Anna Prigan

The same third-party capacity in several contractors’ bids

A certain capacity may be offered more than once in the same tender—just as a contractor may submit its own bid in a tender while also making its capacity available to another bidder in the same tender.

A contractor which does not meet the criteria for participating independently in a procedure for award of a public contract in Poland may seek reinforcement through the complementary capacity of other operators. It need not form a consortium in order to take part in the procedure together with third parties. Under Art. 26(2b) of the Public Procurement Law, a contractor may rely on the knowhow, technical potential, personnel or financial capabilities of others, regardless of the legal nature of the relationship between them. This means that a contractor may rely on the capacity of its own subcontractors—entities which will not appear in the tender as subcontractors.

This section of the law requires a contractor wishing to use the capacity of a third party to demonstrate to the contracting authority that it will have at its disposal the resources necessary to perform the contract, meaning that if the contract is awarded to the bidder it will in fact have the declared potential available throughout the period of performance. The basic document enabling the contractor to make this showing is a written undertaking by the subcontractor that it will provide the bidder with the necessary resources for its use in performing the contract.

Art. 26(2b) expressly states that the nature of the legal connection between the bidder and its subcontractor is irrelevant. They need not be linked formally or by capital. What is essential is only that there is a binding—i.e. enforceable—commitment between them enabling the contracting authority to conclude that the necessary capacity will in fact be provided to the contractor so that it can properly perform the contract. In assessing fulfilment of the conditions for participation in the tender, the contractor should determine what exactly the reliance on the capacity of its subcontractor will consist in—the manner and area in which the contractor will make use of the borrowed capacity in performing the contract.

While Art. 26(2b) provides contractors great leeway in drawing on the capacity of third parties, a few important reservations should be pointed out.

First, the contractor may not rely on a blanket authorisation to draw on the capacity of a third party—an abstract commitment unconnected to the specific tender. It is accepted that the decision by the third party to lend its capacity, which must in fact be made available to the contractor, should be taken after adequate consideration of the conditions for participation in the tender and the conditions for performance of the contract. Therefore, the third party’s intention to lend its capacity should expressly and unequivocally identify the type of resources and the time and manner in which they will be made available, as well as identify the specific contractor and tender for which the commitment is made.

Second, the assessment of the actual availability of the specific capacity of the third party must be made in light of the realities of how the contract will be performed using the borrowed capacity. This means, for example, that knowhow alone cannot be offered without a commitment by the entity to be involved in performance of the contract. Because knowhow is inextricably linked with the specific entity, it cannot be independently bought and sold.

Third, the capacity of a third party may not be used to demonstrate that the contractor is more than minimally qualified to participate in the tender. A contractor which relies on borrowed capacity cannot be preferred over contractors that qualify for the tender on the basis of their own capacity. Consequently, if there is a prequalification stage to draw up a shortlist of a certain number of bidders and extra points are awarded to bidders for demonstrating surplus capabilities beyond the minimum required, a contractor cannot receive extra points for borrowed capacity.

However, the Public Procurement Law does not limit a third party to committing its capacity to a single contractor. Consequently, it is permissible for the same capacity to be committed to multiple bidders in the same tender. This solution is logical and correct for several reasons. Certainly it cannot be argued that committing the same capacity to multiple contractors threatens the proper performance of the contract. In practice, only one offer can be selected, and thus the third party lending its capacity will in effect carry out its commitment and actually provide its capacity only to the one contractor that wins the tender. Another argument in favour of this possibility is that it can increase the competitiveness of the tender—particularly because the third party may lend its capacity to different contractors under different terms. And if more potential bidders can rely on the same capacity in order to qualify for the tender, the contracting authority should receive a greater number of competing bids. This increased competition may allow the contract to be concluded at a lower price.

It should also be pointed out that adopting the opposite rule, i.e. prohibiting multiple commitment of the same borrowed capacity in one tender, would have the negative effect of creating de facto monopolies, particularly in a situation where the borrowed capacity is unique on the given market. Another deleterious effect of such a rule could be the possibility of manipulation of the tender. It could be imagined under such a rule that a third party could commit its capacity to several contractors at the same time only to insure that they are excluded from the tender.

This is not to say that negative consequences cannot be identified in applying the current solution, for example the appearance of firms specialising in selling their capacity for public procurement purposes. But even if the same capacity is committed to numerous bidders in the same tender under the same terms, it will affect only a certain element of the offers submitted by the bidders. It cannot automatically be assumed that this situation would lead to artificial arrangement of bids and interfere with the competitiveness of the procurement procedure.

Anna Prigan, Infrastructure & Transport Practice and Public Procurement & Public-Private Partnership Practice, Wardyński & Partners