Will the current situation in Ukraine and the growing inflation rate trigger amendments to public procurement contracts?

The war in Ukraine is having a huge impact on numerous areas of our lives, private, professional and public ones. Entrepreneurs have already noticed a significant increase in the prices of products, fuels and other raw materials necessary for their businesses. In addition, entrepreneurs employing Ukrainian workers have got into a difficult situation overnight, due to the sudden loss of these workers. Indeed, most of the Ukrainian men employed by Polish entrepreneurs have returned to Ukraine to defend their country.

The significant rise in prices, the disruptions in raw material supply chains and the ever-increasing inflation rate may generate further problems, for example, those related to mutual settlements and keeping the deadlines of concluded contracts, in particular public procurement contracts. These types of contracts specify rigid frameworks for performance by contractors, and a failure to meet the deadline for performance of a public procurement contract often results in the imposition of severe contractual penalties by contracting authorities. The same applies to remunerations of contractors, who, at the time of setting the price for their tenders, did not take into account the possibility of such a dramatic change in the de facto global situation.


When can a public procurement contract be amended?

The Public Procurement Law provides for the possibility of amending contracts. The relevant regulation is contained in Article 455 of the Public Procurement Law (“PPL”), which lists the circumstances in which an amendment to the contract is permissible and does not require holding a new contract award procedure.

The parties to public procurement contracts can amend their contracts based on the review clauses, as indicated by Article 455.1.1 of the PPL. This provision assumes that the content of a public procurement contract may be amended based on clear, precise and unambiguous contractual provisions, provided for in the procurement notice or in the contract documents. The type and scope of the amendments, as well as the conditions for introducing them in the contract, must be specified. It should be borne in mind, however, that the provisions regarding the rules for introducing price changes must not provide for amendments which would modify the general nature of the contract.

However, in the current situation, Article 455.1.4 of the PPL is gaining particular importance. It provides for the possibility to amend contracts due to circumstances that the contracting authority, acting with due diligence, could not have predicted, provided that the amendment does not modify the general nature of the contract, and the price increase caused by each subsequent amendment does not exceed 50% of the value of the original contract.

For example, in order to justify the need to amend a part of the contract that concerns remuneration with a sudden increase in fuel prices following the outbreak of the war in Ukraine, it must be proved that the increase in the price of fuel, which constitutes one of the main costs of contract performance, was caused by circumstances that the contracting authority, acting with due diligence, could not have predicted. The outbreak of the war in Ukraine and the high inflation rate, both of which resulted in a sudden significant increase in fuel prices, could be regarded as such circumstances.


Substantial amendment to a public procurement contract

When introducing amendments to a public procurement contract, one should bear in mind the content of Article 454 of the Public Procurement Law, which introduces the requirement to conduct a new contract award procedure in the event of a substantial amendment to the contract.

Section 2 of the above-mentioned provision indicates what kinds of amendments should be regarded as substantial. Thus, “an amendment to a contract is substantial, if it changes significantly the nature of the contract in relation to the original contract, in particular if the amendment:

  • introduces conditions which, had they been applied in the contract award procedure, would or could have attracted other contractors, or would have resulted in the acceptance of different tenders;
  • disturbs the economic balance of the parties to the contract in favour of the contractor, in a way that is not provided for in the original contract;
  • significantly extends or reduces the scope of benefits and obligations resulting from the contract;
  • consists in replacing the contractor to whom the contract has been awarded with a new contractor, in cases other than those indicated in Article 455.1.2.”

We may expect that in the near future contractors will start appealing to contracting authorities to introduce relevant amendments to public procurement contracts, and the contracting authorities’ task will be to precisely analyse the possibilities and grounds for introducing amendments to the contracts, in accordance with the Public Procurement Law.

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