The definition of subcontracting in public procurement

The Public Procurement Law defines what contracts between parties and concerning what subject matter are regarded as a subcontract, and also provides mechanisms protecting the interests of certain subcontractors.

At the time the Defence Procurement Directive (2009/81/EC) was implemented in Poland, effective 19 February 2013, the definition of a subcontract appeared in Polish law as a contract concluded for the purpose of performing a procurement in the fields of defence and security (Public Procurement Law Art. 131m(2)). Until 24 December 2013 there was no statutory definition of a subcontract in other types of procurements, even though subcontracting is a common practice on the procurement market. Given the importance of subcontracting, which profitably involves a greater number of businesses—typically local ones—in the process of performing public contracts, an attempt was made to regulate subcontracting more thoroughly to better assure proper performance of procurements. The new regulations provide contracting authorities a mechanism for verifying that subcontractors are properly involved and also to protect the fees of certain subcontractors. But not every entity assisting a contractor in performing a procurement is regarded as a subcontractor for purposes of the Public Procurement Law.

Under Art. 1(1)(9b) of the law, a subcontract is a written agreement, for consideration, involving supplies, services or construction works which are part of a public procurement, concluded between the contractor selected by the contracting authority and another party (the subcontractor), and in the case of procurements for construction works also between a subcontractor and a further subcontractor (sub-sub) or between sub-subs. Under this provision, there are three identifiable features of a subcontract: its written form, the fact that it is for consideration, and the subject matter, i.e. that it involves performance of part of a public procurement.

The subject of a subcontract is supplies, services or construction works which are part of a public procurement. According to decisions issued by the National Appeals Chamber, “part of a procurement” means a distinct fragment of the overall subject of the procurement. Contracts that are only related to the subject of a public procurement but do not involve performance of the procurement—such as contracts for insurance, credit, accounting or legal services—cannot be regarded as subcontracts. Thus subcontracts include only contracts involving performance which can be distinguished in the description of the procurement or furthering the performance of the procurement.

In the case of procurements for construction works, a subcontract (for construction works, supplies or services) may be concluded not only by the contractor. A contract at a further level of the structure for performance of the contract, i.e. between a subcontractor and a sub-sub, is also regarded as a subcontract, which means that it is subject to the regulations and protections provided in the Public Procurement Law. But in procurements for supplies or services, only a subcontract at the top level, between the general contractor and a subcontractor, is regarded as a subcontract.

The Public Procurement Law specifies the instances in which a subcontractor may receive its fee directly from the contracting authority. However, the amended regulations do not modify the issue of the contracting authority’s joint and several liability for payment of a subcontractor’s fee. As before, this issue should be examined solely under Civil Code Art. 6471, and thus the contracting authority may be jointly and severally liable with the general contractor for a subcontractor’s fee only in the case of a contract for construction works. However, in comparison to the previous rules, the position of subcontractors in procurements for construction works has been strengthened: Now protection is provided not only to subcontractors hired to perform construction works, but also subcontractors providing goods and services in a procurement for construction works, on the condition that the agreement with them was concluded in compliance with the Public Procurement Law.

Anna Prigan & Serom Kim, Infrastructure & Transport and Public Procurement & Public-Private Partnership practices, Wardyński & Partners