Abusive clauses under the new Public Procurement Law
Poland’s new Public Procurement Law, which enters into force on 1 January 2021, identifies a set of clauses that cannot be included in public contracts. Will Art. 433 of the new act be regarded as a catalogue of abusive clauses? What types of provisions will be prohibited?
Abusive clauses in the Public Procurement Law?
The concept of a ban on the use of certain contractual provisions infringing fair practice was enacted in Art. 3851 of the Polish Civil Code. Under that article, provisions of a contract with a consumer not negotiated individually with the consumer are not binding on the consumer if they frame the consumer’s rights and obligations in a manner inconsistent with fair practice, grossly infringing the consumer’s interests. Civil Code Art. 3853 also contains a list of examples of provisions with characteristics of prohibited (abusive) clauses.
The regulations in the Civil Code on the issue of prohibited clauses were intended to protect one party to the legal relationship: the consumer, deemed to occupy a weaker negotiating position in dealings with a business. But no consumer is a party to a public procurement contract, and thus the Civil Code regulations do not suit contracts of this type. The contractor is a professional, with the human and financial resources at its disposal to adequately assess the risks associated with carrying out the contract. So should economic operators involved in public contracts be protected against prohibited clauses?
As Civil Code Art. 3851 cannot be applied in public procurement, calls have been raised in the legal literature to introduce a comparable provision in the Public Procurement Law. This need has arisen from the practice of awarding public contracts in Poland. Increasingly, contracting authorities have included provisions in public contracts overly burdensome to contractors. Contracts have shifted most of the liability to contractors, even for acts or omissions on the part of the contracting authority.
A public contract shares certain features with a contract of adhesion, because contractors submitting a tender in a contract award procedure have no influence over the terms of the future contract. Exploiting this fact, and using the excuse of protection of the public interest and public finances, contracting authorities have often abused the freedom of contract. This has reduced the competitiveness of public procurement, because the terms established for contract performance have discouraged contractors from submitting tenders.
Consequently, during the work on the new Public Procurement Law, there were calls to include in the act an open-ended catalogue of abusive clauses, as described in the initial concept for the new act from June 2018. Examples of prohibited clauses were given such as:
- Imposing contracting penalties on the contractor for delay attributable to the contracting authority
- Introducing contractual penalties disproportionality high in relation to the subject of the procurement
- Holding the contractor responsible for performance when performance was impossible.
Based on a recommendation by the Ministry of Enterprise and Technology and the Public Procurement Office, the draft of the new act from 21 January 2019 included a provision addressing the issue of prohibited clauses. Under the proposed Art. 462(1), the provisions of a public contract could not frame the rights and obligations of the contracting authority and the contractor in a manner grossly disproportionate to the nature of the procurement and the risks associated with execution of the procurement. In the following paragraph the draft set forth an open-ended list of prohibited clauses.
During the legislative process, the original wording of this provision was modified, and the final version is included in Art. 433 of the new Public Procurement Law. Under that article, a draft contract must not provide for:
- Liability of the contractor for delay, unless justified by the circumstances or scope of the contract
- Imposition of contractual penalties for behaviour of the contractor not related, directly or indirectly, to the subject of the contract or proper performance
- Liability of the contractor for circumstances for which the contracting authority is solely responsible
- The possibility for the contracting authority to limit the scope of the contract without indicating a minimum value or scale of the parties’ performance.
Lawmakers made several major changes from the original wording of the draft and the recommendations set forth in the concept for the new law.
First, they abandoned the reference to “gross disproportionality,” as critics charged that this provision would implicitly violate the principle of proportionality. The claim was that the law could not require that procurement procedures be prepared and conducted in compliance with the principle of proportionality, while at the same time opposing only gross infringement of this principle (B. Sołtys, “Preventing abuses of freedom of contract in the guidelines and draft of the new Public Procurement Law,” PPH 2019 no. 8, pp. 14–22).
Second, the open-ended catalogue of prohibited clauses was abandoned in favour of listing the four most important types of provisions that must not be found in a public contract (fixed catalogue). This step is not beneficial for public procurement practice, because it will frustrate effective expansion of the catalogue of prohibited clauses. This will limit the leeway for interpretation in the case law and legal literature, which could take into account other instances of grossly unfair contractual provisions going forward.
Third, the lawmakers abandoned the notion of protection against contractual abuses by both contracting authorities and contractors. Ultimately, the new law prohibits only clauses abusive towards contractors.
Fourth, Art. 433 of the new law is limited to a ban on inclusion of abusive clauses in draft contracts, generating a lot of controversy surrounding the timing and scope of application of this provision.
Ban on charging the contractor with liability for delay unless justified by the circumstances or scope of the contract
The first type of provision that cannot be included in a public procurement contract is clauses imposing absolute liability on the contractor for delay.
First the notion of “delay” (opóźnienie) as used in this provision should be defined. Under the developed legal doctrine, delay, i.e. failure to perform on a timely basis, may arise from circumstances:
- For which the obligor is responsible—this results from ascribing to the obligor its own fault and fault of persons indicated in Civil Code Art. 474, defined in Art. 476 as default (zwłoka). Under this provision, in the event of default by the obligor, the other party may demand, in addition to performance of the obligation, redress of the injury resulting from the default. Liability for injury caused by default is thus conditioned on assigning fault to the obligor.
