Power shift in Poland, and its impact on public procurement procedures and existing contracts

In our opinion, this “big cleanup” will inevitably also result in the invalidation (though it is hard to predict the extent) of non-completed public procurement procedures or existing contracts that were initiated / executed by the predecessors of those who hold power now. It is difficult to discuss the intentions of such actions – whether they will arise from the need for “political revenge” or whether the ruling parties will want to prevent the pointless spending of public funds. Each situation will need to be evaluated on an individual basis.

It is quite clear that the invalidation should occur only in exceptional cases. After all, the main purpose of any such procedure is to award the contract to the best bidder. The Public Procurement Law Act (“PPLA”) governs the invalidation of procedures and limits the possibility of such invalidation, which is why we will discuss relevant provisions of the PPLA in this article.

For many years, the PPLA has invariably provided a full list of grounds for invalidation of public procurement procedures. These are divided into “obligatory grounds” (listed in article 255 of the PPLA) and “optional grounds” (specified in articles 256-258 and article 310 of the PPLA).

An exhaustive list of both types of grounds for invalidation means that the contracting authority is not entitled to come up with additional reasons for cancellation, other than those specified in applicable laws. In particular, it would be unlawful for the contracting authority to indicate in the public procurement documentation that it has the right to invalidate the procedure for convenience, without naming a reason. The fact that the contracting authority is obliged to specify the reasons for invalidation is of vital importance. The contracting authority must communicate such information to all contractors that submitted bids or requests to participate in the procedure, or were invited for negotiations, specifying the actual and legal reasons for its decision.

Undeniably, the invalidation of public procurement procedures on the basis of the obligatory grounds will not evoke much emotion as these grounds have been in the public procurement legal system for a long period, with just minor changes introduced over time. Moreover, it could be said that their existence and application precludes the “decision-making power of officials.” Nevertheless, it is worth quoting them here.

The obligatory grounds for invalidation are provided in article 255 of the PPLA. If they emerge, the contracting authority must decide to cancel the procedure or part thereof (in case the invalidation criteria only apply to part of the contract). This means that the contracting authority’s action should be free from any discretion. The aforesaid provision stipulates that the contracting authority shall invalidate a public procurement procedure if:

• no request to participate or no bid has been submitted;
• all submitted requests to participate or bids were subject to rejection;
• the price or cost of the best bid or the bid with the lowest price exceeds the amount that the contracting authority intends to spend on the contract, unless the contracting authority can increase this amount to match the price or cost of the best bid;
• in the cases referred to in article 248 section 3, article 249 and article 250 section 2 of the PPLA, additional bids of the same price or cost have been submitted;
• there has been a significant change in circumstances, which means that the public procurement procedure or the performance of the contract is not in public interest, and this could not be foreseen at an earlier stage;
• the procedure has an irremovable defect that prevents the execution of a valid public contract;
• the contractor has not provided the required bid security or has refrained from entering into a public contract, taking into account article 263 of the PPLA;
• in a sole-source procurement procedure, negotiations have not led to the execution of a public contract.

The most debatable optional ground for invalidation of a public procurement procedure continues to be one specified in article 256 of the PPLA.

Pursuant to it, the contracting authority may invalidate the procedure before the deadline for submitting requests to participate or before the deadline for submitting bids, respectively, if there are circumstances that make it unreasonable to continue the procedure. Undoubtedly, the burden of proof lies with the contracting authority.

The aforesaid regulation will apply in particular in the cases specified in article 90 section 3 and article 137 section 7 of the PPLA. They concern situations in which, respectively, a change in the contents of the public procurement notice or terms of reference (ToR) would lead to a significant change in the nature of the contract compared to the one originally specified (e.g. a change from services to construction works), especially a substantial change in the scope of the contract (e.g. vast expansion or reduction of the scope of the contract).

