Month: March 2020

Supervisory Impulses Package – Polish Financial Supervision Authority’s Office (PFSAO) proposes to ease regulatory burden and supervision amid coronavirus outbreak.

As the coronavirus epidemic spreads, the PFSAO works on a set of proposals to help entities supervised by the institution carry on under the present market conditions. The package has been named “Supervisory Impulses Package for the Security and Growth of the Capital Market” (SIP), with similar programs announced for the banking and insurance sectors.

The SIP for the capital market has the following goals:
• to keep market liquidity stable;
• to help entities fulfill regulatory obligations by rescheduling reporting deadlines;
• to help businesses raise capital;
• to allow businesses to focus on clients’ needs and key processes.

Actions that the PFSAO plans to take include:

A. individual approach to investment funds which fail to comply with applicable investment limits, covering adjustment of supervisory measures to the present market conditions;

B. creating or launching tools to boost liquidity in the treasury securities sector by implementing as well as supporting relevant measures;

C. legislative changes, such as:
• extending deadlines for entities supervised by the PFSA to prepare, approve and publish annual financial statements and annual consolidated financial statements;
• extending deadlines for issuers to submit quarterly reports and consolidated quarterly reports covering the first quarter of the financial year which started on 1 January 2020;
• extending deadline for holding the Annual Shareholders Meeting;
• extending deadline salary policy approval;
• modification of rules for preparing information memoranda leading to easier and faster processing of bid documents, which businesses are required to submit in order to raise capital.

D. pragmatic approach to selected supervisory actions, including:
• review of information submitted by the entities supervised by the PFSA in fulfillment of ongoing reporting obligations to lighten the burden on them; the need to postpone deadlines for fulfillment of these obligations is also expected;
• putting off non-reporting actions (e.g. audits, information obtaining);
• taking relevant supervisory actions in case of non-compliance with capital adequacy standards, with allowances being made for the epidemic’s impact;
• revision of the PFSA’s inspection schedule (verification of upcoming inspection actions), without modifying supervisory goals;
• pragmatic approach to delaying individual supervisory deadlines, e.g. deadlines for implementation of guidance issued after inspections, including deadlines established originally;
• simplified form of PFSAO’s supervisory assessments carried out in 2020, with allowances being made for the epidemic’s impact;
• six-month extension of the deadline for brokerage houses to adopt the EBA’s guidelines on outsourcing arrangements.

Moreover, the PFSUO will increase its reliance on electronic communication channels, esp. PORTAL and e-PUAP platforms, and e-mail, to keep in touch with entities it supervises.

The SIP is a work in progress, individual elements of which may or may not be implemented, depending on market developments. It remains to be seen how the initiatives will translate into law and supervisory practice. With the PFSU’s declarations of remaining open to suggestions and discussion with market participants about any initiatives to mitigate the epidemic’s impact on entities operating in the capital market, one may be optimistic.

Do not hesitate to contact us with any questions.

Piotr Wojnar
Attorney-at-law / Managing Partner
piotr.wojnar@actlegal-bsww.com
+48 602 660 610, +48 22 420 59 59

Małgorzata Stefaniak
Attorney-at-law / Partner
malgorzata.stefaniak@actlegal-bsww.com
+48 692 546 207, +48 22 420 59 59

The most recent Regulation tightens the restrictions on retail and services in commercial developments of over 2,000 m2. Limitations applicable to office buildings (canteens, restaurants, cafés) have been extended without any major modifications.

Starting from March 21, 2020, what entities can operate in retail complexes of over 2,000 m²?

1. Tenants whose main business consists in the sale of:

a. groceries;
b. cosmetics other than fragrances and beauty products;
c. toiletries;
d. cleaning agents;
e. medicinal products (incl. ones sold at pharmacies);
f. medical devices;
g. foodstuffs for particular nutritional uses, as defined in article 3 section 3 item 43 of the Food and Nutrition Safety Act of August 25, 2006;
h. newspapers;
i. construction / DIY products;
j. pet supplies; or
k. fuels;

2. Tenants offering the following types of services as their main business activity: medical, banking, insurance, postal or laundry services, or preparation of food for takeaway and/or delivery only.

Any Tenants other than listed in items 1 and 2 above cannot run their operations.

It is now completely forbidden to conduct any retail operations or offer any services (the Regulation implies that the ban covers all types of services) at retail stands/kiosks in malls.

Some Tenants that could conduct their business until today will now have to close their stores for customers – this applies to travel agencies, telecommunications services, jewelers, etc.

We are analyzing the newly-adopted Regulation and will be ready to assist you further in no time.

Please feel free to contact us for any assistance:

Michał Wielhorski
Real estate transactions & commercial leasing
Attorney-at-law / Managing Partner
michal.wielhorski@actlegal-bsww.com
+48 605 911 303

Alicja Sołtyszewska
Real estate transactions & commercial leasing
Attorney-at-law / Partner
alicja.soltyszewska@actlegal-bsww.com
+48 663 004 333

Based on its announcement of March 19, 2020, the Ministry of Finance is suggesting the following types of anti-crisis solutions related to taxes.

• Potential tax loss carryback (PIT and CIT).
The loss recorded in 2020 can be applied to the previous profitable year (2019). For that purpose, it will be necessary to submit an amended tax return for 2019. This can be done by taxpayers whose revenue generated in 2020 drops by at least 50% against the 2019 figure. It will be possible to deduct a loss of up to PLN 5m from the 2019 income (any surplus over that amount might be applied to subsequent years).

• Extension of the deadline for payment of the minimum tax on commercial real estate for March-May 2020 until July 20, 2020.
This option can be used by taxpayers whose revenue in a given month, compared to the corresponding month of the previous fiscal year, drops by at least 50%. This tax can also be paid at a later date by taxpayers that did not generate revenues in the previous fiscal year but are bearing the negative implications of coronavirus in March-May 2020.

• Preclusion of the application of the so-called bad debt regulations with respect to debtors that should take unpaid obligations into account when calculating income tax advances.
This exemption will apply to taxpayers whose revenues generated in specific billing cycles (monthly or quarterly) decreased by at least 50% against corresponding periods in 2019. This option can also be used by taxpayers that did not generate revenues in the previous fiscal year but are bearing the negative implications of coronavirus in 2020.

• Possibility to drop simplified income tax advances; calculating monthly advances on the basis of current profits, instead.
The so-called “small taxpayers” will be entitled to drop simplified income tax advances. Those who decide to opt out of simplified advances in March-December 2020 will be calculating their monthly advance payments on the basis of the current income.

• Extended deadline for CIT-8 filing for NGOs.

• Newly-introduced deduction of donations (cash or in-kind) from PIT and CIT – this applies to donations aimed at prevention and combating of the coronavirus epidemic, given to entities that offer healthcare services, incl. sanitary transport, as well the Material Reserves Agency and the Central Base of Sanitary and Anti-Epidemic Reserves.

• Extension of the deadline for advance payroll tax payments for March and April.
The plan is to extend the deadline until June 01, 2020.

• Temporary waiver of the extension fee for payment in instalments or deferral of tax and tax arrears.

• Deferred obligation to submit new SAF-T_VAT for large enterprises – until July 01, 2020.

• Deferral of submissions with the Central Register of Beneficial Owners – until July 01, 2020.

• Possibility to introduce property tax exemptions at the municipal level for enterprises suffering from the negative impact of the coronavirus epidemic.

• Increased flexibility of the National Revenue Administration with respect to performance of its tasks in the time of crisis. Possibility to suspend tax audits, tax procedures and customs/tax inspections while the state of epidemic threat is in effect.

• More flexible financial management rules for entities operating in the public finance sector, incl. local authorities, special-purpose funds, executive agencies and the national budget, in order to offer the quickest and most efficient way to use public funds for purposes related to COVID-19 prevention.

• Possibility to suspend administrative enforcement procedures related to financial obligations.

Please feel free to contact us for any assistance.

Małgorzata Wąsowska
Tax Advisor / Partner
malgorzata.wasowska@actlegal-bsww.com
+48 691 477 047

The SARS-CoV2 (“Coronavirus”) epidemic might lead to numerous problems in performance of construction works agreements.

Our clients point to conflicting signals coming from the market:

• in some investment projects (e.g. large construction projects), investors insist that works should be continued, while construction companies would like to modify schedules, realizing that certain limitations will arise from distorted supply chains and lower availability of subcontractors/employees, e.g. as a result of: (i) a large number of medical leaves (estimates indicate that this might concern 10-20% of employees); and (ii) closing of the Ukrainian border;

• in other projects (e.g. renovation or office fit-out projects at levels that are partially occupied by tenants), construction companies might be willing to perform works but entities occupying the areas intended for renovation ask for the suspension of works due to guidelines issued by the Chief Sanitary Inspectorate, so that they don’t need to share space with the contractors’ employees.

In view of the Regulation of the Minister of Health of March 13, 2020, announcing the state of epidemic threat in Poland (the “Regulation”), and the fact that it does not specify any restrictions related to construction works, it might be difficult or even (in some cases) impossible to invoke a force majeure event.

Under specific (individually assessed) circumstances, however, it may be justified to claim that we are experiencing: (i) a force majeure event; and (ii) extraordinary circumstances that make it possible to amend the agreements that have already been executed (rebus sic stantibus). This situation gives rise to a number of questions and doubts related to further implementation of construction projects.

It is important now to analyze construction agreements in order to examine the possibility to suspend works and change schedules, as well as to assess the impact of the adopted solutions on costs, with a strong focus on arguments related to potential emergence of force majeure.

1. Force majeure

Construction works agreements often include “force majeure clauses” with specific definitions. We need to keep in mind that anyone seeking to invoke force majeure will be obliged to prove: (i) that the current situation is categorized as force majeure in light of a given agreement; and (ii) that the current situation made it impossible to perform an obligation in accordance with the agreement for objective reasons. Not every single non-performance or improper performance of an obligation will be justified. Only non-performance or improper performance resulting from factors that none of the parties could predict or influence can be excused.

It might turn out to be insufficient to evidence the above on the basis of contractual provisions and the Regulation. In order to modify the project schedule, a party to an agreement will need to provide a broader range of arguments. It will be necessary to embark on claim management processes.

Entities whose agreements do not contain force majeure clauses are in a completely different situation. They will not be able to “automatically” use contractual provisions, and their defense against the creditor’s claims related to non-performance or improper performance of an obligation (article 471 of the Civil Code) will need to be based on challenging the existence of: (i) fault on part of the debtor; or (ii) damage on part of the creditor. The agreement’s provisions will also play a vital role here. However, instead of the existence of force majeure (which will be examined by a competent court on the basis of applicable laws), the key issue will be to determine whether an entity invoking force majeure bears fault-based liability or whether its liability has been defined otherwise.

A special situation will occur in infrastructure projects and others based on FIDIC, where invoking force majeure might not lead to the fulfillment of the contractors’ goals. In case there are no binding crisis regulations that limit construction activities, contractors will be aware of additional difficulties, potential delays or increased costs, and will (in order to continue works) seek a reliable basis for submission of claims, especially ones for extension of deadlines and for Costs. It needs to be noted here that FIDIC offers a range of regulations that (when applied correctly) might produce better results than attempts at invoking force majeure.

2. Contractual penalties

In case the parties have included a contractual penalty for non-performance or improper performance, the creditor will be exempt (as a general rule) from the obligation to prove that it has suffered any damage.

The crucial issue is to check whether the agreement stipulates that the creditor is entitled to demand a contractual penalty irrespective of whether the debtor is at fault for untimely performance of an obligation, i.e. whether the delay is culpable or not.

If the parties link the debtor’s obligation to pay a contractual penalty with a culpable delay, courts (after determining that the current circumstances indeed affect the performance of obligations) will tend to release debtors from liability due to lack of their fault.

In case a contractual penalty applies to a non-culpable delay, it will not (as a general rule) cover a force majeure event, unless the agreement clearly specifies that the debtor’s liability has been extended to include force majeure. Needless to say, in case of any litigation, item 1 above will apply, i.e. it will be necessary to prove the emergence of force majeure and its impact on the delay.

3. Contractual amendments

The Coronavirus epidemic can also serve as a reason for which parties to an executed agreement will need to modify its contents. Such amendments could be introduced through negotiations of contractual provisions or litigation (in case of failure to reach an amicable solution).

If, due to an extraordinary change of circumstances, the performance of an obligation involves excessive difficulties or exposes one of the parties to a substantial loss (which was not expected by the parties when entering into the agreement), the court may – having considered the parties’ interests in accordance with the principles of social conduct – determine the manner in which the obligation will be performed, define the value of a payment due, or even terminate the agreement.

Given the current version of the Regulation, invoking a clause that permits amendments to the agreement in case of a fundamental change of circumstances (rebus sic stantibus) will pose a challenge in which an adequate technical and legal analysis will play the key role.

Since a court’s interference with the contents of the agreement might be extensive (e.g. the court will be able to modify the contractual provisions related to the fee, scope of works and project completion date), we need to keep in mind that such court-enforced amendments to the agreement can only take place when the performance/payment is not due yet (meaning that such lawsuit has to be filed before the maturity date) and specific criteria have been met, incl. a fundamental change of circumstances (which was not expected by the parties upon agreement execution) has occurred and excessive difficulties (that have a cause-and-effect relation with non-performance) in performance of an obligation have emerged, or there is a threat of a substantial loss for one of the parties to the agreement.

Judicial practice shows that in relations between business entities, it is relatively difficult to get courts to modify contractual provisions.

Given the fact that the situation might keep changing rapidly, an entity wishing to have an agreement modified by court needs to start by submitting a motion for interim relief (limited operations of courts in relation to the current state of epidemic threat do not apply to interim reliefs; motions in that respect are examined at closed-door sessions), followed by a statement of claim which needs to be filed within two weeks. The list of interim relief forms is non-exhaustive; for instance, the court might forbid the creditor to charge contractual penalties or set them off against the fee specified in the agreement.

Recommended actions:

1. Analysis of construction works agreements in terms of: (i) force majeure; (ii) contractual penalties.
2. Monitoring the submission of interim relief motions with competent courts.
3. Monitoring notices/letters from business partners – potential pre-trial notices with demands related to modification of contractual obligations.

Contact:

Marek Wojnar
+48 601 379 610
marek.wojnar@actlegal-bsww.com

Katarzyna Marzec
+48 603 112 225
katarzyna.marzec@actlegal-bsww.com

Piotr Giżyński
+ 48 665 667 455
piotr.gizynski@actlegal-bsww.com

Magdalena Banaszczyk-Głowacka
+48 503 575 012
magdalena.banaszczyk@actlegal-bsww.com

On March 18, 2020, during a conference held after the Cabinet Council meeting, the President and Prime Minister of Poland announced that works are underway on a range of draft bills as part of the so-called “anti-crisis shield.” They are supposed to form an aid package aimed at prevention of the negative impact of the coronavirus epidemic. The anti-crisis shield is going to be based on 5 pillars: employee protection, financial liquidity, healthcare support, security of deposits and public investments. These actions may include deferral of ZUS contributions, support for individuals hired on the basis of civil-law contracts, and payment holidays. You can find more information in our general alert – Anti-crisis package.

Unfortunately, there are no specific details of the anticipated reliefs and exemptions related to tax settlements. Additionally, the Chancellery of the Prime Minister has indicated that it intends to postpone the deadlines for submission of PIT-36, PIT-36L, PIT-38 and PIT-39 until the end of June 2020. Also, local authorities (e.g. the Mayor of Kraków) are declaring their plans to support businesses with a property tax relief if the COVID-19 threat affects financial liquidity.

ZUS [Social Insurance Institution] website provides information about the application of reliefs in relation to coronavirus, based on which businesses will be able to use the following simplified types of assistance:
• deferral of the payment term by 3 months for the period of February – April 2020;
• 3-month suspension of performance of an agreement executed with ZUS, in which the payment dates for instalments or contributions fall between March and May 2020, and, consequently, 3-month extension of the agreement term.

In an application, it is necessary to specify how the coronavirus epidemic has influenced the business entity’s financial condition. Needless to say, the fact that an application is submitted does not automatically mean that it will be approved.

Please feel free to contact us for any assistance.

Małgorzata Wąsowska
Tax Advisor / Partner
malgorzata.wasowska@actlegal-bsww.com
+48 691 477 047

On Wednesday (18 March 2020), the President and Prime Minister announced a relief package worth PLN 212bn to counter the fallout from the coronavirus outbreak. Although full details of the relief measures are not yet available, it is clear that the stimulus plan is going to be massive by Polish standards. The majority of the funds are intended to help struggling businesses.

The package, nicknamed the “anti-crisis shield,” will be based on five pillars:
1. labor market relief measures,
2. business relief measures,
3. additional funding for health services,
4. financial sector security measures,
5. public investment package.

The measures making up the first pillar are designed to help workers keep their jobs. The government will contribute to the salaries paid by struggling businesses (it is not yet clear what criteria businesses and employees will need to satisfy to qualify for the help). The government will cover up to 40% of average salary paid on the basis of an employment contract, with the employers paying the other 40%. In case of self-employed persons and those working under civil-law contracts, 80% of the minimum salary will be paid from public funds. The allowances for parents who need to look after a child due to the closure of day care facilities will be also extended. The Office of Competition and Consumer Protection (UOKiK) and other government agencies dealing with price control are to implement measures to counter excessive pricing.

The measures to be implemented as part of the second pillar are primarily intended to inject liquidity into the economy and will be handled by development institutions, as defined in the Development Institutions Act – mainly the Polish Development Bank (BGK), the Polish Development Fund (PFR) and the Industrial Development Agency (ARP). Loan guarantee will be increased to 80% of the loan. Businesses will be also offered preferential micro-loans of up to PLN 5thous. A helping hand is also extended to the transport sector, with ARP offering to cover a part of operational lease payments owed by companies operating in the sector. It was also announced that businesses will be able to delay social security payments or divide them into instalments. There are plans that contractual penalties stipulated in contracts executed under the Public Procurement Law will not be enforced. Unlike in Germany, the government was silent on the extension of bankruptcy filing deadline.

As part of the third pillar, the health services are due to receive PLN 7.5bn, which especially means stepping up the financing for infectious diseases hospitals.

The measures covered by the forth pillar aim to increase the security of the financial sector, incl. bank deposits, however, detailed information about the solutions have yet to be provided by the government, cooperating with the Polish Financial Supervision Authority (KNF) and the National Bank of Poland (NBP).

The last pillar covers a boost to public investment worth PLN 30bn. The investments are to focus on improving energy and transport infrastructure as well as digitalization and environment protection.

Poland’s leaders paint a picture of a massive and ambitious stimulus plan to save the economy from the coronavirus crisis. The President stated that details of the legislation about to be passed would be available in the days to come. We will keep you up to date on the latest developments.

Contact us in case you have any questions.

Barbara Szczepkowska
barbara.szczepkowska@actlegal-bsww.com
+48 602 260 127, +48 22 420 59 59

Piotr Wojnar
piotr.wojnar@actlegal-bsww.com
+48 602 660 610, +48 22 420 59 59

On 13 March 2020, the Polish government announced the state of epidemic threat due to COVID-19, more commonly known as the coronavirus. The days that followed saw the government close the Polish borders, impose a mandatory 14-day quarantine for Polish citizens returning home from abroad and ban international air and rail travel. Malls, pubs and restaurants have been partially closed, with fairs, exhibitions, congresses, conferences and meetings cancelled. All activities related to sport, entertainment and leisure have also been suspended. Without a doubt, these and other warranted measures meant to curb the spread of the epidemic will affect the liquidity of many businesses.