- For which the obligor is not responsible—here the legal doctrine further qualifies the notion of delay with additional findings as delay in the strict sense or ordinary delay.
In the past, it has been a common practice of contracting authorities in Poland to charge contractors with liability for delay for which they were not at fault. Now it will be possible to assign liability to a contractor for delay (opóźnienie) only when justified by the circumstances or the scope of the procurement. Essentially this means that only liability for default (zwłoka) will come into play.
Ban on imposing contractual penalties for behaviour of the contractor not related, directly or indirectly, to the subject of the contract or proper performance
In the second type of abusive clauses, lawmakers used the term “contractual penalties,” which is not defined in the Public Procurement Law. In this instance, through the cross-reference from Art. 8(1) of the new act, Civil Code Art. 483 §1 will apply, under which it may be provided in a contract that redress of injury arising out of non-performance or improper performance of a non-monetary obligation shall be made by payment of a specified sum of money (contractual penalty). The aim of this provision was to curtail the undesirable phenomenon of abuse of contractual penalties by contracting authorities excessively charging such penalties to contractors even for actions irrelevant to proper performance of the contract.
Consequently, lawmakers prohibited the imposition of contractual penalties for behaviour by the contractor not directly or indirectly connected with the contract or proper carrying out of the procurement. But how should the “subject of the contract” be defined? It was accepted that the subject of the contract means the subject of the procurement, i.e. the contracting authority’s acquisition of goods or services to satisfy the public interest. Thus if the contacting authority wishes to provide for a contractual penalty, it will have to show that it is closely connected with the contract or performance, which should be clear from the documentation for the procedure and contract description.
Ban on imposing liability on contractors for circumstances for which the contracting authority is solely responsible
Another type of provision that it will not be permissible to include in a public procurement contract is one where the contractor is held liable for circumstances for which the contracting authority is wholly responsible. It is correctly pointed out that this ban does not introduce anything new into procurement law because it repeats the rule functioning in civil law and also applicable to public contracts. Under Civil Code Art. 473 §1, via a contract the obligor may assume liability for non-performance or improper performance of an obligation due to specified circumstances which the obligor is not responsible for under the code. However, an obligor cannot be held liable for events attributable to the obligee (Supreme Court judgment of 27 September 2013, case no. I CSK 748/12).
But the practical application of this provision will require examination on a case-by-case basis of who should be held responsible for a given act or omission. Consequently, it is not possible to define the exact scope of application of this ban. Nonetheless, a couple of examples can be given of situations in which the contracting authority should bear sole responsibility. First, the contractor may not be held responsible for documentation drafted prior to commencement of the contract award procedure, by the contracting authority itself or an entity it hired to draft the documentation. Second, during the course of contract performance the contractor may not be held responsible for a shortage of funds on the part of the contracting authority. It may thus be stated that the scope of liability must go hand in hand with the nature of the contractor’s obligation.
Thus the contractor may be held liable under a public contract only when responsibility for the given circumstance is borne by the contractor alone or jointly with the contracting authority.
Ban on including in a contract the possibility for the contracting authority to limit the scope of the contract without indicating a minimum value or scale of the parties’ performance
The fourth and final type of provision that will be excluded from public contracts involves the possibility for the contracting authority to limit the scope of the contract without setting a minimum value or scale of the parties’ performance which must be maintained. This provision prohibits contractual provisions authorising the contracting authority to make unilateral modifications to the contract. However, it does not address the possibility of a bilateral annex to the contract, which requires the mutual intent of both parties to the contract.
Thus the contracting authority will not be entirely deprived of the ability to modify the scope of the procurement, but this possibility will always have to be provided for in the contract, setting rigid limits for the minimum value or scale of performance by the parties which must be maintained. This rule also applies to exercise of an option right referred to in Art. 441 of the new Public Procurement Law, which permits a unilateral reduction of the scope of the procurement by the contracting authority. But in that case, the draft contract will also have to indicate a minimum value or scale of performance, below which the contracting authority cannot make such a change.
Effects of a draft contract containing clauses prohibited by Art. 433 of the new act
If a contractor believes that the contracting authority has included a clause in a draft public contract covered by Art. 433 of the new Public Procurement Law, the contractor will have a right to seek review by the National Appeal Chamber (KIO). This right arises under Art. 505 in connection with Art. 513(1) of the new act, as confirmed by the drafters in the justification for the new act, which stated: “Contractors having reservations with respect to the proposed contractual provisions will be able to verify them by appealing to KIO in this respect.” If the appeal is upheld, under Art. 554(3)(1)(c), KIO can order a change to the draft contract or removal of the challenged provision if it is found to violate the act.
The prohibited clauses specified in Art. 433 if the new Public Procurement Law constitute only a touchstone for interpretation, which contractors may use to formulate objections when seeking review. Contractors seeking removal of a doubtful provision which they believe falls under Art. 433 will have to file an appeal with the National Appeal Chamber, which will then rule on the permissibility of inclusion of the specific provision in the draft contract.
Wardyński & Partners was a knowledge partner for the national scholarly conference organised by the Administrative Procedure Club at the University of Wrocław devoted to the new Public Procurement Law, held on 27 September 2020. Mirella Lechna-Marchewka and Anna Prigan led a discussion entitled “Analysis of needs and requirements, and preliminary market consultations, as measures furthering the principle of efficiency in public procurement procedures,” while the author of this article addressed the issue of abusive clauses in public procurement.
Cyprian Herl, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners