Tales from the National Appeal Chamber: Key part of the contract—a contractor may challenge the obligation to perform works personally | In Principle

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Tales from the National Appeal Chamber: Key part of the contract—a contractor may challenge the obligation to perform works personally

Requiring personal performance of key tasks is one of the guarantees of proper contract performance. However, contracting authorities must remember that this institution cannot be abused and treated mechanically, without taking into account the specifics of the given procurement. Therefore, contractors may challenge the terms of reference if they believe that the requirements are too stringent and limit their ability to participate in performance of the contract. Such challenges can be effective, as demonstrated by the ruling by the National Appeal Chamber of 13 October 2021 (KIO 2733/21).

Paved with good intentions

In the procedure for award of a contract to execute a section of an expressway in Poland, the contracting authority included in the contract documents an obligation to carry out the asphalt surface work personally, deeming these works to be a key part of the contract.

One of the participants objected, claiming that this provision violated the principle of fair competition and unreasonably limited the set of potential contractors. It sought review by the National Appeal Chamber, arguing that the contracting authority had mechanically deemed this part of the work to be crucial, when the obligation to perform the asphalt paving personally was in no way related to the specifics and conditions of the contract. The appellant claimed that the terms of reference contained no precise justification for this requirement and no rational basis for believing that the contracting authority had carried out an adequate analysis prior to the procedure. It also asserted that for large road projects, it is much more important to properly design and execute earthworks (especially within the base, i.e. native soil) or bridge structures than to execute the surface. Therefore, in the contractor’s opinion, there were no justified reasons why all the works reserved by the contracting authority could not be performed by a third party.

Defending the terms of reference

The contracting authority maintained its position that execution of the surface was a key part of the contract, in terms of both quantity and quality. First of all, it pointed out that the construction of an expressway must meet a number of complicated technical requirements, concerning both the longevity of the carriageway structure (class A and S roads should last up to 30 years), as well as resistance to heavy traffic and the intensity of the traffic. In its opinion, performance of this type of construction work involves a high risk associated with the need to comply with a heightened regime for the technology, quality of materials, and equipment used, requiring constant supervision by the contractor. In addition, the contracting authority pointed to the specific nature of road construction, which is characterised by a constant change of the work front. This makes it necessary for the contractor to coordinate the works on an ongoing basis and to react to changing conditions, including weather, which may endanger the structure of the surface. In the opinion of the contracting authority, all these factors justified reserving the obligation to perform the work personally, as this would constitute the best guarantee of proper performance of the contract.

How should “key tasks” be defined?

Pursuant to Art. 121(1) of the Public Procurement Law, the contracting authority may stipulate the obligation for the contractor to personally perform key tasks regarding a contract for works or services. This provision deprives the contractor of the right to entrust the performance of a part of the contract to a subcontractor or to rely on the resources of a third party to qualify for participation in the procedure. However, the power of the contracting authority is not unlimited, as it may apply this requirement only to parts of the contract identified as “key,” and such a reservation should be treated as the exception not the rule. As a result, the term “key task” used in Art. 121(1) of the Public Procurement Law cannot be interpreted to allow the contracting authority to arbitrarily impose an obligation of personal performance of the contract by the contractor. The decision of the contracting authority to consider a part of a given contract as key may have an impact on market competition and therefore should be made only in objectively justifiable situations (National Appeal Chamber ruling of 5 July 2021, case no. KIO 1381/21).

The concept of “key tasks” is not defined in the Polish Public Procurement Law or the EU directives. Thus it might appear that this is a deliberately vague term, introduced to give the contracting authority some leeway in this area, authorising it to take account of factors such as the nature, scope, significance or intended use of the construction works, services or supplies. Thus, the question of which tasks are “key” can only be answered in a specific situation and against a specific factual background. But for the purposes of resolving the case at hand, the National Appeal Chamber attempted to define this term generally, stating: “Key tasks are certainly important tasks, critical, sensitive from the point of view of guaranteeing proper performance of the contract, and therefore require performance by an entity whose qualifications were verified during the procurement procedure. In particular, this applies to services assigned to a contractor because of its particular qualifications, skills or quality management measures.” Therefore, the contractor’s personal responsibility to the contracting authority is intended to increase the chances of proper performance of the contract and ensure that the contractor exercises due diligence.

Strategic importance of the project is not enough

The obligation of personal performance of works cannot be a simple reaction to the need for greater diligence in the performance of a strategic contract. As the chamber pointed out, for a given part of the contract to be deemed “key,” obliging the contractor to perform it personally, the strategic importance of the project is not enough, as the Public Procurement Law does not differentiate among the obligations of the contracting authority in this respect, depending on the importance and rank of a given contract.

Therefore, such a reservation should be based on individualised, objective circumstances capable of demonstrating that assigning performance of a given task to a subcontractor could actually lead to defects in the performance of the contract. In view of the deficiencies in the performance of previous contracts, the contracting authority should assess whether these difficulties were incidental or systemic, and consider taking other measures in the procedure to improve the correctness of execution of the work.

So who was right?

On the merits of the case, the chamber found that the asphalt works designated by the contracting authority were neither complicated nor highly specialised, which would objectively justify insisting on personal execution of the road surface. On the contrary, the chamber found that such tasks are repetitive and common, whereas execution of bridges, which were not reserved by the contracting authority, are much more difficult in terms of design and construction and are procured less frequently. As a result, the action of the contracting authority was improper, since, as proved by the appellant, it repeatedly imposed an obligation to carry out the same work in person, without taking into account the specific nature and requirements of the particular project.

The chamber ordered removal of the disputed provisions of the terms of reference, so as to ensure that the procedure is conducted in a manner ensuring fair competition and equal treatment of contractors.

Cyprian Herl, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners