Importance of the amendment to the Public Procurement Law for the expenditure of EU funds

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1 August 2016 Practice Group(s): Government Contracts & Procurement Policy Piotr Kunicki, PhD, legal counsel in the Public Procurement Practice of K&L Gates Piotr Kunicki has been specializing in public procurement law and infrastructure projects for more than 14 years and has advised on a majority of the largest infrastructural investments in Poland. He advises Polish and international contractors as well as employers and represents them before the National Appeals Board. For more information contact: piotr.kunicki@klgates.com, Importance of the amendment to the Public Procurement By Piotr Kunicki It is projected that in Poland will receive a total of 350 billion zloty in EU funds for developing infrastructure, including 67 billion zloty for developing railway infrastructure, 107 billion for road infrastructure, 10 billion for sea ports and 157 million for investments in airports. The value of the investment program of the Polish energy sector until 2020 is 100 billion zloty, including 50 billion allocated for the construction of the first Polish nuclear power plant. 10 billion zloty will also be spent within the Operational Program Digital Poland. The above amounts indicate that the perspective of the next four years is very attractive both to the Polish contractors sector and to the foreign companies interested in entering the Polish market. Entities to be awarded contracts for modernization and construction of Polish infrastructure will be selected in tenders held under the Public Procurement Law. This act will be amended considerably in July in respect of applying for the award of contracts. It is worth looking at the most important of these amendments. The Public Procurement Law amendments are mainly due to the necessity to implement EU directives 2014/24/EU and 2014/25/EU regarding award of contracts to the Polish legal order. However, the Polish legislature decided to introduce several of its own solutions to improve the effective spending of public funds by ensuring selection of the best economic offer, and not the cheapest one. Over the years the contracting authorities have too often used the lowest price award criteria as the only and decisive criteria in awarding public contracts. Consequently public entities would frequently procure the cheapest, but also the worst quality products/construction works. Another problem the Polish market was facing, was the very limited opportunities to modify a public contract once it was concluded, despite the fact that on many occasions such a modification was required. In such circumstances, on many occasions the contracting entities would acquire products that were already outdated from the time when the tender was announced, or would face court cases for payment of extra remuneration to construction contractors, who were forced to carry out additional construction works outside the scope of a lump sum contract. Lastly, one of the major problems was the very formal tender stage procedure, where the smallest mistake could exclude a contractor, despite it being a reputable market player. The recent changes aim to solve these problems. The future will show whether they are successful.

2 ESPD (European Single Procurement Document) making the procedure less formal One of the most important changes to the Polish, but first of all foreign contractors, would be the fact that the contractors would not have to submit, along with their tender offers or applications for admission to tender, formal documentation confirming lack of exclusion from the procedure, such as a certificate on lack of tax and social and health insurance arrears, non-criminal records certificates of company managers or certificates confirming that no bankruptcy or liquidation proceedings have been commenced against the company. Instead, they will have to submit statements in this respect and if the value of a given contract exceeds the EU thresholds requiring publication in the Official Journal of the European Union (TED), contractors shall submit a standard, effective in the same wording in all EU countries, uniform European Single Procurement Document (ESPD). Only after this stage will the employer assess which offer from the submitted tender offers is most advantageous. It will summon the contractor to submit documents confirming the statements included in ESPD, within the deadline specified at its discretion, however not shorter than 10 days. This deadline can be extended by the employer on its own initiative or at the request of a contractor if it turned out that it does not allow the collection and submission of the required documentation to the employer. This documentation must be valid on the date of its submission. If, within this deadline, the contractor is unable to submit the required documentation, the employer will not exclude this contractor but will call it to supplement the missing or incorrect documentation within an additional deadline. However, one could expect that a change of the manner of submission of documentation, the rules for designation of deadlines for supplementing and its validity will raise numerous controversies at the beginning. Therefore, many contractors may forego chances to be awarded a contract due to incorrect submission of the documentation or failure to supplement it. Criteria for evaluation of tender offers other than the price - emphasis on quality Another amendment, which may change things a lot, is the employers obligation to specify the criteria for evaluation of tender offers different than the price and an obligation to assign at least 40% importance thereto, unless the subject of the procurement has determined quality standards. Therefore, it is expected that a majority of tenders will consider other than the price criteria for evaluation of offers with an importance of at least 40%. It also means that the quality of the offered product, service or the construction works will become increasingly important upon application for the award of contract. Quality will be evaluated on the basis of the detailed written criteria for evaluation of offers described by the employer and the contractor s offer. Consequently, the number of points awarded will depend on the information which the contractor has provided in its tender offer. If the submitted offer does not contain specific information, the contractor cannot supplement the information at a later stage, after the lapse of the deadline for submission of offers, and will be awarded a smaller number of points than it could have received. However, by the lapse of the deadline for submission of tender offers, the offer may by supplemented by the contractor. This amendment should make it easier to apply for the award of contract for those contractors who do not offer the cheapest products, but high quality products. Consequently, this solution will increase the competitiveness of such companies. 2

