Amendment to special act for road construction subcontractors has entered into force | In Principle

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Amendment to special act for road construction subcontractors has entered into force

With the entry into force of the amendment to the “special act” on 16 July 2014, large subcontractors will be able to seek payment from the General Directorate for National Roads and Motorways of their unsatisfied principal claims for performance of public road construction projects.

Pursuant to the judgment of the Constitutional Tribunal of 18 June 2013 (Case K 37/12), the Polish Parliament adopted the Act of 30 May 2014 Amending the Act on Payment of Certain Unsatisfied Claims of Enterprises for Performance of Public Contracts.

The tribunal ruled that Art. 4(1) of the Act on Payment of Certain Unsatisfied Claims of Enterprises for Performance of Public Contracts of 28 June 2012 (known as the “special act”) was unconstitutional insofar as it allowed subcontractors on road projects to pursue claims directly against the General Directorate for National Roads and Motorways (GDDKiA) only if they were micro enterprises or SMEs, as the act discriminated among subcontractors solely on the basis of their size. The special act has now been amended accordingly to drop the reference to micro enterprises and SMEs in the definition of enterprises for purposes of the special act.

The intention behind the amendment was to treat enterprises equally under the law, with respect for the principle of social justice. The result essentially follows two tracks, distinguishing between proceedings where the list of claimants is already closed and those where the period for filing claims is still open and does not end until after the effective date of the amendment.

In the first case, funds were already paid out to subcontractors under the original wording of the special act. Lawmakers had to decide what to do with lists of claimants entitled to payment which had already been confirmed. It was decided that there were no grounds to invalidate those lists and reopen those cases. Instead, under the amendment, large enterprises that meet the conditions for payment of their claims by GDDKiA would be paid “under the existing rules” if the deadline for submission of their claims has already passed. This means that for them to pursue their claims against GDDKiA, a new list would have to be prepared. To this end, Art. 5(3) and 9 will be used, as has previously been the case. A necessary condition for creation of a new list is that the funds from the security limit for that contract have not been exhausted yet. Whether newly filed claims by large enterprises will be satisfied depends on whether the remaining security suffices to cover their claims in full or not. If the funds are insufficient to cover in full the claims under the new list, the claims will be paid pro rata.

In the second case, the lawmakers considered situations where the period for submitting claims remains open and will not expire until after the amendment enters into force. The principle of equality would not be achieved if small subcontractors had the full period to submit their claims but large subcontractors might have to file their claims within just a couple of days after the amendment entered into force. Thus Art. 2(2) was introduced into the special act, providing that in such case the period for submitting claims by large enterprises will be extended by 21 days. At the end of that period, GDDKiA will prepare a list of subcontractors large and small, and notify each of them that they have been included in the list.

The lawmakers justified the decision not to reopen completed proceedings by the one-off nature of the statute. The Constitutional Tribunal found the same in its judgment, pointing out that the special act was intended to combat a specific social problem connected with non-payment of subcontractors in connection with implementation of public road construction projects. Once GDDKiA applies the security it holds to cover the claims of subcontractors, the mechanisms established in the special act will cease to be an active part of the legal system and will not be applied in the future. The drafters also pointed out that Art. 3 of the special act specifies its scope of application and does not provide for any procedures in the event of amendment. It was also argued that the Constitutional Tribunal’s judgment did not create any rights, but the power to amend the law remained within the discretion of the Parliament and did not provide grounds for reopening lists of subcontractors already confirmed or disputing amounts already paid out to them. In other words, the amendment and the expanded set of subcontractors that may seek satisfaction from GDDKiA is not retroactive when it comes to verification of amounts already satisfied.

As stated in the justification for the amendment, the total amount of guarantees subject to the operation of the special act was about PLN 1.35 billion, PLN 270 million of which had been paid out. Even though each project has its own payment limit, it nonetheless appears that the amendment of the special act provides large subcontractors a significant opportunity to obtain satisfaction of claims arising in connection with performance of road construction contracts awarded by GDDKiA.

Moreover, payments to large subcontractors may translate into payment for their own subcontractors. While “sub-subs” are not authorised to demand payment directly from GDDKiA, the system for submitting claims in a certain sense forces an immediate subcontractor obtaining money from GDDKiA to pay its sub-subs. This is because after obtaining an advance from GDDKiA, the immediate subcontractor seeking payment of the rest of its claim must show that it is not in arrears in payment of its own subcontractors or that the advance was used to pay them.

Małgorzata Cyrul-Karpińska and Joanna Florecka, Infrastructure & Transport and Public Procurement & PPP practices, Wardyński & Partners