Defence procurement law fundamentals

Mandatory procurement clauses

Are there mandatory procurement clauses that must be included in a defence procurement contract or that will be read into the contract regardless of their actual inclusion?

There are mandatory clauses that must be included in a defence procurement contract on the basis of the PPL. There are also numerous provisions of the Polish Civil Code and other legal acts that will apply regardless of their inclusion in a defence procurement contract. The most important are mandatory provisions that cannot be modified by the parties in a contract (eg, scope of the public contract, termination, duration). Other non-mandatory provisions mainly stem from the Polish Civil Code (eg, those regarding payments, liabilities and warranties) and will be applicable unless otherwise agreed by the parties.

Cost allocation

How are costs allocated between the contractor and government within a contract?

There is no allocation of costs in public contracts. The consideration due to the contractor is indicated in a contract, usually as a fixed price for all contractual consideration. All costs incurred or estimated by the contractor plus an agreed profit rate would need to be included in the price.

Disclosures

What disclosures must the contractor make regarding its cost and pricing?

The contractor may be required to disclose the cost and pricing information in the case of complex procurements (typically in the form of a spreadsheet indicating the elements of the price and their calculation).

Additionally, if there is concern that the offered price is abnormally low, the awarding entity has a right to require more detailed information regarding cost and pricing.

Audits

How are audits of defence and security procurements conducted in this jurisdiction?

Audits of defence and security procurements may be conducted by:

  • Armament Inspectorate - on a regular basis by internal audit and control units;
  • Supreme Audit Office - temporarily, from the perspective of general compliance with law and, in particular, with the Act on Public Finances; and
  • the Ministry of Defence’s Office of Anticorruption Procedures and the Public Procurement Office - at the stage of procurement proceedings.

If the procurement is financed from EU funds there might be additional audit undertaken related to the correctness of spending of EU funds.

IP rights

Who gets the ownership rights to intellectual property created during performance of the contract? What licences are typically given and how?

The usual policy on the ownership of intellectual property arising under public contracts is that intellectual property that was created before the signing of the contract will normally vest with the contractor generating the intellectual property, in exchange for which the awarding entity will expect the right to disclose and use the intellectual property for the contracting authorities’ purposes (ie, a licence). However, the awarding entities will expect the contractor to transfer the intellectual property rights to it that have been created by the contractor exclusively for the awarding entity in performance of the contract.

The detailed scope of the licence depends on the subject of the contract.

Economic zones

Are there economic zones or other special programmes in this jurisdiction commonly utilised by foreign defence and security contractors for financial or other procurement related benefits?

There are no economic zones or programmes dedicated exclusively to defence contractors in Poland. In general, economic zones or similar special programmes exist in Poland for the benefit of entrepreneurs. Defence contractors may not only benefit from undertaking economic activity in economic zones, but also in areas where there are a lot of companies active in specific sectors; sometimes they are grouped in clusters, such as the Aviation Valley Association in south Poland.

Forming legal entities

Describe the process for forming legal entities, including joint ventures, in this jurisdiction.

There are various types of legal entities that may be formed, such as:

  • limited liability companies (LLC);
  • general partnerships;
  • limited liability partnerships (LLP);
  • limited partnerships;
  • limited joint stock partnerships; or
  • joint stock companies.

Business activities may also be conducted in the form of individual business activity, a civil partnership (under a contract) or a branch office of a foreign company.

A joint venture could either be a corporate or commercial joint venture.

A corporate joint venture would involve the joint venture parties setting up a new legal entity (likely, a limited liability company registered in Poland), which would be an independent legal entity able to contract in its own right and the joint venture parties are its shareholders. It is relatively straightforward and inexpensive to establish a company (required share capital for an LLC is 5,000 zlotys). The parties must file a motion together with respective attachments (eg, articles of association and so on) at registry court and pay the applicable filing fee. The company will gain its legal personality upon its registration in the National Court Register. The shareholders (ie, the joint venture’s parties) would also likely agree in a shareholders’ agreement the roles and responsibilities of each shareholder and their respective obligations to invest capital and resources into the company.

A commercial joint venture does not involve any separate legal entity, and the parties contractually agree each party’s roles and responsibilities based on various types of agreements such as cooperation agreements, consortium agreements and agreements on a common understanding.

In public procurement the most popular type of joint venture is a commercial consortium based on a consortium agreement.

Access to government records

Are there statutes or regulations enabling access to copies of government records? How does it work? Can one obtain versions of previous contracts?

Under the Access to Public Information Act 2001, there is a general right for the public to access information held by public bodies. As the Ministry of Defence is a public body, on the face of it this right would extend to contracts and records held by the Ministry of Defence - allowing anyone to request documents related to both the procurement and the contract performance phase.

However, Polish law indicates a few exemptions from disclosure of information related to the contract award procedure, which cover:

  • primarily classified information at the levels of restricted, confidential, secret and top secret information; or
  • information that is regarded as a business secret of the contractor; in such case a contractor is entitled to request information of a technical, technological, organisational or other nature, which is of economic value, not be disclosed by that contracting entity.

The proceedings conducted under Decision 367/MON, which are aimed at securing the essential security interests of the state, are commonly set at the ‘restricted’ level. Therefore, public access to documents under these proceedings is limited.

Supply chain management

What are the rules regarding eligible suppliers and supply chain management and anti-counterfeit parts for defence and security procurements?

Subject to limited exceptions, the PPL obliges an authority to reject tenders from bidders that have been convicted of certain serious offences. It also gives the contracting authority discretion to exclude bidders on other grounds, such as insolvency or gross professional misconduct. The rules expressly permit contracting authorities to consider the same exclusion grounds for subcontractors, as well as giving them broad rights (eg, to require a supplier to disclose all subcontracts or to flow down obligations regarding information security). In cases of procurement based on decision 367/MON, the awarding entity may also limit the use of subcontractors or may require specific conditions to be met by subcontractors.

Under the PPL, contracts for defence and security may be applied for by operators established in one of the member states of the EU or the European Economic Area, or a state with which the EU or the Republic of Poland has entered into an international agreement concerning these contracts. The contracting authority may specify in the contract notice that a contract for defence and security may also be applied for by economic operators from states other than those listed above.

In defence and security procurements, the contracting entities may influence management of the supply chain of the contractor. Despite general permission for contractors to use subcontractors under the PPL, the contracting entity has the right to:

  • limit the scope of the contract, which may be subcontracted;
  • request the contractor to specify in its offer which part or parts of the contract it intends to subcontract to fulfil the subcontracting requirement;
  • request the contractor to subcontract a share of the contract in a nondiscriminatory manner; or
  • refuse to consent to a subcontract with a third party if that party does not comply with the conditions for participation.