When planning a reorganisation of corporate form, think about the public procurement consequences

The automatic assumption of contracts that occurs in universal succession doesn’t work in the case of public procurement. The contracting authority must decide on the fate of the contract after verifying the new contractor.

Some companies generate the lion’s share of their revenue from public contracts. Sometimes they need to reorganise, by changing their legal form or business profile, acquiring another company, merging with a competitor, or being acquired. The Polish Commercial Companies Code provides that most corporate reorganisations are accompanied by universal succession. This means that as a result of the legal act in question, all of the assets and liabilities covered by the succession are automatically transferred from the previous entity to the new entity. But the Public Procurement Law raises a question mark over this effect.

If a reorganisation or transaction resulting in universal succession occurs in the shadow of a procedure for award of a public contract, the undertaking must consider what effect the reorganisation will have on the public procurement procedure. The effect may vary depending on what stage the public procurement procedure is in when the succession occurs.

The rule is that the transfer of the entirety of rights covered by universal succession occurs by operation of law, i.e. automatically, without the need to obtain the confirmation or consent of the other party to the legal relationships being assumed by the new entity. Such conversions are not prohibited by the Public Procurement law, but subjective changes of this type affecting the identity of the contractor must not violate the principle that public contracts are awarded only to a contractor selected in compliance with the act. This instance involves a form of legal succession under a general basis.

In the case law of the National Appeal Chamber and the guidelines of the Public Procurement Office, it is uniformly stated that universal succession covers among other things the knowledge and experience enabling contractors to fulfil the conditions for participation in a tender for award of a public contract, and consequently their references. Nonetheless, although the effects of universal succession in public procurement are assessed under Art. 14 of the Public Procurement Law, i.e. via a cross-reference to the Civil Code, in practice the contractor must take into consideration a number of complications related to how its reorganisation will influence its relations with the contracting authority.

In the event of universal succession during the course of a procedure for award of a public contract, regardless of the stage of the procedure, the contractor’s situation should not be threatened. But doubts arise surrounding which documents should be submitted to the contracting authority. If the change in legal form occurs before documents about the entity are submitted for confirmation of fulfilment of the conditions for participation in the proceeding, the documents should be submitted with reference to the new entity, as the Public Procurement Law now favours the most up-to-date documents. But documents confirming the bidder’s knowledge and experience obtained prior to the reorganisation may be submitted by the legal successor.

During the course of evaluation of bids, the types of documents submitted by the bidder depend on the request made by the contracting authority. Essentially, these will be documents referring to the entity whose bid is being examined (i.e. the entity prior to the reorganisation). But when the contracting authority learns of the reorganisation, under Art. 26(2f) of the Public Procurement Law it may summon the bidder to resubmit some or all of the statements or documents confirming fulfilment of the conditions for participation, lack of grounds for exclusion, or selection criteria, if it finds it necessary to ensure that the proceeding is conducted properly. In the case of a bidder with its registered office in Poland, this should be simple, because now certifications can be dated later than the offer itself, as the most recent certifications should be filed (confirming the bidder’s most current status).

The legal expectations in multi-stage proceedings are also relevant. Will the legal successor be entitled to regard itself as invited to file an offer, when the invitation was issued to its legal predecessor? Generally, this right is recognised. It should be borne in mind, however, that when notifying the contracting authority of the reorganisation, the contractor should forward the appropriate documents enabling the contracting authority to positively verify the succession.

If the reorganisation occurs after the public contract has been signed, the contractor must expect to deal with certain complications. Under Art. 144(1)(4)(b) of the Public Procurement Law, when a contractor who has been awarded a public contract is to be replaced by a new contractor as a result of merger, division, conversion, bankruptcy, restructuring or acquisition of the existing contractor or its enterprise, and the new contractor meets the conditions for participation in the proceeding, there are no grounds for exclusion of the new contractor, and no substantial modification of the contract will occur, it is permitted to modify the existing contract or framework agreement in relation to the offer under which the contractor was selected.

This provision implements into Polish law Art. 72(1)(d)(ii) of the new Classic Procurement Directive (2014/24/EU), which permits a change in contractors as a result of universal succession where the new contractor “fulfils the criteria for qualitative selection initially established provided that this does not entail other substantial modifications to the contract and is not aimed at circumventing the application of this Directive.”

Consequently, even though in all other contracts universal succession occurs automatically, in the case of public contracts an annex to the contract is required. Conclusion of the annex is preceded by verification of the legal successor.

It appears that the aim of this provision of the directive was not to limit the effect of universal succession wherever national law provides for that effect. The necessity to verify the contractor’s legal successor in terms of the requirements specified in the stage of submitting offers does not appear to be justified in situations where the legal successor assumes the entirety of the previously verified contractor. Unfortunately, the way this provision of the directive was implemented in the Polish Public Procurement Law generates additional duties on the part of the legal successor under a general basis which are not warranted in light of the systemic legal solutions.

All of this means that entities whose business relies to some extent on public contracts must carefully plan any corporate reorganisations and appropriately fit them within the framework for public procurement proceedings.

Anna Prigan, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners