If contractors aren’t sure, are they required to speak up? | In Principle

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If contractors aren’t sure, are they required to speak up?

Under some circumstances, questioning the terms of reference in a tender may be treated not only as a right but as an obligation of a professional contractor.

Under Art. 38 of Poland’s Public Procurement Law, a bidder may ask the contracting authority to clarify the terms of reference for a procurement. The contracting authority is required to respond promptly, distributing the question and the answer to the contractors to whom the terms of reference were sent—without disclosing the source of the inquiry—and if the terms of reference are published at the contracting authority’s website, this information is also published there. Sometimes the inquiry and response will lead the contracting authority to amend the terms of reference, which is permissible in justified instances pursuant to Art. 38(4). In practice, the inquiry procedure helps to make the conditions of the tender more precise, eliminate inconsistencies and clear up doubts.

Submitting inquiries is usually regarded as only a right enjoyed by contractors. Under the literal wording of Public Procurement Law Art. 38, a contractor “may” submit a request to clarify the terms of reference but need not do so. But the Supreme Court of Poland reached a different conclusion in its judgment of 5 June 2014 in Case No. IV CSK 626/2013 by interpreting Art. 38 of the Public Procurement Law in the context of general rules for performance of obligations set forth in the Civil Code.

According to this judgment, under the circumstances of a specific procurement, Public Procurement Law Art. 38 in connection with Civil Code Art. 354 §2 not only gives contractors the right to seek clarification of the terms of reference from the contracting authority, but requires them to do so. Failure to seek clarification can be grounds for finding that the contractor did not comply with the standard of care expected of professional businesses under Civil Code Art. 355 §2.

This precedent-setting case involved a producer of specialised vehicles—garbage trucks—which entered into a public procurement contract with a municipal garbage disposal company to supply it with a garbage truck equipped with special type of crane for picking up and emptying recycling containers. The terms of reference did not specify the containers that were to be handled using the vehicle. The contractor supplied a vehicle designed to handle a new type of container, but it turned out during the course of acceptance that the local authority used an older type of container. The contractor then had to adapt the vehicle to suit the contracting authority’s needs. The period between the original delivery of the vehicle and final acceptance of the modified vehicle was treated as a delay in delivery of the vehicle, for which the contracting authority charged a penalty under the contract, deducting the penalty from the contractor’s fee.

The contractor sought payment of the withheld portion of its fee. At the first instance, the regional court granted the claim, holding that there was no basis for charging a contractual penalty for the period required to modify the vehicle. The court found that on the date of original delivery of the vehicle free of defects and suited for handling containers of the new type, the vehicle complied with the terms of reference, which did not provide information about the containers. The plaintiff had no knowledge of the type of containers used in the defendant’s local territory and thus did not know that they were containers of the old type. The court further held that the contracting authority had failed to demonstrate that the contractor should have known what type of containers the equipment would be used for.

The contracting authority appealed, alleging that the regional court had violated Civil Code Art. 354 §1 and 355 §2 by holding that the plaintiff had duly performed the contract as of the date of the original delivery.

Civil Code Art. 354 and 355 set forth the general rules for performance of obligations. Under Art. 354, the obligor must perform its obligation in accordance with the substance of the obligation and in a manner corresponding to its socioeconomic purpose and principles of public policy, and if there are established customs in this respect it should also comply with such customs. The party to whom an obligation is due should also cooperate in this respect in performance of the obligation. Under Art. 355, an obligor is required to exercise the due care expected in a given type of relationship, and when the obligation falls within the scope of business conducted by the obligor, the duty of care must reflect the professional nature of the obligor’s business.

The court of appeal upheld the allegation against the contractor in this respect and amended the judgment to deny the contractor’s claim. The main issue on the appeal, the court held, was the date when the contractor delivered a vehicle that complied with the terms of the contract.

