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Remuneration Indexation in Public Contracts – Latest Recommendations of the State Treasury Solicitors’ Office

Latest Recommendations of the State Treasury Solicitors’ Office

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Disruptions to supply chains due to the SARS-CoV-2 pandemic, staff shortages, increasing inflation, rising fuel prices, wage pressure from workers, the war in Ukraine – these are just some of the challenges faced by economic operators. All of them significantly affect the profitability of existing public contracts.

Remuneration indexation and public procurement law

The Public Procurement Law of 11 September 2019 introduced a requirement that public works contracts and public service contracts should contain provisions enabling indexation of the remuneration payable to the economic operator in the event of a change in the prices of materials or costs related to the performance of the contract.

However in many cases, the statutory regulations have proved to be insufficient as they did not cover supply contracts and contracts with a period of completion of less than 12 months. Furthermore, in many public contracts, due to the way the indexation clause  was structured (e.g. containing conditions that could not be met) economic operators were effectively prevented from seeking increases in remuneration.

This problem has been recognised by the Public Procurement Office, which in March 2022 published an opinion on the admissibility of amending a public contract. In the opinion of the Office, the armed conflict in Ukraine may constitute grounds for amending a public contract and increasing the remuneration of the economic operator – and this is the case even when the contracting authority provided for an indexation clause in the public contract, but this clause has turned out to be insufficient.

The indexation of remuneration in public contracts – the position of the State Treasury Solicitors’ Office

On 2 August 2022, the State Treasury Solicitors’ Office published its opinion on this subject. Its position is similar to the views presented by the Public Procurement Office.

As the State Treasury Solicitors’ Office noted in its opinion, indexation is understood “as an adjustment of the economic operator’s remuneration due to an increase in the prices of materials or other costs required for the performance of the contract, such as to cause a significant economic imbalance between the parties to the contract – indexation constitutes an instrument through which the consequences of such an event are remedied. In view of the risk of events which may be hard or even impossible to foresee at the time the contract is concluded, and may have an overwhelming impact on economic processes (such as an armed conflict, pandemic), the application of remuneration indexation mechanisms is justified and even necessary in many cases”.

The State Treasury Solicitors’ Office is of the opinion that an indexation of the economic operator’s remuneration is allowed pursuant to Article 455(1)(4) of the Public Procurement Law, i.e. in situations where:

  • there has been an increase in prices caused by circumstances which the contracting authority, acting with due diligence, could not have foreseen, and
  • the increase in the value of the economic operator’s remuneration caused by the price change does not exceed 50 % of the value of the original contract.

Furthermore, the State Treasury Solicitors’ Office not only found that remuneration could be increased where the contracting authority had provided for an indexation clause in the contract, though this proved insufficient, but also held that a contract could be amended by adding an indexation clause to it (if there had not been one before) or by increasing the accepted limit of indexation.

Refusal to increase a contractor’s remuneration – an important view of the State Treasury Solicitors’ Office

Particularly noteworthy is an excerpt from the opinion of the State Treasury Solicitors’ Office where the authors state that it would be a mismanagement (on the part of the contracting authority) to  refuse to increase an economic operator’s remuneration despite the conditions for amending the contract having been met, especially if the economic operator may, even potentially, effectively seek an increase in remuneration on the basis of rebus sic stantibus clauses (i.e. the so-called indexation clauses contained in the Civil Code).

The opinions described above – both by the Public Procurement Office and the State Treasury Solicitors’ Office – should definitely be considered as meeting the expectations of economic operators and aiming to restore economic balance between the contracting parties.

By Jakub Krysa, Partner, and Michal Waraksa, Senior Associate, Kochanski & Partners