Coronavirus: A new reality in public procurement
The coronavirus pandemic is already affecting contractors carrying out public projects and other contracts under the public procurement regime. With the dynamic development of the situation, there is a risk that negative consequences will go even further. The current situation affects not only the performance of contracts but also ongoing and future public procurement procedures.
Below we present basic information allowing public procurement market participants to determine their legal situation in the face of new circumstances.
Terms of contract control performance
To assess the extent to which the liability of a party to a public procurement contract may be affected, first the terms of the contract should be taken into account. The contract may provide for more than one basis which a contractor affected by a hindrance in performance related to the epidemic may invoke to limit or exclude its liability or make claims against the contracting authority. The contractual basis to be invoked by the contractor will depend on the available evidence as well as the envisaged range of claims it may hold. Under the current situation, claims for extension of the contract term and increase in remuneration are particularly important.
In particular, the force majeure clause should be examined. This institution is not defined in Polish regulations, but a definition of force majeure has developed in commercial practice which is reproduced in most contracts concluded under the Public Procurement Law. The grounds for recognising a given situation as force majeure are generally as follows:
- The event is external and independent of the parties to the contract.
- The event is extraordinary and unforeseeable.
- Contractual obligations cannot be performed as a result of the event.
Therefore, application of the force majeure clause requires not only demonstration of the existence of an epidemic, but also its specific impact on the contract.
However, in the case of a public procurement contract, recourse to the force majeure clause will not always be sufficient. It is difficult to formulate the force majeure clause in a way that takes into account the requirements of Art. 144(1)(1) of the Public Procurement Law, as it is not objectively possible to foresee force majeure, which in turn results from the nature of this phenomenon.
Change in law
The situation in Poland has been classified as a state of epidemic emergency, and thus many new generally applicable provisions of law have been introduced. This can be regarded as a change in law affecting performance of the contract. The circumstance of a change in law affecting performance of a public contract is often a ground provided for in Art. 144(1)(1) of the law justifying modification of the contract.
Suspension of contract performance
In view of the risks that may arise from the coronavirus epidemic, the parties to the contract often take preventive measures, the need for which is not yet explicit in relation to force majeure. In such cases, it may be presumed that if a provision giving the parties such an entitlement is included in the contract, a decision to suspend performance of the contract may be taken. In such a situation, the contract may provide for the possibility to extend the deadline for performance by the duration of the suspension, as well as a direct basis for claims for additional costs in connection with the suspension.
When contractual provisions are absent
If the contract does not contain provisions governing the rights and obligations of the parties in the face of an epidemic, the provisions of the Civil Code will control. The parties may invoke Art. 471 of the code, which provides that there is no obligation to compensate for injury resulting from non-performance or improper performance of an obligation if the obligor proves that the injury occurred as a result of circumstances not attributable to the obligor.
The ongoing coronavirus epidemic and related security measures undertaken by the state should not raise doubts that this is a situation whose possible impact on the performance of existing agreements is beyond the control of the parties. In principle, lawyers agree that the current phenomenon can qualify as a force majeure event. It follows that under the Civil Code, either party will be exempt from liability for the resulting inability to perform a public contract, as force majeure constitutes a limit on liability in general (Supreme Court judgment of 11 January 2001, case no. IV CKN 150/00).
It is also worth noting that in the event of an epidemic, the parties to a contract can apply to the court to specify the manner of performance of the obligation or the value of the performance, or order dissolution of the contract, citing the rebus sic stantibus (extraordinary change in circumstances) clause in Art. 357¹ of the Civil Code. For example, in the judgment of the Katowice Court of Appeal of 20 October 2017 (case no. I Aca 435/17), the panel indicated the possibility of regarding an epidemic as an example of an event causing an extraordinary change in circumstances if it results in hyperinflation, a sharp drop in national income, or mass bankruptcies of companies. However, this method of pursuing claims is lengthy and will not necessarily offer a viable path for addressing the situation of the parties in the face of such a dynamic phenomenon as we are currently dealing with.
Who is affected by the ban on foreigners’ entry?
