Limits on application of the criterion of lowest price
According to current laws, limits on application of the criterion of lowest price apply only to government and local government contracting authorities. Other contracting authorities are permitted to apply the price as the sole criterion or a criterion of a weighting of more than 60%. Meanwhile, both EU and Polish legislators say that criteria other than price should also be applied more often.
Under the Public Procurement Law, it has always been possible to apply bid evaluation criteria other than price, being criteria related to the subject matter of the contract. Contracting authorities have usually applied and continue to apply the lowest price criterion as the sole criterion. There are many reasons for this unwillingness to apply criteria other than price. The main reason is fear of difficulties when giving reasons for a choice of criterion other than price should a review be conducted. As most criteria other than price are incalculable there is also a greater risk of contractors contesting application of these criteria. To counteract this risk, the criteria other than price should be precisely and clearly described. This entails however more work and higher costs when preparing for the proceedings.
In recent years, changes have been made to public procurement law limiting the possibility of applying the price criterion as the only criterion for evaluation of bids. The changes were intended to encourage contracting authorities to apply criteria other than price more often. This was intended to raise the quality of deliveries, services, and construction work offered, and lower the costs of use of the products ordered.
The 2014 amendment: a minimum of one criterion other than price
The amendment to the Public Procurement Law of 29 August 2014 was an attempt to make it common practice to apply criteria other than price by introducing an obligation for contracting authorities of all categories to apply a minimum of one criterion other than the lowest price. Making price the sole criterion was only possible in the case of contracts where the subject was widely available and qualitative standards were established.
The change did not have the desired effect of more frequent application of criteria raising the quality of the service. According to a Public Procurement Office report published in May 2017, the criteria applied most often other than price were: the timeframe for completion, the guarantee, and payment conditions. These criteria did not affect the quality of the ordered products and were usually applied only to meet the formal legal requirement to apply a minimum of one additional criterion other than price. Quality and functionality criteria or technical parameters continued to be of less importance, with a weighting usually of no more than 20%.
The 2016 amendment: limits for government and local government contracting authorities
In the next amendment (22 June 2016), legislators removed the requirement to apply a minimum of one criterion other than the lowest price, in principle allowing the price to be the only criterion applied. The limit relating to application of the price criterion was left in place however in the case of government and local government contracting authorities (Art. 3(1)(1) and (2) of the Public Procurement Law), specifying in Art. 91(2a) of the Public Procurement Law requirements that had to be fulfilled for contracting authorities to apply those price criteria as the only bid evaluation criteria or criteria of a weighting exceeding 60%. Stipulation of limitations also in situations in which price has a weighting of more than 60% is a good idea as it limits the practice of application of criteria other than price for the sake of appearances which are not related to the subject of the contract.
Restrictions of the freedom to determine and list bid evaluation criteria apply to:
- Entities in the public finance sector,
- State organisational entities that do not have legal personality other than public finance sector entities,
- Associations of the entities described above.
Application by these contracting authorities of the criterion of price as the sole criterion or criterion weighted more than 60% is conditional upon quality standards being specified in the contract description, relating to all essential features of the subject of the contract and demonstrating in an appendix to the protocol the way in which the costs of the lifecycle were incorporated into the contract description.
The restriction under Art. 91(2a) of the Public Procurement Law does not apply to the cost criterion introduced in the amendment of 22 June 2016, and therefore it may be the sole bid evaluation criterion. This may lead to attempts to circumvent the law by describing the cost criterion in a similar way to the price criterion. Although both criteria are financial in nature, the cost criterion is significantly broader.
The restrictions do not apply when the contracting authorities described above conduct a tender enquiry procedure (Art. 72(2) of the Public Procurement Law) or conduct bidding in electronic form (Art. 80(3) of the Public Procurement Law), because these procedures essentially apply the price criterion as the sole criterion.
Specifying qualitative standards applicable to all essential features of the subject of the contract
Unlike under the previous laws, it is no longer important whether the subject of a contract can be considered to be “widely available and of established qualitative standards”. It is important whether contracting authorities properly describe all essential parameters of the subject of the service.
If government and local government contracting authorities wish to avoid the obligation to apply criteria other than price criteria for evaluation of bids or ascribe a weighting of more than 60% to the price, they are required to assure the appropriate quality of the product by properly describing the subject of the contract, which otherwise would be ensured using qualitative criteria. To meet this requirement, it is sufficient to describe the subject of the contract as required by the guidelines under Art. 29 – 31 of the Public Procurement Law. If the contracting authority specifies its requirements precisely in the tender description, a bid will be evaluated in terms of fulfilment of qualitative requirements as a binary option, i.e. “fulfils or does not fulfil”.
Contracts for which the standards described in Art. 91(2a) of the Public Procurement Law can be defined will be simple, typical contracts which are not very complex. In the case of contracts of this kind it would not be reasonable to set bid evaluation criteria other than price with regard to aspects which can be specified in the contract description. Deliveries, services, or construction work being the subject of contracts of that kind will have recurring qualitative features and will meet the standards that are widely offered, but not the personalised and specific requirements of the contracting authority. Therefore it will not be possible to determine these qualitative standards if the contracting authority wishes to gain additional benefits beyond those that fall within the contract description, for example reducing the timeframe or obtaining a product of a quality higher than the essential minimum.
An example of a simple contract is a contract for supply of office materials. To specify the required standards in relation to a contract of this kind, it is sufficient to state the required colour of a pen or class of a pencil in the contract description. In the case of standard products of this type, it is sufficient to ensure the proper quality of the products ordered. A different example of a contract in which qualitative standards can be defined in the contract description is simple construction works such as laying cobble stones.
Applying criteria other than price with regard to a contract for a standard product would serve no purpose because essentially these criteria are applied to ensure that the product ordered is of appropriate quality. In the case of typical contracts, this quality is ensured by properly describing the subject of the contract. Moving those elements that can be described in the contact description to the bid evaluation criteria does not achieve anything. In such a case, the specific quality of the subject of the contract can be guaranteed by way of the description and by incorporating quality into that description by describing all essential parameters of the product.
Describing in the protocol how lifecycle costs are accounted for in the case of a particular contract
If the price criterion is the single criterion applied or is a criterion weighted higher than 60%, government and local government contracting authorities are also required to specify how they have accounted among other things for the costs of acquiring and operating the acquired product and the level of those costs. These costs might include the costs of testing equipment, and the costs of overhauls and maintenance or materials needed for operation. In the case of purchase of printers, for instance, the price of ink or toner has to be taken into consideration. This requirement was introduced with respect to specified categories of contracting authority in the amendment of 29 August 2014, in reference to situations where the sole criterion they apply is the price criterion.
The requirement to specify in the appendix to the protocol how lifecycle costs for a particular contract are accounted for in the description of the subject of the contract can be problematic as in the case of many contracts that are standard and are not very complex there are no lifecycle costs. In such a case, it is sufficient to specify in the appendix to the protocol that these costs do not arise in the case of the contract concerned. Legislators only require that these lifecycle costs be “accounted for”, and not “estimated”, and thus demonstrating that costs of this kind do not arise should be considered fulfilment of this requirement.
According to the Public Procurement Office report mentioned above, there was a slight increase in application of the price criterion as the sole criterion following the 22 June 2016 amendment. This is due to amendment of Art. 91(2a) of the Public Procurement Law. This is not an adverse development as legislators did not intend to ensure that criteria other than price were applied in every public tender procedure conducted, only in procedures where these criteria had a real impact on the quality of the subject of the contract. If the quality of the product is assured by being correctly described, it is not advisable to apply criteria other than price. Following the amendment, the percentage of procedures where criteria other than price and weighting of a qualitative and functionality criterion and technical parameters were applied increased (from 20% to 29%).
Katarzyna Śliwak, legal adviser, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners