Pursuing claims against the General Directorate for National Roads and Motorways under the special act | In Principle

Subcontractors for road projects in Poland can still use the “special act” to seek payment from the national road authority. This opportunity is also to be extended to “large subcontractors” for claims related to performance of certain road construction contracts.

The Act on Payment of Certain Unsatisfied Claims of Enterprises for Performance of Public Contracts of 28 June 2012, known as the “special act,” establishes rules under which the General Directorate for National Roads and Motorways (GDDKiA) will pay the principal claims of any enterprise which entered into a contract with the general contractor in connection with performance of public contracts for construction work awarded by GDDKiA. The special act thus covers all subcontractors for construction work and suppliers of materials and services whose performance is functionally related to performance of the GDDKiA contracts in question.

The special act originally covered only micro enterprises and SMEs, but this limitation was stricken by the Constitutional Tribunal in its judgment of 18 June 2013 (Case K 37/2012) and ceased to be in force from 9 July 2013. Work is now underway to draft an amendment to the special act to reflect the tribunal’s judgment and enable large subcontractors to effectively seek payment of their claims.

Notwithstanding this work, pursuing payment from GDDKiA continues to be subject to various limitations.

The special act applies only to public contracts for construction work which were awarded prior to 3 August 2012 or for which the award procedure was commenced before that date. This means that the special act does not apply to contracts for which the award was originally made prior to that date but then (e.g. because of renunciation of the contract) a new tender was subsequently held after that date for completion of the project interrupted when the original contractor ceased performance.

It should be pointed out that the special act applies only to subcontractors and suppliers of construction materials and services who were direct subcontractors of the general contractor and had a contract with the general contractor. It does not cover “sub-subs,” and the planned amendment will probably not change this. The special act also does not cover enterprises which can seek payment under regulations on the investor’s joint and several liability for the subcontractors’ fees, i.e. subcontractors that were announced and approved. Nonetheless, there is nothing preventing subcontractors that were not announced or not approved under Civil Code Art. 647¹ from being paid under the rules set forth in the special act.

There must be a functional connection between the performance provided by the enterprise and the public contract, i.e. the work, supply or services agreed between the subcontractor and the general contractor must have furthered the performance of the particular public contract. This is important, because often agreements for supply of materials or performance of services are constructed as framework agreements for all projects carried out by the general contractor. Then it would be necessary to separate out the portion that was provided for the project covered by the public contract and covered by the special act.

The special act covers only the principal claim, i.e. the fee for the work or supply, without interest, damages or contractual penalties.

Moreover, only the principal in its existing amount is subject to payment. This means that GDDKiA’s liability will be affected by any intervening settlement between the general contractor and the subcontractor resulting in discharge of all or part of the debt, scheduling the payment in instalments, or extending the payment deadline. Given the guarantee-like nature of the special act, the liability of GDDKiA for the principal amount cannot be greater than the current amount of the principal debt of the general contractor—reflecting any settlements.

To obtain payment from GDDKiA, the subcontractor must submit documents demonstrating the existence of the claim and the lack of payment. GDDKiA may pay an advance of up to 50% of the amount due.

First, at the stage of asserting its claim and obtaining an advance from GDDKiA, the subcontractor must present its contract and one of the following documents:

• The general contractor’s written acknowledgement of the debt
• A non-final court ruling pursuant to a claim filed against the general contractor
• The list of creditors in the bankruptcy proceeding, if the claim against the general contractor was filed in a bankruptcy proceeding.

Second, at the stage of payment of the rest of the claim, the subcontractor must present one of the following:

• A legally final ruling by the court or settlement concluded before the court in the case between the subcontractor and the general contractor, with an enforcement clause appended
• The list of creditors, if no objection was filed to the claim (as referred to in Art. 256 of the Bankruptcy & Recovery Law)
• The list of creditors approved by the judge-commissioner including the subcontractor’s claim.

The foregoing requirements mean that the actual amount of the principal claim is verified in a judicial proceeding or bankruptcy case, and GDDKiA will review only the formal requirements set forth in the special act. From a practical point of view, verification in a judicial proceeding greatly depends on the degree of activity on the part of the defendant or debtor and the defences it asserts to the existence and amount of the claim (e.g. setoff).

The upper limit of GDDKiA’s liability to the subcontractor is the amount of the security for proper performance of the contract which was provided by the general contractor for the specific public contract and not returned to the general contractor by GDDKiA. The maximum amount of the security is 10% of the fee for the work to be performed by the general contractor, and typically that is the amount of security demanded by the contracting authority.

If numerous subcontractors seek payment from GDDKiA and the total claims exceed the amount of the security, satisfaction of their claims will be made pro rata.

GDDKiA may announce a 21-day period for submitting claims by publication in a nationwide newspaper. If the amount of the claims exceeds 3% of the total value of the contract, publication and establishment of a 21-day period for filing claims is mandatory. Then GDDKiA will draw up a list of subcontractors who meet the conditions for payment and notify them of their inclusion in the list. The practice of GDDKiA so far has been to notify claimants also of the negative decision when they are not included in the list.

The special act does not specify the consequences of failure to assert claims within the 21-day period or of filing a claim after the period ends. However, Art. 9 of the special act provides that a new list should be drawn up only if the total claims in the existing list are less than the amount of the security—i.e. when GDDKiA’s maximum liability has not been exhausted.

Therefore claims filed with GDDKiA after the end of the 21-day period must be considered only if the pool of funds for payment, based on the amount of the security, is not yet exhausted. In that case, in practice GDDKiA publishes another announcement establishing another deadline for filing claims. If however after preparing the list the claims filed within the 21-day period exhaust the limit of GDDKiA’s liability, late claims will not be considered and the claims for payment against GDDKiA are extinguished.

With respect to large subcontractors, the proposed amendment provides that they are to be paid according to the existing rules if the deadline for filing claims under the special act has already expired. But if the period for filing claims remains open when the amendment enters into force, it is to be extended for large enterprises by a further 21 days. Subcontractors and the entire construction industry are impatiently awaiting enactment of the amendment to the special act.

Małgorzata Cyrul-Karpińska, Infrastructure & Transport and Public Procurement & PPP practices, Wardyński & Partners