Changes in Securing Payment for Construction Projects in Poland
Since October 16, 2023, securing payments for construction work has changed significantly in Poland due to an amendment to the law. This amendment, effective from July 13, 2023, modifies the Act on Environmental Protection, Public Participation in Environmental Protection, Environmental Impact Assessments, and some other laws (referred to as the "Act").
Previously, during various stages of construction, a contractor could request the investor to provide a guarantee that they would make timely payments for the work completed. For many construction contractors, this security was a crucial element that increased their financial liquidity, especially in cases where disputes arose with investors over payment. However, under the new regulations, it's no longer possible to obtain such security when the investor is the State Treasury (Skarb Państwa). This change may pose significant challenges for many contractors, especially those with limited financial liquidity.
Challenges for Investors:
The current economic situation for construction contractors is far from easy. Investors are holding off on announcing new projects, and ongoing projects frequently encounter numerous issues, including uncertainties regarding prices and implementation costs, limitations in the availability of materials, financial difficulties on the part of investors (both in terms of liquidity and obtaining financing). In this challenging economic environment, a law came into effect on October 16, 2023, adding a new paragraph to Article 649 of the Civil Code, stating that the provision allowing an investor to provide a payment guarantee to a contractor (general contractor) for securing the timely payment of agreed compensation for construction work does not apply when the investor is the State Treasury.
The legislature justifies this change by stating that the risk of non-payment by the State Treasury does not exist for the contractor because the State Treasury cannot go bankrupt. Furthermore, the State Treasury is considered a credible investor that guarantees solvency. According to the legislators, this solution does not violate the principle of equality before the law. In the lawmakers' view, a contractor who enters into an agreement with the State Treasury is in a better position "from the start" than a contractor with an agreement with a private investor. This is because, "in principle," they have guaranteed payment of their compensation, which is why there is no need for them to apply for a guarantee.
Lack of Payment Guarantee:
However, in practice, the fact that the State Treasury has guaranteed funds for the contractor does not necessarily mean that the full payment will be made on time. Payments can be withheld, for example, in cases where disputes arise between the parties over the progress of contract implementation and, consequently, the amount owed to the contractor. Therefore, with contracts signed with the State Treasury, one of the fundamental instruments supporting the contractor's financial liquidity has been eliminated.
It's also crucial to note that the exclusion of the possibility of requesting payment guarantees from the State Treasury essentially prevents contractors from withdrawing from such agreements when the investor does not provide the requested payment guarantee in a timely manner. Contractors often exercise this option when a dispute arises regarding the due compensation, and continuing the formal implementation of the agreement could result in financial losses for the contractor.
In such situations, the investor cannot terminate the contract merely because the contractor has requested a payment guarantee. If the investor wishes to withdraw from the contract, they must prove that their reasons for doing so are different from the contractor's request for a payment guarantee.
This means that contractors should take into account the lack of the possibility of securing their potential future claims for payment when preparing their bids for projects involving entities representing the State Treasury. In addition, not obtaining a payment guarantee from the investor will not be grounds for withdrawal from the contract by the contractor.
Scope of the Exclusion:
It's worth emphasizing that, under the current legal framework, there are already provisions providing special protection for the State Treasury, particularly in terms of civil procedural law. According to Article 749 of the Code of Civil Procedure, the attachment of financial claims against the State Treasury is not allowed. The exclusion set out in the newly added paragraph 1 of Article 649 of the Civil Code applies to the State Treasury acting through state organizational units, not to state legal entities operating in the form of limited liability companies (e.g., units specified in the Act of December 16, 2016, on the principles of managing state property). In practice, various entities represent the State Treasury, including regional offices, the Chancellery of the Sejm and Senate, courts, tribunals, institutions such as the Supreme Audit Office (NIK), the Office of the Commissioner for Human Rights (RPO), the National Broadcasting Council (KRRiT), the State Labour Inspectorate, the Institute of National Remembrance (IPN), and the Central Statistical Office (GUS), among others.
In the context of public-private partnerships (PPP) or other agreements where the public entity is the State Treasury, the same rules will apply. Investors in such projects should be aware of these new regulations when considering projects in Poland.
In summary, while the amendment to the law may have noble intentions and is aimed at protecting the interests of the State Treasury, it could create additional financial challenges for contractors. Contractors must now factor in this limitation when preparing their project bids and financial plans. It's crucial for contractors to proactively manage their risk by seeking legal advice and negotiating fair terms in their contracts to protect their financial interests in this new legal landscape.