In relation to the coronavirus epidemic, on 13 March 2020 the Polish Ministry of Interior and Administration issued a regulation temporarily suspending or restricting border traffic at specific border crossing points. Under this regulation, from midnight on 15 March until further notice, border traffic was restricted at border crossing points. Persons not included in the list set forth in the regulation cannot enter Poland. In particular, foreigners with a right of permanent or temporary residence in Poland and foreigners with the right to work in Poland, i.e. foreigners authorised to perform work on the same terms as Polish citizens, holding a work permit, a seasonal work permit or a statement on entrusting work to a foreigner in Poland, may enter Poland.
This regulation is already raising a number of issues of interpretation, and thus practical problems. In particular, nationals of EU and EEA countries and Switzerland are not subject to the provisions on work permits or residence permits. But if they work or reside in Poland, they should be able to enter, demonstrating these circumstances with other documents (e.g. a certificate issued by their employer, or proof of registration of their stay in Poland). On the other hand, the right to enter Poland does not apply if a citizen of one of those countries is employed outside of Poland and would come to Poland to perform work on a business trip, as such persons do not have employment in Poland. Therefore, if persons from a European contractor’s headquarters are involved in performance of a public contract in Poland, they will no longer be able to participate in implementation of contracts from 15 March 2020, even if their presence is required on the construction site.
If a foreigner is entitled to enter the territory of Poland, he is subject to a 14-day quarantine period, during which he can perform work but only remotely. This also excludes workers from working on the construction site.
Impact of the epidemic on procedural deadlines
The current situation is not without impact on deadlines in ongoing legal proceedings. This problem was addressed in a communiqué by the Ministry of Justice of 12 March 2020, indicating that from 13–31 March the dates of hearings in non-urgent cases will be postponed. Legislative work is underway to address the conduct of court proceedings and the rules for conducting procedures during the period of the coronavirus epidemic. On 17 March, the Ministry of Justice announced that it had drafted an amendment to the Special Coronavirus Act (Act on Specific Solutions Connected with Preventing, Counteracting and Combating COVID-19 and Other Infectious Disease and Crises Caused by Them of 2 March 2020) to enable the efficient functioning of the justice system in extraordinary situations. The draft would regulate, among other things, the running of time limits under procedural and substantive law and the shape of certain legal relations during the state of epidemic emergency. The draft has been submitted to the Ministry of Development, which is coordinating the work on amendment of the law. However, the Ministry of Justice stressed that suspension or limitation of the courts’ work will remain the responsibility of the courts’ presidents, and the new regulations will not change anything in this respect.
What about public procurement procedures?
Public procurement procedures are not mentioned in the above draft, and therefore suspension by the contracting authority is not obligatory. If the deadline for submitting a bid or application is difficult to meet (whether due to the actions of state authorities or businesses, e.g. in terms of work organisation), contractors can only count on the forbearance of the contracting authorities and the extension of deadlines at their initiative in order to perform those activities.
As all public procurement procedures above the EU thresholds are currently conducted electronically, difficulties in the functioning of businesses will not necessarily justify an extension of the deadlines in the procedure. At the same time, the Public Procurement Office has expressed the view that online transmission of the opening of bids, in the existing situation of epidemic emergency, sufficiently complies with the principle of transparency in the opening of bids, as referred to in Art. 86(2) of the Public Procurement Law.
Difficulties may also arise at a later stage of the public procurement procedure when contractors are given deadlines to submit documents or explanations. However, we see grounds for justifying the decision to extend the deadline in this respect, as the contracting authority has the right to determine the length of time for supplementing documents in each instance, and the period must allow for “realistic supplementation of the documents and statements requested by the contracting authority” (National Appeal Chamber rulings of 26 June 2013, case no. KIO 1393/13, and 11 April 2014, case no. KIO 631/14).