It need to be emphasized, however, that this provision cannot serve as an excuse to invalidate proceedings even though this is exactly how some contracting authorities would like to understand it. Thus, its application should be handled with caution, and the judicial practice of the National Appeals Chamber is not entirely clear in this respect. This provision raises some doubts, and there are also attempts to abuse it. What needs to be kept in mind is that the possibility of invalidating a public procurement procedure on this basis is limited by deadlines – it can be used until the deadline for submission of requests to participate or bids.

The contracting authority’s claim that the procedures requires some “improvements” should not, on its own, constitute a reason for invalidation of the procedure. In its judgment of June 13, 2023 (case files no. 1543/23), the National Appeals Chamber noted that “the mere fact of introducing changes to the ToR or making the description of the scope of the contract more detailed (…) does not constitute sufficient grounds for invalidation of the procedure.”

The Chamber took a similar position on September 05, 2022, (case files no. KIO 2132/22), in a judgment issued with respect to a situation where the contracting authority – instead of making changes to the contractual documents, as ordered by the Chamber – invalidated the procedure on the basis of article 256 of the PPLA. When assessing the contracting authority’s actions, the Chamber took into account the fact that the contracting authority had confirmed that it:

“intends to implement the project – which, in the Chamber’s opinion – means that it is still interested in these services/works being performed. (…) The fact that the implementation of the Chamber’s judgment entails the need to change the design, obtain additional/repeated approvals or enter into an amending annex to the financing agreement does not constitute sufficient grounds for invalidation of the procedure.”

Another optional ground for invalidation of the procedure is the situation in which the contracting authority has not obtained the necessary funds for the intended contract. Pursuant to articles 257 and 310 of the PPLA, the contracting authority may cancel the public procurement procedure if the public funds that the contracting authority wanted to allocate to finance all or part of the contract have not been awarded to it. However, in order to apply this provision effectively, it is required to specify in the public procurement notice or the invitation to negotiations that this manner of invalidation might be used. Contractors need to be aware of the potential lack of resources necessary to finance the contract before they decide to participate.

The contractors’ uncertainty will end only upon the execution of a public contract or invalidation of the procedure.

The emergence of this invalidation criterion needs to be evidenced by the contracting authority. It will be able to invalidate the procedure in case it has received a notification about a negative decision from the entity that was supposed to grant financing. Similarly, invalidation will be possible if – despite an initially positive decision – the contracting authority finally does not receive the funds (e.g. in case the original decision is reversed). However, the contracting authority’s assumption that it will not receive such funding is not sufficient. There should be evidence that financing has not been awarded, so that contractors can verify the existence of the reason for invalidation.

This invalidation criterion is important in the context of public contracts co-financed from EU funds. In the case of some projects, it may be necessary to initiate public tenders while the procedure aimed at acquiring the necessary funds is underway. Otherwise, the contracting authority might be unable to meet the requirements arising from the project implementation schedule.

The last of the three optional grounds is set forth in article 258 of the PPLA. It concerns the situation in which the potential contractors’ interest in the public tender is not as high as initially expected. The contracting authority may invalidate the public procurement procedure if a specific number of bidders is not reached. This only applies to selected types of public procurement procedures: limited tender, negotiations with announcement, competitive dialog and innovative partnership.

The contracting authority is obliged to simultaneously notify all contractors that submitted tenders or requests to participate in the procedure, or were invited to negotiations, about the invalidation of the procurement procedure. At the same time, the contracting authority is obliged to provide actual and legal justification for its decision, to the extent sufficient to assess the correctness of its decision. It should be emphasized that the invalidation of the procedure is subject to strict interpretation, and the burden of proof rests with the contracting authority. In particular, it would be incorrect to only quote applicable laws without describing the facts of the case. It is worth adding that the correct and reliable specification of the legal basis and actual circumstances directly influences the possibility of applying and examining legal remedies. Failure to provide the justification, especially with regard to the facts of the case, may constitute grounds for the contractor’s effective appeal.

The invalidation of the procedure precludes the possibility of entering into a public contract because the procedure comes to an end. It needs to be noted here that invalidation “cancels” the procedure from its start date as it produces the ex tunc effect.
On a side note, invalidation of the procedure opens the way for contractors to claim compensation from the contracting authority. Based on article 261 of the PPLA, in the case of invalidation of a public procurement procedure for reasons attributable to the contracting authority, contractors that have submitted bids that are not subject to rejection are entitled to seek reimbursement of reasonable costs of participation in the procedure, especially the costs of bid preparation.

Pursuant to article 513 section 1 of the PPLA, an appeal may be filed against any action of the contracting authority, which is inconsistent with the PPLA and has been taken during the public procurement procedure. Such actions include invalidation of the procedure, meaning that contractors are entitled to lodge an appeal against it. This right applies regardless of the value of the contract.

While it is undisputed that contractors can file an appeal against invalidation, doubts may arise in case the procedure should be invalidated but the contracting authority nonetheless selects the best bid. The non-selected contractors can rightfully expect that in the case of invalidation, the contracting authority will announce a new procedure. Thus, if the appellant demonstrates that as a result of the rejection of all bids, leading to the invalidation of the procedure and the initiation of a new one covering the same scope, the appellant will have a chance to secure the contract, this will be regarded to mean that the interest in securing the contract has been adequately demonstrated (e.g. National Appeals Chamber’s judgment of March 23, 2021, case files no. KIO 649/21).

As a general rule, public procurement contracts executed between a contracting authority and a given contractor remain valid irrespective of a new authority’s subjective assessment or decision that the agreement performance should no longer be continued.

At this point, however, it is worth noting that pursuant to article 456 section 1 item 1 of the PPLA, the contracting authority can rescind the contract within 30 days of becoming aware of a material change in circumstances, which means that the performance of the contract is not in the public interest, and which could not be foreseen as of the contract execution date, or which means that further performance of the contract may jeopardize the vital interest of state security or public safety.

The rescission right based on the aforesaid criterion is vested exclusively in the contracting authority and can be exercised in the form of a unilateral statement. At the same time, the PPLA does not specify at what stage of contract performance it is possible to rescind it, which makes it reasonable to assume that the rescission right can even be performed at the final stage, regardless of the term for which such a contract was made. From the contractor’s point of view, such rescission is undesirable and extremely risky, so the criterion discussed in article 456 section 1 item 1 of the PPLA should be interpreted in a highly strict manner.

The aforesaid provision made the contracting authority’s ability to exercise its rescission right conditional upon the emergence of a material change in circumstances. Thus, not every single change in circumstances – and certainly not one resulting from a parliamentary power shift – justifies the possibility of the contracting authority to rescind a contract. However, the lawmaker has not defined the term “material change in circumstances.” This type of change, referred to in article 456 section 1 item 1 of the PPLA, might be an event of a lesser degree of intensity than the “extraordinary change of relations,” as discussed in article 357(1) of the Civil Code, but nevertheless the word “material” indicates a change that is significant and results from very rare / unusual events, and is definitely not covered by the ordinary contractual risk that contractors should take into account (judgment of the Appellate Court in Warsaw of July 07, 2011, case files no. ACa 13/11):

“The change of circumstances must lead to a situation in which the performance of the contract is not in the public interest. Generally, it should be assumed that in such situations, the performance of the contract is pointless from the perspective of the public interest which should be ensured by the contracting authority as an entity performing public tasks resulting from applicable laws”

This article does not make it possible for us to discuss the Appellate Court’s conclusion quoted above in the context of all interesting cases but as noted at the beginning of the article, it is likely that contracting authorities will be analyzing this criterion in relation to investment projects that receive the widest media coverage in Poland, including CPK. On a side note, public tenders are currently being conducted for audits of Poland’s largest investment projects.

The article, “Power shift in Poland, and its impact on public procurement procedures and existing contracts”, was published in the March-April issue (no. 64) of ZAMAWIAJĄCY magazine. Feel invited to download the full article as a PDF file.