Legislative solutions are being introduced gradually to help business survive the economic turmoil. Regardless of the government’s help offered in the face of the pandemic crisis, business owners would be well advised to stay on top of the situation and take appropriate steps to navigate the crisis.

Business owners should take steps towards restructuring and renegotiate cooperation terms sooner rather than later. It may also be a good idea to reach out to creditors to discuss potential repayment solutions. Worst case scenario, businesses may be forced to file for restructuring, or even bankruptcy (own or contractor’s).

When to file for judicial restructuring?

Generally speaking, restructuring proceedings are designed for debtors who are either insolvent or facing insolvency. So, filing for restructuring should be considered by any debtor who is not able to reach an out-of-court agreement with its creditors on debt restructuring terms and believes it will not be able to pay its debts as they fall due. In this type of proceedings, an arrangement is adopted when the majority of the voting creditors, representing at least two-thirds of the total claims participating in the voting, vote in favor of the arrangement (in the case of arrangement approval proceedings, the majority is counted based on the number of all creditors entitled to vote, and not only those who exercise the right to vote). This means that the decisions made during restructuring proceedings by the majority of the creditors are binding on the rest of them.

Restructuring proceedings should be also considered by a business which has not been paid by its key client and knows that as a result it is about to suffer cash flow difficulties because this may bring about its insolvency. Practice shows that restructuring proves successful if the application for restructuring is filed well in advance, which is soon after the first signs of financial trouble, when the debtor is still able to pay its debts on time, in spite of facing insolvency. Unfortunately, the majority of restructuring applications are filed much too late, when the debtor is deep in financial distress and the odds of survival are slim.

Four types of restructuring proceedings – how to choose?

In accordance with the Restructuring Law, debtors seeking to arrange with the creditors have four types of restructuring proceedings to choose from: arrangement approval proceedings, expedited arrangement proceedings, arrangement proceedings and remedial proceedings. The best proceedings to tackle cash flow difficulties caused by the pandemic depend on the situation of the individual debtor and, most notably, the severity of the debtor’s financial distress. The arrangement approval proceedings allow debtors to obtain approval of the arrangement quickly, with the court’s involvement brought to a minimum. Remedial proceedings are the most radical in nature and dedicated to entities with the most difficult economic situation, requiring profound changes in the way they operate.

Arranging with creditors in restructuring proceedings – what are the available solutions?

An arrangement proposal sets out the plan for the repayment of the insolvent company’s debt. It may include the following restructuring tools:
1) payment date rescheduling;
2) division of the payment into installments;
3) debt reduction;
4) debt-to-equity conversion;
5) modification, replacement or cancellation of the security interest created for specific debt;
6) grant of a loan to the debtor or modification of the legal relationship or rights, or creating a security interest for the debt;
7) sale of the debtor’s assets.

The debtors and the creditors have much leeway to shape the arrangement as the law does not provide a finite list of ways in which debts may be restructured. Unusual arrangement terms can be often found in arrangement proposals regarding non-monetary obligations. Arrangement proposals may also specify more than one way of restructuring a debt as well as divide creditors into interest groups.

If a business files for restructuring, does it still have to file for bankruptcy?

If a business files for restructuring or arrangement approval, it is not exempt from the obligation to file for bankruptcy. However, as soon as the restructuring proceedings are opened (or the arrangement submitted as part of arrangement approval proceedings approved), the debtor is no longer required to file for bankruptcy, meaning that the court must grant the application – and must do so within 30 days from the day when the debtor became insolvent – in order for the debtor to be exempt from the obligation. Given the workload of the courts and the pace at which they work (which is expected to slow down even more during the epidemic), applicants filing for restructuring may have to wait a while before their applications are examined. The implications may be severe for those with the obligation to instigate the proceedings (the debtor’s representatives) – they may be held liable for belated filing of the bankruptcy application under civil or criminal law.

To solve this issue the business which filed for restructuring and in the meantime became insolvent should within 30 days file for bankruptcy as well. If both applications are filed, the one seeking restructuring will generally have the priority. The rule according to which the restructuring application has priority stems from the assumption that the goal of restructuring proceedings is to avoid the debtor’s bankruptcy by enabling the debtor to restructure its debt through arrangement with creditors and, in the case of remedial proceedings, remedial measures (without prejudice to creditor’s rights).

When is a business required to file for bankruptcy? Is the obligation to file for bankruptcy affected by the pandemic?

If a business becomes insolvent due to the coronavirus pandemic, it remains obligated to file for bankruptcy and the debtor’s representatives may still be held liable for belated filing of the application. Each business which becomes insolvent is required to file for bankruptcy within 30 days from becoming insolvent, irrespective of the reason for insolvency (even if insolvency has been caused by measures aimed at curbing the spread of the epidemic or key client’s failure to pay resulting from the coronavirus outbreak).

Under the Bankruptcy Law, there are two tests that may be applied to determine if a business is insolvent: the cash flow test and the balance sheet test. The cash flow test looks at whether a business is able to pay its liabilities (a debtor is presumed not to be able to pay its debts as they fall due if the delay in payment exceeds 3 months). The balance sheet test determines if the debtor’s assets are less than is liabilities (a debtor is presumed to be insolvent if its liabilities exceed its assets for a period of no less than 24 months).

We will be happy to answer any questions you may have, also ones regarding the coronavirus crisis. Our lawyers provide comprehensive advice on bankruptcy proceedings (incl. pre-pack bankruptcy) and restructuring proceedings, and will help you through business negotiations and litigation, incl. court disputes arising from failure to perform or inadequate performance of contractual obligations. They will analyze your contracts in terms of force majeure clauses, provide adequate tools to mitigate financial risks and efficient legal solutions.

We are fully available to answer any of your questions. Contact us any time by e-mail, phone or instant messengers.

Barbara Szczepkowska
barbara.szczepkowska@actlegal-bsww.com
+48 602 260 127, +48 22 420 59 59

Piotr Wojnar
piotr.wojnar@actlegal-bsww.com
+48 602 660 610, +48 22 420 59 59

Ewa Ostaszkiewicz-Sobiczewska
ewa.ostaszkiewicz@actlegal-bsww.com
+48 660 202 647, +48 22 420 59 59

What about agreements executed under public procurement law act?
Potential actions for contractors and contracting authorities

Undoubtedly, we are and will continue to be affected by the COVID-19 (“coronavirus”) pandemic and the state of epidemic threat, introduced in Poland on March 13, 2020. Complications might result from distorted supply chains, employee absences and transport problems. Consequently, there is a high risk of a drop in productivity. It is almost certain that some obligations will not be performed in a timely fashion. This includes obligations arising from agreements executed on the basis of the Public Procurement Law Act (“PPLA”), which might give rise to contractors’ substantial liability and contracting authorities’ problems related to public finance discipline.

The special-purpose act of March 07, 2020, whose article 6 touches upon issues related to public tenders, is not of much help as regards the above. It only points to the possibility to preclude the application of PPLA for orders of goods or services that are necessary to combat coronavirus, under specific conditions:

i. if the disease is highly likely to spread in a fast and uncontrollable manner; or

ii. if required for the purposes of public health protection.

The special-purpose act does not cover problems related (in particular) to the performance of existing agreements, ongoing public procurement procedures and opening of bids.

Below you will find recommended actions for contractors to adequately assess the situation and mitigate/eliminate risks involving liability for (non-)performance of agreements (especially for delays in their performance), as well as recommended actions for contracting authorities, related to ongoing public tenders and existing agreements.

Contractor

[Limitation / preclusion of liability]

1. It is highly advised to conduct a comprehensive analysis of provisions of executed agreements, especially in terms of liability for performance of obligations. We recommend focusing on contractual penalties, liability for damage (incl. its preclusion in case of force majeure), the manner of notifying the contracting authority about circumstances that prevent or hinder agreement performance, and suspension of agreement performance. There is no universal method that would make it possible to globally assess liability resulting from all agreements executed under PPLA. Each case needs to be examined on its own.

2. If an agreement does not cover aspects related to liability, amendments or rescission (or contains insufficient provisions in that respect), applicable legal regulations will be used – mostly PPLA and the Civil Code; they offer the possibility to make relevant amendments to agreements.

3. If an agreement includes provisions based on which the contractor’s liability is precluded as a result of force majeure, the contractor will be able to invoke such circumstances. In our opinion, the coronavirus outbreak meets the criteria necessary for it to be regarded as an unusual and extraordinary situation that is beyond any control of the contractor (force majeure). Once again, we wish to emphasize that each case will need to be assessed separately, e.g. in terms of whether other circumstances attributable to the contractor had not contributed to the contractor’s delays before the state of epidemic threat was introduced.

4. If an agreement does not include provisions related to force majeure or does not preclude the contractor’s liability in case of force majeure events, it will be difficult for contractors to effectively invoke such circumstances to limit/preclude their liability. In such case, it might be necessary for a contractor to file a lawsuit, e.g. on the basis of article 357(1) of the Civil Code (rebus sic stantibus), or to consider rescinding the agreement in order to avoid substantial costs related to its performance.

[Request to amend an agreement]

5. It is required to analyze an agreement in terms of the possibility to amend it, e.g. as a result of circumstances that are beyond the parties’ control and could not be foreseen despite exercising due diligence.

6. Irrespective of the basis for amendments, specified in the agreement itself, the contractor is entitled to seek amendments pursuant to PPLA. For example, on the basis of article 144 section 1 item 3 of PPLA, it is possible to amend an agreement if this proves necessary due to circumstances that the contracting authority could not expect. In such case, amendments can also apply to the remuneration but cannot change it by more than 50% of the original value – such amendment is independent from the provisions of the agreement itself.

Note: amendments to the agreement require both parties’ consent, meaning that nothing happens automatically here. Also, given the fact that force majeure is not the contracting authority’s fault, there is a potential risk that the contractor will be unable to seek additional remuneration from the contracting authority for periods of downtime (suspension) or for storage of the purchased devices/materials that cannot be installed or used for objective reasons.

As regards the impact of the current situation on the performance of construction works agreements, incl. ones executed on FIDIC templates, please read our legal alert covering the construction sector. Please note that FIDIC draft contracts include some provisions concerning an epidemic or force majeure. Irrespective of such provisions, the situation of each individual contractor always needs to be analyzed in detail.

Summing up, we cannot rule out the possibility that disputes with contracting authorities will arise in relation to delays resulting from the state of epidemic threat. In order to mitigate the risks, we recommend contractors to take the following actions in particular: (i) documenting all actions related to force majeure notifications sent to contracting authorities, and steps taken by contractors to properly perform agreements; (ii) ensuring due diligence in meeting the deadlines for such notices (or submitting the notices promptly).

Contracting authority

The current situation may also affect ongoing public contract award procedures handled by contracting authorities. The opening of bids usually entails direct participation of all parties involved.

Recommended actions:

1. extending the dates of submission and opening of bids (if possible);

2. online streaming of bid opening procedures – this solution allows everyone to learn basic details about the submitted bids in real time.

At the same time, due to potential consequences related to performance of agreements in the future, contracting authorities:

1. that are running a public procurement procedure should consider provisions permitting amendments to the agreement in case of force majeure, or suspension of its performance for the period over which a force majeure event persists;

2. that have entered into public contracts should analyze their provisions in detail, in terms of potential amendments related to the state of epidemic threat, with a view to eliminating liability for improper performance of obligations arising from the Liability for Breach of Public Finance Discipline Act
– as long as this is in line with their interest.

This legal alert only indicates the potential emergence of certain problems against the background of public procurement laws. We are ready to assist you in evaluating your particular situation. Please feel free to contact us any time by email, telephone or instant messengers:

Sebastian Pietrzyk – Co-Head of Public Procurement Practice
+48.606.406.531 – WhatsApp, Signal, Telegram
sebastian.pietrzyk@actlegal-bsww.com

Marcelina Daszkiewicz – Co-Head of Public Procurement Practice
+48.665.667.670 – WhatsApp
marcelina.daszkiewicz@actlegal-bsww.com