We are providing you with a report discussing the limit on contractual penalties in public procurement. It’s a vital issue right now in the context of liability risks and the proper pricing of bids in public procurement procedures.
Contractual penalties have been covered by a number of studies, mostly academic ones. They have also been the subject of thousands of court rulings. It is not the purpose of this report to discuss the function or nature of contractual penalties. Instead, we want to focus on the judgment of the National Appeals Chamber of August 22, 2023 (the “KIO Judgment”), in which the Chamber had to address an issue known only in the Public Procurement Law, i.e. the value of the contractual penalty limit in the draft contract.
In our report, you will find a brief analysis of the KIO Judgment. We also try to answer the question of whether such a ruling has an actual impact (and if so, to what extent) on the provisions of future public procurement contracts. We present different categories of contractual penalties, along with practical information about their application in agreements.
„The maximum amount of contractual penalties cannot be set at a level that could be considered grossly excessive in relation to the amount of the fee or potential risks associated with non-performance or improper performance of the contract, including the possibility of the emergence of damage or its extent. Contractual penalties should be reasonably severe, but not to the point where it might seem futile to perform the agreement.” –KIO Judgment.
Hubert Wiśniewski and I are passionate about public procurement law. For me, this has been going on for 20 years. We have co-organized many events and have written articles on a wide variety of issues related to public procurement. Thank you for your interest in this report, and feel invited to come back every now and then as further reports are in the making.