In the justification for its judgment, the court of appeal pointed out that the technical specifications of the containers and the instructions for handling them were not included in the tender documentation. The court also pointed out that the contractor had not exercised the possibility of asking the contracting authority to clarify the terms of reference pursuant to Public Procurement Law Art. 38(1), although the contractor did not know what type of containers the contracting authority used and therefore did not know what type of containers the vehicle should be equipped to handle. The court went on to hold that “given the imprecise specification in the contract of the type of containers, or the absence of such specification, and the resulting doubts, the contractor should have requested that the defendant provide the information necessary to perform the obligation in a manner corresponding to its economic purpose. By failing to do so, the plaintiff violated the obligation to cooperate in performance of the obligation (Civil Code Art. 354 §2)”. Therefore, in the view of the court of appeal, the plaintiff’s delivery of a vehicle equipped to empty containers of the new type when the defendant used containers of the old type could not be regarded as performance of the obligation in compliance with the contract. The vehicle was not delivered in a condition consistent with the contract and its purpose until the contractor had modified the vehicle to meet the needs of the contracting authority.

The contractor filed a cassation appeal with the Supreme Court of Poland in which it alleged that the court of appeal had violated Civil Code Art. 354 §§ 1 and 2 in connection with Public Procurement Law Art. 38, which, the contractor argued, provided the contractor with a right but not a duty to seek clarification from the contracting authority. The contractor also alleged that the court of appeal had failed to consider Public Procurement Law Art. 29(1) and 30(1), under which the defendant, as the contracting authority, had a duty to describe the subject of the contract so that it was understandable to contractors what the work would consist of which the contractor was to perform as a result of award of the contract pursuant to the public tender. The contractor pointed to the detailed requirements concerning the contents of the procurement which the contracting authority must meet under Art. 29 and 30, arguing that it was erroneous to hold, notwithstanding those provisions, that Art. 38 requires the contractor to seek a clarification of the terms of reference. This effectively shifts to the contractor the responsibility for imprecise wording of the terms of reference, when the contracting authority is required to describe the subject of the procurement to reflect all of its requirements and the circumstances relevant to the procurement.

But the Supreme Court held that in this specific case, in light of the standard of care required of a professional in performance of an obligation (Civil Code Art. 355 §2), the burden was more on the contractor than on the contracting authority to take an interest in the additional characteristics which the vehicle in question should offer, since the contractor was professionally involved in manufacturing vehicles of this type. The court pointed to the factual findings that the contractor was aware of the existence of containers of the old type, although they were no longer in universal use. The court held that in this case, a higher standard of care was demanded of a professional, and therefore the professional contractor was expected to seek the necessary information from the contracting authority. In summary, the court held that under the circumstances in which the contract was awarded, and given the existence of doubts on the part of the contractor, in connection with Civil Code Art. 354 §2, Public Procurement Law Art. 38 establishes not just a right of the contractor but a duty to request clarification of the terms of reference from the contracting authority. Failure to do so could be grounds for accusing the contractor of failure to comply with the standard of care demanded of a business under Civil Code Art. 355 §2.

In evaluating the significance of this judgment, it should be pointed out that the line of interpretation of Public Procurement Law Art. 38 followed by the Supreme Court cannot be applied automatically, but always requires consideration of the facts in the specific case and the measure of due care expected not only of the contractor but also of the contracting authority. Moreover, the prior case law from the Supreme Court has stressed—also with respect to contracts concluded under the Public Procurement Law—that under Polish law doubts should be resolved against the drafter of a contract. The risk of doubts arising out of unclear contractual provisions which cannot be eliminated through interpretation should be borne by the party which drafted the contract (Supreme Court of Poland judgment of 17 June 2009, Case No. IV CSK 90/09). It remains to be seen whether this judgment will be followed in other cases, establishing a new line of precedent favouring contracting authorities.

Małgorzata Cyrul-Karpińska, Infrastructure & Transport and Public Procurement & Public-Private Partnership practices, Wardyński & Partners