NEWSLETTER 23/2013
Commentary
PAYMENT FOR SUPPLIES OR SUBCONTRACTING IN A PUBLIC TENDER—CONTRARY TO PRESS REPORTS—MAY BE AVAILABLE NOT ONLY FROM A CONTRACTOR THAT HAS GONE OUT OF BUSINESS
As shown by recent experience, implementation of public works may be accompanied by financial difficulties of the general contractor, which has a knock-on effect on subcontractors and suppliers and their liquidity. Despite performing the work or delivering the goods under the contract, they may not be paid. This raises the issue of who is liable for the lack of payment. Appearances to the contrary notwithstanding, sometimes enforcement of a claim for payment is not limited to the two parties to the subcontract or supply contract, but depending on the construction of the public procurement there may be three or more entities potentially liable.
First there is the general contractor, with whom the subcontractor or supplier has entered into a contract. But here enforcement may be ineffective if the general contractor has financial difficulties.
The second possibility is for the subcontractor or supplier to seek enforcement of its claim against the contracting authority, which is almost certain to be solvent. Therefore it must be checked whether there is a connection between the contracting authority and the subcontractor or supplier that will support the claim. There may be several such contractual and non-contractual relationships. This approach will prove ineffective if the subcontractor or supplier cannot establish legal grounds for the liability of the contracting authority. An experienced litigator may be able to overcome these difficulties, however.
Then, if there are multiple contractors, it should be determined whether there is a possibility to demand payment from other contractors, who did not enter into a contract directly with the subcontractor or supplier. How might they be liable?
First, the legal construction of the public procurement should be examined. Art. 23 of the Public Procurement Law allows joint tenders for a public contract, but does not indicate or limit the legal form for joint performance of a public contract.
Often several entities decide to enter into a consortium to bid for a public contract. It is in the nature of a joint venture, in other words an agreement for cooperation during performance of the public contract. As a consortium, contractors together can meet the requirements set by the contracting authority which they could not meet independently, for example organizational resources or experience. Whether claims may be asserted against other contractors in the consortium will depend on the legal nature of the consortium.
For this purpose, the typical provisions of a consortium agreement should be examined. A key provision that should be found in any consortium agreement is an undertaking by the members of the consortium to cooperate in performance of the public contract, with a division of tasks between them, but the main aim is to perform the contract and obtain a fee.
In essence, such provisions resemble the structure of an ordinary partnership under the Polish Civil Code. If it can be proved in court that the consortium agreement is also a partnership agreement, it will give subcontractors and suppliers grounds to enforce their claims against the other consortium members, even though they did not enter into a contract with them directly. This is because under Civil Code Art. 864, the members of an ordinary partnership (in this scenario, the members of the consortium) are jointly and severally liable for the obligations of the partnership.
Therefore, the chance of satisfaction of the claims of subcontractors or suppliers may be much higher when they not only seek payment from the general contractor, but also pay attention to the nature of the relationship between the general contractor and the contracting authority and the other business partners of the general contractor.
In this way, the group of debtors potentially liable to pay the supplier or subcontractor may grow to three or more various entities.
Agata Langowska
Andrzej Mikulski
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The Newsletter is published free-of-charge and is designed chiefly for clients of the law firm of Mikulski & Partners. The articles are written by lawyers at the firm, but do not constitute legal advice.