In the context of ongoing proceedings, an important premise for force majeure is that the event or phenomenon could not be foreseen. Therefore, any force majeure clauses in contracts to be concluded in the coming days and months will not apply to situations arising from the ongoing epidemic, despite objective difficulties in performance of the contract resulting from it. The unpredictability of force majeure must be understood as referring to the occurrence of the event itself and not its impact on performance of the contract. However, as of the date of conclusion of such contracts, the parties are now aware of the epidemic, although they may not be able to predict exactly how it will affect performance of the contracts. If it is no longer formally possible to modify the terms of reference for a public procurement, the parties to the contract must seek a way to adapt the contract to the conditions following submission of the bid, within the legal and contractual basis mentioned above.
National Appeal Chamber suspends its work
In relation to the existing state of epidemic emergency, organisation and hearing of cases before the National Appeal Chamber (KIO) have been suspended for 16–27 March 2020. The last hearings to take place as planned were held on 13 March.
The suspension does not apply to the time limits for lodging instruments seeking legal remedies, meaning that if the deadline for lodging an appeal or filing an application to join an appeal falls within this period, it will not be postponed.
On the other hand, it is to be expected that suspension of KIO operations will result in prolongation of tender procedures in general, due to the accumulation of cases to be decided after the suspension ends.
Award of contracts for goods or services used to combat coronavirus without application of the Public Procurement Law
Art. 6 of the Special Coronavirus Act authorises the award of contracts for goods or services needed to combat the coronavirus excluding application of the Public Procurement Law, if there is a high probability of rapid and uncontrolled spread of the disease or protection of public health so requires. There is no doubt that such a likelihood and the requirement to protect public health is now present, and stems from the nature of the prevailing pandemic. This exclusion is temporary, as this provision will expire 180 days after entry into force of the Special Coronavirus Act.
Additionally, the special act introduced Art. 46c of the Act on Preventing and Combatting Infections and Infectious Diseases in Humans of 5 December 2008, allowing exclusion of application of provisions on public procurement to contracts for services, supplies or construction works awarded in relation to preventing or combating an epidemic in an the area where a state of epidemic emergency or state of epidemic has been declared. Unlike Art. 6 of the special act, this provision is permanent.
Introduction of these provisions was not absolutely necessary, as in this situation it is possible to award a public contract under Art. 67(1)(3) of the Public Procurement Law, i.e. due to an exceptional situation not resulting from reasons attributable to the contracting authority, which it could not have foreseen. However, Art. 67 requires that the awarded contract must be performed immediately. Therefore, the new regulation allows for the possibility of awarding contracts bypassing competitions in a situation where implementation is related to combating the epidemic but will occur over a longer timeframe. It can be agreed that eradication of the epidemic may require planning of actions also for future months or quarters.
The provisions on public procurement will also not be applied in the event of a state of epidemic emergency, a state of epidemic, or a danger of spreading an infection or infectious disease, with regard to conclusion of an additional contract between the province governor and the administrator of medical rescue teams, under Art. 49a of the State Emergency Medical Services Act of 8 September 2006, added by the Special Coronavirus Act.
Compulsory conclusion of contract
A significant interference in a business’s situation as well as in the principle of freedom of business activity is the possibility, provided for in Art. 11(2)–(7) of the special act, for the Prime Minister to issue orders related to combating the coronavirus to businesses, among others, by way of an administrative decision. Such orders will be immediately enforceable and will not require justification. Execution of the orders will take place on the basis of an agreement between the business and the relevant province governor, subject to financing from the portion of the state budget at the disposal of the province governor. It can be foreseen that the subject matter of such contracts will meet the conditions for a public contract. At the same time, the obligation for the business to finance from its own resources work of a planning nature related to preparation for implementation of such entrusted tasks raises doubts.
If the business refuses to conclude the contract, the tasks assigned to it will have to be performed anyway on the basis of an administrative decision that is immediately enforceable.
Objections may be raised by the lack of provision in the special act of an appeal procedure against an administrative decision imposed on a business, and the lack of reference to the Administrative Procedure Code in this regard. Nonetheless, a business dissatisfied with such a decision should be able to request the Prime Minister to reconsider the case under Art. 127 §3 in connection with Art. 5 §2(4) of the Administrative Procedure Code. However, such a request will not suspend the immediate enforceability of that decision.
Mirella Lechna-Marchewka, attorney-at-law, Katarzyna Śliwak, attorney-at-law, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners