Bid bonds in 2020: same problems, same sanctions | In Principle

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Bid bonds in 2020: same problems, same sanctions

In the proposed new Public Procurement Law, the contracting authority will decide on the obligation to submit a bid bond, regardless of the value of the contract. However, the same restrictive consequences as in the current act are linked with the improper submission of a bid bond, and there are more grounds for retaining bid bonds.

The draft of the new Public Procurement Law, published on 24 January 2019, does not solve fundamental practical problems related to bid bonds in an era of digital public procurement. Contrary to what was proposed in the concept for the new law, the obligation to demand a bid bond regardless of the value of the contract was abandoned. Under the new regulations, maintenance periods for bid bonds will be shorter in practice.

Possible to select a bid that is no longer binding

The draft of the new Public Procurement Law provides that a bid whose validity has expired, and thus is unsecured by a bid bond, may be selected if the contractor agrees to it. This regulation directly resolves practical doubts as to the effect of the expiry of the bid validity period. Since the purpose of the procedure is to select a bid, the fact that a bid has ceased to be binding should not prevent the conclusion of a contract with a contractor who upholds the terms of its bid. If the bid validity period has expired, the contracting authority will call upon the contractor whose bid received the highest score to give written consent to the selection of its bid.

Bid validity period will be longer

In the context of bid bonds, the draft of the new Public Procurement Law anticipates longer initial terms when an offer will be binding in proceedings above the EU thresholds (Art. 250). In high-value proceedings, the bid validity period will be as long as 120 days. On the other hand, the contracting authority will be able to request an extension of this deadline only once, by no more than 60 days. In procedures below the thresholds, the offer will be binding for only 30 days, with the possibility of one extension by 30 days at the request of the contracting authority. It should be emphasised that the contracting authority will have a duty to request consent for extension of the bid validity period in any case where it did not manage to select the most advantageous bid.

Bid validity period will be extended only at the request of the contracting authority

Eliminating the possibility of independent extension of bid validity by the contractor should translate into greater effectiveness of the proceedings. Contracting authorities will have a greater motivation to choose a bid in the extended period of bid validity at the latest. If they fail to make a choice during this time, they will be able to ask for the possibility of choosing a bid from contractors whose bids are no longer secured by a bid bond.

At the concept stage of the new Public Procurement Law, regulating the contractor’s claim against the contracting authority for reimbursement of costs related to extension of the bid bond validity or resubmission of the bid bond for an extended bid validity period was considered. At that time, it was pointed out that such a solution would enhance the efficiency of the operations of contracting authorities, and would also be beneficial for contractors from the SME sector, for whom the long settlement time of proceedings and the associated obligation to maintain a bid bond may be a barrier to access to procurement, due to the cost of maintaining a bid bond. It is a pity that this plan was abandoned. Although the new regulations would shorten the time when the bid bond has to be maintained, it could become common practice to prolong the selection process over an extended bid validity period. As a result, in many cases in proceedings above the EU thresholds, it would be necessary to maintain a bid bond for 5 months (90-day base time + 60-day extension).

Timely return of bid bond is an obligation

In the proposed new law, contracting authorities would be obliged to return a bid bond paid in cash no later than 7 days from the occurrence of the circumstances specified in the act, without demand by the contractor. Art. 111(2) also specifies the cases where the contractor may apply for return of the bid bond if it is not interested in further participation in the proceedings. This mainly concerns a contractor whose bid was not selected or was rejected, and who does not intend to lodge an appeal.

What is electronic form?

The provision on the forms for submitting a bid bond does not dispel any doubts concerning the bid bond in electronic form. Under Art. 110(10) of the new draft, if the bid bond is provided in the form of a bank or insurance guarantee or surety, the contractor provides the contracting authority with the original of the guarantee or surety in electronic form. However, neither the draft nor the justification explains what is the original of an electronic form. However, linking the non-legal term “electronic form” with the requirement that the original be submitted to the contracting authority suggests that this is a guarantee or surety which, in its original form, exists only in the form of an electronic file. It seems that this term should cover in particular bank guarantees issued in the form of a SWIFT communiqué, which the proponent of the draft unfortunately does not clarify, even in the explanatory memorandum accompanying the draft.

Retention of bid bond unchanged

The basis on which the contracting authority would retain the bid bond is the same as now in force. However, the justification of the draft states that in a situation where conclusion of a contract has become impossible due to reasons attributable to the contractor whose bid was selected as the most advantageous, the contractor’s bid bond should be retained only when the contracting authority itself has not contributed to the inability to sign a contract. The proponent of the draft points out that a disproportionately short period for signing the contract after selection of the most advantageous bid is such a contributing factor by the contracting authority. By implication, this is a period too short for the contractor, acting with reasonable speed, to comply with all the necessary formalities, such as submitting security for contract performance. On the other hand, avoidance of the contract by the contractor whose bid was selected as the most advantageous or failure to submit security for contract performance within the meaning of Art. 289 of the new law would entitle the contracting authority, at its choice, to either cancel the procedure or reconsider bids submitted in the procedure and select one, in order of priority, even if the period of their validity has already expired, if the relevant contractor agrees to selection of its bid.

Under Art. 454(1) of the proposal, these solutions would also apply to proceedings below the EU thresholds, to which the provisions of Art. 235–290 apply accordingly.

Incorrect bid bond will not be amended

Unfortunately, the draft of the new Public Procurement Law does not attempt to abandon a radical sanction for not submitting a bid bond, i.e. rejection of the bid. It should be noted that the EU directives do not prescribe a link between the lack of a proper bid bond and the duty to reject a bid. The aim of the procedure is to select a contractor who is able to perform the contract properly, and correctly securing the bid with a bid bond does not necessarily reflect badly on the contractor’s capacity (although the contractor’s inability to bear the cost of the bid bond itself might call its capacity into question). Therefore, at the concept stage of the proposal, it was suggested that an improperly submitted bid bond might be supplemented upon request, but this postulate was not accepted.

Given that higher-value bid bonds are most often submitted in the form of a bank or insurance guarantee, and the rulings from the National Appeal Chamber on the content and form of such guarantees are not uniform, allowing amendment of guarantees incorrectly issued by a third party (bank or insurer) could significantly increase the number of valid bids, which is one of the objectives of the new law. On the other hand, lack of clear guidance on “original in electronic form” (Art. 110(10)) in an era of digitalisation gives room for different interpretations. The new law should address such unregulated issues, especially considering how important bid bonds are in practice.

The new Public Procurement Law is expected to enter into force at the beginning of 2020. Consultations are currently underway.

Anna Prigan, attorney-at-law, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners