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The Warsaw Voice » Advice from Law Firm » August 29, 2012
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Delay in the Transposition of Rules for Awarding Military Contracts
August 29, 2012   
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Aug. 22, 2011 marked the expiry of a deadline for transposing the so-called Defence Directive of the European Union into Polish law.

The Defence Directive, or Directive 2009/81/EC of the European Parliament and of the Council on the coordination of procedures for awarding certain types of contracts for work, deliveries and services in the fields of defense and security, came into force on Aug. 21, 2009, amending Directives 2004/17/EC and 2004/18/EC.

In compliance with Articles 70 and 71 of the Defence Directive, contracting authorities operating in the field of defense and security, such as the Polish Ministry of Defense, should award contracts for deliveries, including deliveries of weapons and ammunition, after conducting proceedings for the award of a public procurement contract based on transparent criteria for the evaluation of offers related to the subject matter of the contract. However, Article 4 Point 3 f) of the Public Procurement Law (PPL), which remains in force, stipulates that the PPL does not apply to orders for the deliveries and services to which Article 296 of the Treaty Establishing the European Community applies, including the delivery of armaments and military equipment. Since Aug. 22, 2011, the exemption provided for under Article 4 Point 3 f) of the PPL has been inconsistent with the Defence Directive.

As a result of the failure to transpose the Defence Directive into the Polish legal system, Poland may be charged by the European Commission with breaching EU law, notably with the failure to adjust the PPL to the Defence Directive. Such a charge may be formulated by the European Commission in the form of a justified opinion containing the request to adjust Polish law to the provisions of the Defence Directive. If Poland fails to comply with such a request, the European Commission will be entitled to apply to the Court of Justice for the declaration of a breach by Poland of the Treaty on the Functioning of the European Union. The exercise of the judgment of the Court of Justice finding a violation may require Poland to remove the violation of EU law, which in practice would mean making amendments to the PPL that would adjust the provisions of Polish law to the Defence Directive. The decision issued as a result of the measures instituted by the European Commission does not have a direct impact on the results of any tender proceedings.

Nevertheless, the judgments of the Court of Justice mean that, upon the lapse of the period for transposing the directive into the internal legal order of the EU member states, the directives have a direct effect, which means they may be referred to by undertakings in disputes against the state (see: case 148/78, Criminal proceedings against Tullio Ratii, [1979] ECR 1629, point 43). A statement that the Defence Directive has a direct effect on the Polish legal order may enable the contractor to formulate a request to invalidate the contract award proceedings or invalidate the contract as conducted or concluded in breach of the basic principles governing public procurement contracts specified in the Defence Directive.

This rule applies to public procurement award proceedings started after Aug. 22, 2011—the day of the Defence Directive coming into force. In the Inter-Environnement Wallonie case, the Court of Justice clearly emphasized that, even though member states were not under an obligation to implement transposition measures before the end of the period prescribed for the transposition of the directive into national law, the principle of the efficiency of EU law and the Treaty holds that the member state, during the period prescribed for the transposition of the directive, must refrain from taking any measures liable to seriously compromise the result prescribed by the directive (see: case 129/96, Inter-Environnement Wallonie ASBL vs Région wallonne, [1997] ECR I-7411, point 36, 45, 43). The obligation under discussion rests with all the bodies of the member state, regardless of their location within the state structure.

In this context, one of the offer evaluation criteria widely used in Poland during proceedings for the award of military contracts was the so-called offset provision. The offset cannot constitute a criterion of offer evaluation in proceedings conducted on the basis of regulations transposing the Defence Directive. In compliance with Article 47 Clause 1 of the Defence Directive, the main criterion for awarding a contract may be the lowest price or the most economically advantageous tender. In the latter case, the contracting authority has to meet two conditions: (a) it should formulate criteria that apply to a given contract and (b) these criteria should be linked to the subject matter of the contract, in terms of quality, price, technical merits, functional characteristics, environmental characteristics, running costs, cost effectiveness, delivery date, after-sales service and technical assistance, period of delivery or completion, security of supply, and operational characteristics.

The list of criteria of the most economically advantageous tender serves as an example. The application of such criteria should lead to a situation in which the contract will be awarded in a way that best satisfies the contracting authority’s requirements, which result directly from Article 47 Clause 1 a) of the Defence Directive. The criterion of the most economically advantageous tender is known in European law and is provided for in Directives that previously governed public contracts, i.e. Directive 2004/18/EC and Directive 2004/17/EC. These Directives show that the criterion of the most economically advantageous tender should apply to the subject matter of the contract. It should not leave an unlimited choice to the contracting authority, and should comply with the principles of EU law, in particular with the principle of non-discrimination and competition (see: case C-513/99, Concordia Bus Finland Oy Ab, formerly Stagecoach Finland Oy Ab vs Helsingin kaupunki and HKL-Bussiliikenne, [2002] ECR I-7213, point 69).

Offset, as the criterion for choosing the most advantageous tender, does not meet these conditions. First, offset should not refer to the subject matter of the contract, contrary to what has usually been the case in military contract award proceedings in Poland. Moreover, the offset obligation, designed to benefit Polish companies constitutes a form of compensation on the part of the contractor for awarding the contract to that contractor. As a result, it does not impact the economic evaluation of the offer. Therefore, under the Defence Directive, offset, as a criterion of evaluating the tender, does not constitute a legally admissible evaluation criterion. Similar charges may be formulated against the criterion of “Polonization,” which is widely discussed during the process of transposing the Defence Directive into Poland’s internal legal order.

On the other hand, the absence of such criteria in public procurement award proceedings in Poland may affect the technical capacity of the Polish defense industry. Given that in the near future Poland intends to significantly upgrade its warfare (training aircraft, helicopters, aircraft/missile defense and anti-missile systems) and military facilities (means of land transportation), it is necessary to develop regulations in the course of day-to-day parliamentary work so as to ensure that the growing potential of the Polish army is matched by the adequate development of the Polish defense industry.

Grzegorz Banasiuk, senior lawyer at Gide Loyrette Nouel law firm

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