The new Polish offset law (the Act of Parliament dated June 26, 2014 on certain agreements concluded in connection with contracts essential for the national security) came into force on 30 July 2014 but still there are very few examples of its practical application. It results from the rule that the new offset law applies only to such offset agreements where procedures for the conclusion of offset agreement were initiated after the date when this act entered into force. In many projects started before the summer 2014 the previous offset law would still apply. Subsequently we must wait for the intensive practical experiences with interpretation of the new law.

One of the issues that may raise doubts is the scope of the new offset law application. It provides that "A foreign supplier is obliged to conclude an offset agreement on the terms provided for in the Act" (art. 1). Does it mean that if a Polish supplier concludes a supply agreement pertaining to the arms, munitions or war material with the State Treasury but subcontracts part of its obligations to a foreign company, is such a foreign company a "foreign supplier" in the meaning of the offset law?

These doubts may result from the definition of a "foreign supplier". This definition refers to a "party of the supply contract" and it does not state expressly that it shall be limited to a foreign "contractor". In other words, it does not exclude expressly the foreign subcontractor who supplies the relevant equipment and materials to a Polish contractor – party of the agreement with the Polish State Treasury.

However, these doubts are removed by the definition of the "supply contract". According to the offset law it is a contract between the contracting authority and the contractor. Therefore, the term "supply contract" does not apply to the subcontractor and consequently a subcontract concluded by a foreign company with a Polish supplier who had earlier concluded a supply contract with a contracting authority does not impose offset obligations.

The situation is different under the previous offset regulations (the Act of Parliament dated September 10, 1999 on certain compensation agreements concluded in connection with contracts for deliveries for the purposes of defense and security of the State).

In the previous offset law the foreign supplier is defined in a similar way as a in the new law and the definition does not exclude subcontractors. However, the definition of a supply contract is wider and includes a contract of sale, delivery, license, know-how or any other contract for the transfer of rights or for performing services whose subject matter shall be certain armament or military equipment treated, produced or manufactured beyond the territory of the Republic of Poland.

This definition is very broad: it does not exclude contracts between the contractor and the subcontractor and it does not restrict the supply contract to agreements between the contracting authority and the contractor. Therefore, it may include subcontracts for delivery of the said equipment.

Furthermore, the definition of a contracting authority refers to entities ordering armament, military equipment or services for the purposes of defense or security of the state. A few entities have been named as an example. This definition does not rule out the contractor as an entity ordering the relevant equipment from the subcontractor. In contrast – the new offset law limits the definition of the contracting authority only to an entity entitled to conduct a contract award procedure aimed at protecting essential national security interests.

In summary it can be said that while the previous offset law can be interpreted as including (or at least not definitely excluding) subcontracts between a foreign subcontractor and a Polish contractor as a sole basis for imposing offset obligations, the new law does not allow for requesting such offset from a foreign subcontractor to a Polish company which concluded the supply contract with the Polish State Treasury.

It should only be noted that the above analysis relates to subcontracts concluded with Polish suppliers who are not subsidiaries of a foreign company. Supply agreements concluded by parent entities or subsidiaries of a foreign supplier are regarded in the light of the offset law as concluded by a foreign supplier.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.