Tales from the National Appeal Chamber: Validity of bid bond vs. bid validity period
As the host of the procedure, in the contract documentation the contracting authority should specify the formal and technical requirements for a bid bond. In some procurement procedures, the contracting authority requires contractors to submit a bid bond with a validity extending beyond the bid validity period. In a recently issued ruling, the National Appeal Chamber opined on whether such provisions of the terms of reference are permissible, or are invalid by virtue of law (case no. KIO 3482/21).
A contractor goes to the National Appeal Chamber
In the terms of reference, the contracting authority required the contractors to enable it to effectively satisfy the guarantee or surety after expiration of the bid validity period. The contracting authority specified that contractors should provide it with the ability to request payment of the bid bond through the period of:
- Up to two business days after the end of the bid validity period, if electronic submission of payment requests was allowed, or
- Up to seven business days after the end of the bid validity period, if a written request for payment was required.
However, during the examination of the bids, it turned out that the validity period of one of the contractors’ bid bonds was to expire the same day as expiration of the bid validity period. Therefore, the contracting authority decided to reject the bid, indicating that the bid bond submitted did not meet the requirements of the ToR. In the contracting authority’s opinion, the wording of the guarantee suggested that if the conditions for payment of the bid bond amount had arisen near the end of the guarantee’s validity, in practice it would not be possible to enforce the guarantee due to the formal procedures which, in accordance with the bank’s requirements, should accompany the payment request.
But the contractor excluded from the proceedings refused to give up, and filed an appeal with the National Appeal Chamber alleging incorrect rejection of its bid pursuant to Art. 226(1)(14) of the Polish Public Procurement Law. The contractor took the view that the bid bond should only have to remain valid until the end of the bid validity period, by which time the contracting authority should complete the procedure for selecting the contractor.
The contracting authority has discretion, but it is limited
First, the National Appeal Chamber pointed out that the contracting authority is the host of the proceedings, and therefore the Public Procurement Law grants it certain freedom in shaping the terms of the contract documentation. This gives the contracting authority the right to require a bid bond, and if it chooses to exercise this right, it is required to specify the requirements for the amount and deadline for paying the deposit. However, this does not mean that the contracting authority may frame the ToR in an unlimited manner, as the discretion granted to it is limited by generally applicable provisions of law, in particular, the Public Procurement Law. This means that not every wording of the ToR not challenged by contractors will be absolutely binding.
In principle, the chamber allowed the contracting authority to frame the formal and technical requirements for the bid bond. The chamber admitted the difficulty of enforcing a guarantee or surety if the contracting authority requests payment of the bid bond on the last day of the bid validity period, in particular if the guarantor requires that the request for payment be submitted in such a way that it may be seriously doubted whether the contracting authority will be able to satisfy its claims.
To address this issue, the contracting authority should structure the documentation so that it can successfully submit a payment request on the last day. However, the contracting authority may not frame the ToR in violation of generally applicable law. In this case, the chamber found that the disputed provisions of the ToR were not only invalid under Art. 58 of the Civil Code, but also violated fundamental principles of public procurement governed by Art. 16 (1) and (3) of the Public Procurement Law.
De facto, the contracting authority circumvented the law
Pursuant to Art. 97(5) of the Public Procurement Law, a bid bond is submitted before the bid submission deadline and is to be maintained uninterruptedly until the bid validity period expires. However, the contracting authority exceeded this timeframe by requiring submission of a bid bond valid for two to seven business days longer than the bid validity period. Thus, in the opinion of the chamber, the wording of the ToR was inadmissible, as it constituted a legal act aimed at circumventing the law (in fraudem legis), while seeming to comply with the law. The wording of the ToR did not contain elements directly contrary to the law, but the effect it produced violated the requirement to maintain the bid bond exclusively until the expiration of the bid validity period. In the chamber’s opinion, this action fell within the scope of Civil Code Art. 58, meaning that it should be deemed invalid and did not deserve legal protection.
The panel hearing the appeal also noted that the wording of the documentation of the proceedings unfairly differentiated the situation of contractors depending on the type of bid bond they submitted, i.e. those who submitted a bond in cash and those who submitted a bond in the form of a bank guarantee. In the opinion of the chamber, this violated the principle of equal treatment of contractors (Public Procurement Law Art. 16(1)) and was unjustified, as the bank guarantee should provide a similar level of protection to the money available in the contracting authority’s bank account, and not provide a longer period for submitting a request for payment than a bid bond lodged in cash.
Therefore, the action of the contracting authority was disproportionate to the problem it sought to solve with the disputed provisions of the ToR. The additional two business days for submitting a payment request in electronic form or seven business days for submitting a payment request in writing after expiration of the bid validity period was disproportionate to providing the contracting authority with the possibility of actual satisfaction from the bid bond—i.e. it exceeded what was necessary for the contracting authority to achieve its purpose. According to the chamber, it would be enough to specify in the ToR a method of delivering a request for payment to the guarantor or surety so that there was a real possibility of submitting an effective request for payment within the bid validity period (particularly on the last day), for example by including an obligation to accept a payment request dispatched by post or entered into the IT system within the bid validity period.
Ultimately, the National Appeal Chamber upheld the appeal, ordering the contracting authority to rescind the bid rejection and re-examine the bids.
Cyprian Herl, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners