Subcontracting under the amended Public Procurement Law
The content of a procurement subcontract is shaped not only by the intent of the parties, but also by the Public Procurement Law, the Civil Code, the terms of reference for the procurement, and the actions taken by the contracting authority when approving the subcontract.
Since 24 December 2013, subcontracts in procurements for construction works in Poland have been subject to greater control of the contracting authority than they were before. Stricter control is provided for in the case of subcontracts for construction works and milder control in the case of contracts for supplies or services.
The Public Procurement Law now provides for a two-stage examination of subcontracts for construction works. The manner in which control is exercised is further specified in the terms of reference for the procurement and the contract for construction works concluded between the contracting authority and the general contractor. Under Public Procurement Law Art. 36(2)(11), the contracting authority may include in the terms of reference of a procurement for construction works the requirements for subcontracts for construction works. Failure to meet these requirements will result in assertion of an objection or reservations by the contracting authority. Meanwhile, the contract for construction works concluded between the contracting authority and the general contractor should specify, among other items:
- The contractor’s obligation to present to the contracting authority the draft of a subcontract for construction works, as well as draft amendments, and a certified copy of the subcontract for construction works and any amendments
- The deadline for the contracting authority to assert objections or reservations with respect to a draft subcontract for construction works, or amendments
- The contractor’s obligation to present to the contracting authority certified copies of subcontracts for supplies and services, and any amendments
- The rules for payment of the contractor’s fee, conditioned on presentation of proof of payment of the fees due and payable to subcontractors and sub-subcontractors
- The deadline for payment of the fees of subcontractors and sub-subs, which may not be more than 30 days after submission to the contractor or subcontractor, as the case may be, of the invoice or bill confirming performance of the supplies, services or construction worked assigned to the subcontractor or sub-sub
- The rules for conclusion of further subcontracts between a subcontractor and sub-subs
- The amount of contractual penalties for a) failure to make timely payment of the fees owed to subcontractors or sub-subs, b) failure to present a draft subcontract for construction works or amendments for approval, c) failure to present a certified copy of a subcontract or amendments, and d) failure to amend a subcontract with respect to the payment deadline.
The two-level control of subcontracts for construction works means that first the draft subcontract is reviewed and then the subcontract as concluded by the contractor, subcontractor or sub-sub. Under Public Procurement Law Art. 143b(1), a contractor, subcontractor or sub-sub intending to enter into a subcontract for construction works must present a draft of the subcontract to the contracting authority, and the subcontractor or sub-sub is required to enclose the general contractor’s consent to conclusion of the subcontract under terms consistent with the draft. The contracting authority must assert any reservations with respect to the draft within the period specified in the contract with the general contractor. The reservations may involve the draft’s failure to comply with the requirements set forth in the terms of reference, or inclusion of a payment deadline more than 30 days after delivery of an invoice or bill confirming performance of the assigned construction works. Failure to assert reservations by the deadline is deemed to mean approval of the draft by the contracting authority. Then, after conclusion of the subcontract, a copy of the subcontract for construction works, as concluded, must be submitted to the contracting authority. The contracting authority then has the same time specified in the contract with the general contractor to assert its objection to the subcontract, on the same grounds as for reservations with respect to draft subcontracts. Failure to assert an objection by the deadline is deemed to mean approval of the contract.
It should be pointed out that the specific regulations of the Civil Code continue to apply to subcontracts covered by the Public Procurement Law. More specifically, in a subcontract for construction works, the subcontractor’s right to demand a guarantee of payment from the contractor may not be limited or excluded (Civil Code Art. 6495 in connection with Art. 6482).
With respect to subcontracts for supplies and services in a procurement for construction works, the Public Procurement Law provides for a one-step control of the subcontract, after it has already been concluded, limited to checking the deadline for paying the subcontractor. The contractor, subcontractor or sub-sub in a procurement for construction works is required to present a certified copy of a subcontract for supplies or services to the contracting authority within 7 days after the subcontract is concluded. This obligation does not apply in the case of subcontracts for a value less than 0.5% of the value of the procurement contract, or subcontracts for which the items were specified by the contracting authority in the terms of reference for the procurement. However, these exclusions from control do not apply to subcontracts for more than PLN 50,000, and the contracting authority may also set a lower value above which subcontracts must be presented. If the payment deadline specified in the subcontract is more than 30 days after submission of an invoice or bill confirming performance of the assigned supplies or services, the contracting authority shall notify the contractor and require it to amend the contract accordingly or be charged a contractual penalty.
It should be pointed out that requiring such extensive control of subcontracting on the part of the contracting authority is justified by the introduction of the mechanism for direct payment of the subcontractor’s fee by the contracting authority in the case of subcontracts which have been approved (in the case of construction works) or validly presented (in the case of supplies and services).
Apart from the legal requirements, the terms of the subcontract should also be consistent with the terms of the principal contract between the contracting authority and the general contractor. This helps assure that the entire project is carried out properly and on schedule.
Małgorzata Cyrul-Karpińska, Infrastructure & Transport and Public Procurement & Public-Private Partnership practices, Wardyński & Partners