3 Limitation of competition from countries subsidizing their contractors Another novelty is the Polish legislature s introduction of a solution in which the employer will be entitled to treat differently those contractors, supplies, services and construction works coming from states which are not parties to the WTO agreement on government procurements or a party to other international agreements on public procurements to which the European Union is a party, i.e. coming from, among other countries, Russia, Turkey, China. In such a case, however, the employer will be able to impose on the contractors of supplies, services or construction works originating from these countries additional requirements in a scope justified with the subject of the procurement, e.g. require bank guarantees, payment of a bid bond or a performance bond issued by the banks headquartered in the European Union. Third party resources reality of managing subcontractors Under the amendment numerous changes will be introduced in respect of formulation of the conditions for participation in the procedure and the reasons for exclusion of contractors. Although it is difficult now to clearly assess the potential consequences of these changes, they do not raise serious doubts and it does not seem that they will have a material impact on the award of public contracts. These changes might rather matter in single cases. However, a change that may be important is regulation of the issue of the contractor s reliance on third party resources (e.g. subcontractors or parent companies, subsidiaries) in respect of fulfilment of conditions for participation in the procedure. To date, an entity providing its resources was not obligated to participate in the execution of a part of the contract and it was sufficient that it undertook to provide the contractor during the performance of the contract with consultations and advice. Now, the Public Procurement Law introduces an obligation for the entity providing resources to undertake construction works or services the performance of which requires the provided resources. In other words, the legislator s intention is that the entity providing its resources will undertake to be a subcontractor. It seems that the provision introduced may cause difficulties for the contractors, and also for the employers themselves, as, should the procedure be carried out in the form of a limited tender or negotiations with publication in which there is a stage of initial classification of contractors, and subsequently the qualified contractors are invited to submit their tender offers at the second stage, the complete description of the procurement is unknown at the initial classification stage. Consequently, at the stage of initial classification, when the provision of resources by a third party to the contractor is required, without knowing the full scope of the contract, it will not be able to undertake to perform the specific construction works or services. It will only be possible to specify in the third party s undertaking a general subcontracting obligation, and it will be impossible to determine e.g. the scope of the subcontract and the remuneration of the entity making its resources available. As it will be impossible to submit a binding undertaking upon the entity making its resources available due to the lack of the specified scope of works and remuneration of the subcontractor this entity will be able to refuse concluding the subcontracting agreement at a later stage after conclusion of an agreement for the procurement, without adverse consequences, even by way of setting excessive requirements in respect of remuneration. Amendment of an agreement more flexibility in performance of contracts Another important change is the specification of detailed cases in which an amendment of a public contract is permitted, including a regulation that any amendment of a contract, 3

4 notwithstanding its nature, will be allowed if it does not lead to an increase in the contractor s remuneration jointly by an amount equal to or exceeding the so-called EU thresholds. It also has to be lower than 10% of the value of the procurement initially specified in the contract in the case of procurements for services or supplies, or in the case of construction work lower than 15% of the value of the procurement initially specified in the contract. This change should have a positive impact at the execution stage of the contract, in particular in the case of procurements for design services, contract engineer and construction works, in respect of which it often occurs that during execution of the contract it is necessary to consider, in the scope of the contract, an additional or modified scope of the subject of the contract. Additionally, many other prerequisites have been stipulated, making it possible to amend the contract, which should make the stage of execution of the contract more flexible to the benefit of contractors. Summary It appears that the direction of changes to be implemented by the amendment to the Public Procurement Law should firstly contribute to easing the formalities associated with the procedure for the award of contract encouraging foreign contractors to apply for the award of contract. Secondly, as a result of the amendment to the Act, employers will put more emphasis on the quality of the offered product and not merely on the lowest price. Paradoxically, this amendment should simplify foreign companies entry of the Polish market, as should they possess a high quality product, they will be able to more successively compete in a tender against lower quality, but less expensive products offered by existing contractors on the Polish market. It should reduce their costs of market entry. Finally, regulation of numerous options to amend an already concluded contract should ensure more flexible management of such contract. All these amendments should contribute to the effective spending of approximately 350 billion zloty in the next four years, which Poland received for the development of infrastructure. Considering that the resources from the EU funds usually make up 70 80% of the value of the investment and the remaining part consists of the beneficiary s own contribution, one could easily say that the funds designated for the development of infrastructure are even a larger amount. A period of four years is a very short time for utilization of such considerable funds and it seems that the companies present on the Polish market may not be able to, within their own capabilities, execute all the investments covered by the program for modernizing Polish infrastructure. Therefore, it also appears that the current perspective is very advantageous for foreign companies to enter the Polish public procurement market. However, in order to do so, they must be able to compete with other contractors during the procedures for the award of contract and be knowledgeable about the regulations and practices regarding award of contracts. Authors: Piotr Kunicki piotr.kunicki@klgates.com

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