject to certain changes – a time limit for filing an objection against the accession of another contractor will be 3 days from the date of receipt of a copy of a notification of accession, and a time limit for filing a response to appeal will be 2 days from receipt of a copy of the appeal.

How can we be of help?

Our Law Firm offers comprehensive advisory services in the field of public procurement law. Our offer includes among others:

  • preparing legal analyses on the application of the Public Procurement Law,
  • legal advice on the choice of the contract award procedure,
  • preparation of tender documentation,
  • verification of requests to participate in the proceedings,
  • preparation of procurement contracts,
  • representation in appeal proceedings,
  • legal advice during the performance of the contract,
  • advice on concessions for construction works,
  • advice on public-private partnership.

If you are interested in more detailed information on the above-mentioned issues, please contact us.

Information contained in this publication is of general nature and does not relate to the situation of a particular company. Due to frequent changes in Polish legislation, we kindly request that you make sure that on the day you are reading this publication the information contained therein is still up to date. We suggest that you consult our advisers before making any decisions.