Poland: Public Contracts For Construction Works In Poland Not For Overseas Contractors?

Last Updated: 26 March 2012
Article by Tomasz Kurek and Jędrzej Górski

Currently the Polish act on public procurement of 2004 (unified text: official journal no. Dz.U. 2010.113.759 as amended) does not include any legal measures that are expressly protectionist against foreign contractors (meaning suppliers of goods, service providers and construction companies). In other words no contractor can be prevented from participating in a public tender because of its origin. Under such circumstances the Polish public procurement market has so far been considered a perfect jurisdiction for overseas contractors to enter the EU procurement market. Polish lowest price policies and the large scale of public infrastructural projects co-financed by the EU under the 2007-13 financial framework has also contributed to perceiving this market in such manner, especially by overseas construction enterprises.

However, this might not be the case if the most recent proposal of the Polish Bureau of Public Procurement (Urząd Zamówień Publicznych, hereinafter: "UZP") referred to as "community preferences" were adopted and entered into force. The UZP made these proposals in early February 2012 when it revealed a working paper on proposed legislative changes mainly aimed at improving the time and cost effectiveness of public procurement (for details in Polish see: http://www.uzp.gov.pl/cmsws/page/?D;1950).

The proposal, in part relating to community preferences, seems to follow last year's widespread criticism of no-reciprocity in public procurement in relations between EU member states and non-GPA members ("GPA" – Agreement on Government Procurement), especially China. Both trade Commissioner Karel De Gucht and Internal Market Commissioner Michel Barnier called for more reciprocity and as a result public consultations on that matter were launched by the Commission. The discussion mainly covered a contract from the Polish government for a Chinese company to build a stretch of highway – a deal that collapsed (for more information on EU trade policy refer to: http://www.ecfr.eu/scorecard/2012/china/3). Therefore, although proposed community preferences might seem to generally apply to public contracts, it is possible to reasonably predict that in fact they have been tailored to limit access to construction contracts for overseas contractors.

Community preferences in details

According to the paper produced by the UZP, some preference in Polish public procurement should be given to contractors from the EU (community) over contractors from outside EU. More specifically, only entities that have their registered office in (i) an EU member state, (ii) a country-signatory of the agreement establishing the European Economic Area ("EEA"), and in (iii) countries that concluded an agreement liberalising procurement markets with either the EU or the Republic of Poland, should be allowed to compete for awards of public contracts. Entities not meeting this standard should, in principle, should not be eligible to participate in tenders for contracts unless otherwise specified by the contracting authority (point 5.2 of the paper). The proposal does not refer to natural persons – individual entrepreneurs at all.

By way of explanation, the countries/blocks that concluded the abovementioned agreements are signatories of the GPA (EEA plus Switzerland, Armenia, the Netherlands with respect to Aruba, Hong Kong, Israel, Japan, Canada, South Korea, Taiwan and the USA – negotiations under way with Albania, China, Georgia, Jordan, Kirghizstan, Moldova, Oman and Ukraine) plus Mexico, Chile and the Cariforum (that serves as a base for economic dialogue of Caribbean states with the European Union). The GPA (Agreement on Government Procurement signed in Marrakesh on 15 April 1994, included in Annex no. 4 to the Marrakesh Agreement establishing the WTO, entered into force on 1 January 1996, recent renegotiation outcomes revealed in December 2011) is the most significant and the most representative international treaty on mutual opening of public procurement sectors to foreign contractors.

Under the GPA (i) parties thereto are required to accord to the products, services and suppliers of any other party treatment no less favorable than they give to their domestic products, services and suppliers, (ii) parties may not discriminate among goods, services and suppliers of other parties,  and (iii) each party is required to ensure that its entities do not treat domestic suppliers differently on the basis of a greater or lesser degree of foreign affiliation or ownership as well as to ensure that its entities do not discriminate against domestic suppliers because their good or service is produced in the territory of another party. However, it must emphasized that (i) the above rules do not affect customs duties and charges of any kind imposed on or in connection with importation, the method of levying such duties and charges, etc. (ii) the GPA does not facilitate the flow of workers from one party to another, and (iii) it applies only to a limited number of procuring entities and several types contracts as specified in attachments thereto.     (to find out more on the GPA please refer to http://www.wto.org/english/tratop_e/gproc_e/gpa_overview_e.htm).

Protectionist measures in public procurement can take various forms. In the majority of cases worldwide they consist in precluding contractors based on the origin of offered goods (e.g. the flagship Buy American Act, BAA - 41 U.S.C. §§ 10a–10d). This would not work, however, if any legislator wanted to impose protectionist measures just against construction enterprises located overseas rather than against goods (building materials, prefabs. etc.) imported from overseas.     

Limited effectiveness

Community preferences are not likely to achieve objectives attached to them. Firstly, because non-preclusion of foreign contractors from the Polish public procurement market sector does imply that those enjoy real access to this market. If they do not, then the adoption of the proposed preferences would not make any sense. Secondly, because the community preferences, in the proposed shape, could easily be circumvented.

Only contractors from the EEA enjoy full access to the Polish public procurement market (supplies, services, construction works) as they enjoy non-discrimination and national treatment accompanied with all freedoms of the internal market like free flow of labour, services, goods and capital. Therefore, they enjoy real market access. Contractors from outside the EEA of course might enjoy non-discrimination and national treatment in relation to some tenders by virtue of the GPA or similar agreements, but without the advantages of the internal market. Consequently, all non-EEA contractors face serious immigration restrictions on the flow of labour from overseas, customs restrictions on temporary imports of machinery etc. which is vital for construction contracts. As a result, all non-EEA contractors can hardly use their own assets (machinery and human resources) and need to enter into consortia with local/EEA enterprises or outsource to them as subcontractors in order to gain market access.

Thus, if by the adoption of community preferences non-EEA contractors were precluded from the Polish procurement market (except from contracts covered by the GPA and similar agreements), they would merely be precluded from earning on managing projects, going between contracting authorities and local subcontractors and probably from performing some remote design works. Even if precluded, non-EEA contractors could easily circumvent the ban by establishing or by purchasing companies formed in accordance with the laws of any EU/EEA member, Poland included (within the meaning of art. 54 of the Treaty on the Functioning of the European Union and art. 34 of the EEA agreement). Such subsidiaries located in the EEA would of course enjoy all freedoms of the internal market and therefore could not be precluded from the Polish public procurement market based on the degree of their foreign ownership. However, again they could not freely use the assets of their parent non-EEA companies while performing contracts in Poland. 

Conclusion

Protectionist measures in public procurement directed against foreign goods are much more effective than those directed against enterprises located overseas as potential contractors. The latter cannot be effective in jurisdictions subject to the EU/EEA regime. Therefore, community preferences, as proposed, would be merely a formality to overcome. The paper prepared by the UZP does not constitute a formal legislative proposal so far. However, it initiated a serious discussion in Poland on departing from unlimited openness to foreign contractors for a more protectionist approach that would reintroduce fundamental reciprocity in relation to non-EEA countries.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 21/03/2012.

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