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   THE USE AND MISUSE OF FIDIC FORMS IN POLAND LUKAS KLEE JD, LLM, PHD, MBA Construction Law Lecturer, Charles University in Prague, Faculty of Law  ALEKSANDRA MARZEC Lawyer, District Chamber of Advocates in Katowice MICHAŁ SKORUPSKI, MSC, CIVIL ENG, MBA Contract Manager, Member of SIDiR, Association of Consulting Engineers and  Experts in Poland 1. INTRODUCTION In recent years, a number of post-communist countries have joined the European Union (EU) or are seeking to do so. The new Member States are mainly from Central and East Europe (CEE) and many have experienced a surge in large investments in infrastructure projects co-financed by the EU, the European Investment Bank (EIB) and the World Bank.  According to the Procurement Guidelines of international and European financing institutions, tenders financed by them are, by definition, open to international competition for projects. Interestingly, there is however, a remarkable difference between the tenders financed by international financial institutions and tenders financed by the European Institutions, i.e. EU and EIB, which seems to be at the root of the contractual problems in Poland and in other CEE countries. Whereas the World Bank and other International Financial Institutions that provide co-financing for infrastructure construction projects require well established sample forms of contract for works to be used, the European Institutions impose this condition only with respect to their financial support for so-called “third countries”, i.e. outside the EU For financial support, such as Structural and Cohesion Funds, whereas  within the EU, the EU – until recently – had not taken any precautions. The underlying reason for such approach is that well-established local standard forms existed in Western Europe, such as, for example, in Austria ÖNORM B 2110, in Germany, VOB/B, in Denmark, AB 92 and ABT 93, in France and Belgium, CCAG, in Italy, DPR 207/2010, and in the Netherlands, UAV  282 The International Construction Law Review   [2014  1  JICA (2011), “Check list for one-sided contracts for use with ‘Sample Bidding Documents under  Japanese ODA Loans – Procurement of Works’” – (last accessed 15 May 2014). 1989 and 2012, so that the EU assumed that such fair and balanced standard forms would also be established in the enlargement countries. Even before the EU accession, FIDIC standard forms had been introduced all over the CEE region in late 1990s, given the massive amount of international and European financing, on the one hand, and the lack of adequate and fair national standard forms of contract, on the other hand. Under the Phare, Tacis and ISPA programmes EU and EIB financiers scrutinised beforehand that the FIDIC standard forms, generally the so-called “Red and Yellow Books”, were used in a proper way. FIDIC forms are international benchmarks for their efficient risk allocation, tradition, respect, fairness and a balanced approach to business. The authors of FIDIC forms, have intentionally set the risk allocation in most of the standardised conditions to be fair and balanced, the exception being the FIDIC standard form for privately negotiated EPC Turnkey Projects (Silver Book). The balanced approach, as incorporated in the FIDIC standard forms for Construction and Plant and Design-Build (Red and Yellow Books) is deemed appropriate in developed countries as giving the best results and lowest transport infrastructure project costs in the long term. However, employers in the CEE region tend to modify the standardised FIDIC risk allocation to the disadvantage of contractors. Some of the most interesting examples are encountered in Poland. Such modifications of standard risk allocation usually cause problems described, for example, in the check list for one-sided contracts (JICA, 2011 1  ), i.e.: • Bid failure and disruption of project implementation; • Non-participation in the bid by conscientious and capable contractors; • The award of the contract to a bidder who fails or is incapable of estimating the risks properly; • Poor construction quality and delay to the work due to lack of risk contingency; • Undermining the relationship of mutual trust and respect between the parties; • Unsubstantiated claims from the contractor; • Frequent disputes between the employer and the contractor; • Higher bid prices and/or large discrepancies between the bid and the final price; • In extreme cases the eventual termination of the contract.  Pt 3] Use and Misuse of FIDIC Forms in Poland   283 In this check list four factors are mentioned which could serve as motives for making a contract one-sided when preparing the contract documents: (i) the employer’s lack of a budget of the construction work; (ii) lack of the employer’s understanding about the terms and conditions including appropriate allocation of rights and obligations, ability of contract management and sense of ownership; (iii) lack of time and cost required for creating the contract documents; and (iv) attention to domestic laws and regulations, and domestic procedures (JICA, 2011). 2. FIDIC CONTRACTS AND CONTRACTUAL RELATIONSHIPS IN POLAND For these reasons, FIDIC forms of contract are widely used in Poland – especially in large, public investments co-financed by the EU. Consequently, the FIDIC employer is very often a public government authority. The main public employer in the field of large motorway and road construction projects is the General Directorate of Roads and Motorways (GDDKiA)  which is a procurement agency of the Ministry of Infrastructure (currently Ministry of Infrastructure and Development). The FIDIC contractor will be a privately owned, foreign or local construction company. GDDKiA is a central government administration authority, established to carry out statutory administrative tasks. In performing its administrative tasks, GDDKiA enters into a relationship under administrative law with natural persons and other legal entities. Such a relationship under administrative law epitomises the superiority of one party (the government body) and the inferiority of the other party (citizen, other legal entity)  which result from the fact that within its competence the government body exercises the state’s powers and authority. However, when organising public procurement for the roads and motorways, GDDKiA enters into civil law contracts and therefore becomes a party with a relationship under civil law. As opposed to the relationship under administrative law, such a relationship under civil law is characterized by the equality of all parties under the law. Therefore, all parties to the civil law contract, either public or private entities, government bodies or citizens have the same rights under the civil law. The rule of equality of the parties under the civil law is closely related to the rule of the autonomy of the will of the parties and freedom of contracting. Freedom of contracting means, amongst other things, the right to decide whether to enter into a contract or not, the right freely to choose the other party to the contract and the right to create, amend and terminate the contract. In practice the rule of equality and the rule of freedom of contracting may be limited by other statutory acts such as, for example, consumer protection legislation or public procurement law.  284 The International Construction Law Review   [2014 Public procurement law is a lex specialis to the civil code: where it is not otherwise specified in the public procurement law the provisions and rules of civil law should be applied. It is expressed clearly in Article 14 and in  Article 139, section 1 of the public procurement law, which states that a contract made according to public procurement law is a contract under civil law regulations. Therefore, the tendering procedure as described in the public procurement law is in fact a specified procedure of concluding civil law contracts where one of the parties is a government authority or other entity spending the public funds.  As a result of applying the public procurement law, freedom to contract is in many ways limited. On the employer’s side, freedom to enter into the contract or not is limited by the budget. According to Article 44 of the Public Finances Act, public expenditure can only be in the amount and for the purposes described in the Budget Act or in the appropriate financial plan of the public entity. Moreover, public finances have to be spent purposefully and economically, with the view of achieving the best effects with the use of appropriate and optimal means and methods. Therefore, the employer  will tender the contract only when there are sufficient funds to perform it.  Also the employer’s freedom to choose the other party of the contract is limited by the public procurement law as the employer has no choice but to conclude a contract with the contractor who fulfils all conditions and wins the tender. The employer has the risk that the winning bidder, even though fulfilling all tender conditions may turn out to be unreliable or has a bad reputation which is sometimes impossible to verify in the procurement procedure. This may cause serious difficulties later on in performing the project. On the other hand the contractor’s freedom to contract is in practice limited to the freedom to decide whether or not to participate in tenders and what bid to submit. Otherwise it is wholly dependent on procurement proceeding and the result of tendering. If the contractor’s bid is successful, it cannot really refuse to sign the contract.  Also the contractor’s right to negotiate the content of the contract is nearly non-existent because the employer is obliged by the public procurement law to include the essential terms and conditions of the contract in the Terms of Reference. In practice employers very often attach a complete draft of the contract to the Terms of Reference. The contractor can either accept it and make an offer in the tender or walk away. The contract may only negotiate the content of the contract by asking questions about the Terms of Reference. It is still solely the employer’s decision whether to accept the contractor’s suggestions.  After the tenders have been invited, both parties are again limited by public procurement law in their freedom to change and amend the contract as it is forbidden to introduce any significant changes to the contract to the Terms of Reference and in the winning bid, unless the possibility of  Pt 3] Use and Misuse of FIDIC Forms in Poland   285such change was anticipated in the Terms of Reference. This limitation is justified by protective equality. Significant changes might influence the content of the bid of other bidders and the result of the procurement might be different (see below). The Public Procurement Act provides for certain provisions which modify contractual rights in favour of the public employer justified by the need to protect a public employer in the general public interest, as it bears more risk than is usually undertaken by private entrepreneurs. It therefore requires increased protection. Such statutory provisions strengthening the position of the public employer is for example the statutory unilateral right of the employer to terminate the contract if circumstances change significantly such that performance of the contract is no longer in the public interest.  What is also unknown in other civil law contracts, the public procurement contracts can be made void by a third party to the contract – the President of the Public Procurement Office – in the circumstances described in the Public Procurement Act.  With freedom to contract, parties can generally decide the content and purpose of the contract as long as it is not contrary to the nature of the legal relationship, or the law (such as for example public procurement law, as described above) or the principles of community life. It is acceptable to conclude a contract where the situations of the parties are not equivalent and where it may be objectively much more advantageous to one of the parties. The parties enter into such a contract intentionally and with full awareness of the consequences of such a contract and when either party has not abused its dominant position in making such a contract. The principles of community life which should be observed are, amongst others, the equity principle, commercial honesty, equal position of the parties of the contract and treating the other party of the contract with loyalty and trust. The question arises whether GDDKiA as the public employer and the party to the contract abuses its dominant position granted by the public procurement provisions or whether it really adheres to the general principles of contracting described above. The latest examples (2014) of provisions of public procurement in contracts in the recent public procurement procedures contain, for example, unrealistically short periods of time to perform the contract, shifting excessively large risks and imposing numerous penalties on the contractor, including indemnities for the possible loss of EU funding by the employer, requiring the contractor to price obligations which have not been sufficiently specified by the employer, by requiring the documents and information from the contractor which the employer should have provided, and so on. Polish public procurement law (Public Procurement Act and related ordinances) has been organised in such way that the procurement body (employer) is to define precisely the public need and seek the most
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