Report on the functioning of the public procurement system in 1998
Warsaw - April, 1999
Accepted by the Council of Ministers on June 1, 1999

Summary

1. In 1998, 211 issues of the Bulletin of Public Procurement were published, which included 53,147 announcements concerning tenders valued over the threshold of 30,000 ECU.
2. Of the 53,147 announcements, 26,825 represent announcements calling for bids or providing information on the initiation of procurement proceedings, and of this group 25,335 (or more than 94%) represented announcements of unlimited tenders.
3. On the basis of bid selection announcements it can be estimated that in 1998 the total value of all unlimited tenders announced in the Bulletin of Public Procurement amounted to over 17.5 billion PLN. In comparison with the same figure for 1997, 13.6 billion PLN, this represents an increase of 29%.
4. The average value of unlimited tenders over the 30,000 ECU threshold was approx. 0.69 million PLN.
5. The procuring entity selected the least expensive bid in over 69% of unlimited tenders over the 30,000 ECU threshold announced in 1998,.
6. The results of the survey conducted by the Office of Public Procurement show that in the tested sample of procurement proceedings conducted through unlimited tendering, the total amount spent by procuring entities was more than 12% less than the sum total of the estimated value of all procurement awarded.
7. An analysis of announcements on the selection of successful bids in all tenders over 30,000 ECU published in the Bulletin in 1998 shows that 77% of funds were spent on construction, 17% on deliveries, and 6% on services.
8. For each tender which ended in the selection of a bid in 1998, 4.7 proposals were received (in comparison to 1997's figure of 4.16). With respect to construction this figure was 4.47, for deliveries 5.32, and for services 4.6. This larger number of bids received per tender signifies greater competition amongst institutions for public procurement contracts.
9. In 1998 the Chairman of the Office of Public Procurement issued 12,809 administrative decisions.
10. The number of appeals lodged with the Chairman of the Office of Public Procurement by December 1998 totalled 1,195.
11. By the end of 1998 the Office of Public Procurement had undertaken 292 investigation proceedings, in the sense of article 9 paragraph 2 points 2 and 3 of the Law on Public Procurement. Of these, in 18 cases (of 180 completed investigations) the Office drew up a notification on the violation of the provisions of the Law on Public Procurement, and directed this notification to the competent bodies which adjudicate cases involving the violation of budgetary discipline.

Table of Contents

1. Introduction
2. Legal status
3. The public procurement market in Poland

1. Unlimited tenders over the threshold of 30.000 ECU

2. Optimising economic choices

3. Information on the public procurement market

4. Institutional structure

5. Administrative decisions on cases involving public procurement

4. Control of the award of public procurement contracts
5. Disseminating information and experience
6. Conclusions

I Introduction

The present report on the functioning of the public procurement system in 1998 includes the period beginning January 1 to December 31 1998 (i.e. the fourth year the provisions of the Law on Public Procurement have been in force).

This report has been prepared on the basis of:

• the Office of Public Procurement's data bases created on the basis of the information published in the Bulletin of Public Procurement,
• the documentation collected by the Office during the process of issuing administrative decisions in 1998,
• the documentation collected during the implementation of the Office's other statutory tasks,
• other documents, reports, and analyses concerning public procurement available to the Office in 1998.

In addition, the Office conducted a survey in the months of November and December 1998 on the course of public procurement proceedings conducted by those procuring entities which motioned to the Chairman of the Office during the tender preparatory phase for permission to depart from the procedure of unlimited tendering in favour of negotiations with retaining competition.

This study covered two groups of procuring entities:

• first, those who received a positive decision and who subsequently conducted negotiations retaining competition,
• second, those who received a negative decision and proceeded through unlimited tendering, publishing announcements on the tender in the Bulletin of Public Procurement.

The procuring entities to whom the survey was sent were selected on the basis of the records kept on the decisions issued by the Chairman of the Office of Public Procurement, verified using the records of the Bulletin of Public Procurement.

II Legal status

The provisions of the Law on Public Procurement were not amended in 1998.

With the aim of simplifying the use of these regulations, the Chairman of the Council of Ministers published the unified text of the Law on Public Procurement in a Public Notice dated July 3 1998 (Journal of Laws number 119 item 773).

On the basis of article 22 paragraph 9 of the Law on Public Procurement, the Council of Ministers issued an ordinance on Jan. 6 1998 concerning the types of documents which the procuring entity may require from a supplier or a contractor to confirm their compliance with the conditions referred to in article 22 paragraph 2 of the Law on Public Procurement.

This ordinance was amended on a base of the experience gained from public procurement proceedings as well as the opinions of businessmen participating in the tendering process as reported to the Committee for Reducing Bureaucracy in the Economy.

In accordance with the ordinance of the Council of Ministers dated September 29 1998, which amended the ordinance specifying the types of documents which the procuring entity may request from a supplier or contractor to confirm their compliance referred to in article 22 paragraph 2 of the Law on Public Procurement, entities competing in a public tender may present these documents in their original form or in the form of a photocopy certified to be true to the originals by the supplier or contractor. The change thus introduced makes it simpler for firms to participate in public tendering procedures, and lowers the cost of submitting bids.

In accordance with the legal delegation on the basis of article 86a paragraph 2 the Council of Ministers issued an ordinance on March 10 1998 concerning the amount and specific rules for collecting a registration fee for appeals lodged in procedures of public procurement (Journal of Laws number 34 item 189). Pursuant to §1 of the ordinance, the amount of this fee was set as four times the level of the minimum salary set established by the Minister of Labour and Social Policy, on the basis of the Labour Code, as of the day the appeal is lodged. The amount of this fee was set at a level sufficient to cover the administrative and technical costs of handling the appeal, and is low enough to ensure small and medium-sized businesses access to this method of controlling the correctness of the awarding process.

On Dec 31 1998 the Office of Public Procurement submitted a comprehensive set of amendments to the Law on Public Procurement for inter-ministerial consultations. The primary goals of these amendments are to incorporate the lessons learned during the four years the law has been in force and to continue the process of harmonising Polish Law with that in the European Union.

III The public procurement market in Poland

1. Unlimited tenders over the threshold of 30,000 ECU

Persuant to Article 14 paragraph 1 of the Law, unlimited tendering is the preffered procedure for awarding public procurement contracts.

In the section of tender announcements over 30,000 ECU, 26,825 announcements were published in 1998, of which 25,335 (or more than 94%) were announcements of tenders awarded through the unlimited tendering procedure.

The largest number of tenders was conducted in the voivodeships with greater economic and social potential, such as the Warsaw, Katowice, Cracow, and Poznań voivodeships, while the smallest number was conducted in the Jelenia Góra, Chełm, and Bielsk Podlaski voivodeships.

In 1998, 25,450 announcements of the selection of successful tender were published in the Public Procurement Bulletin. In some 18,900 announcements the procuring entities quoted the price of the selected bid, and in the remaining cases unit prices were quoted, such as for individual services, or the tender was annulled.

An analysis of 18,900 bid selection announcements shows that the average value of unlimited tenders above 30,000 ECU in 1998 was approx. 0.69 million PLN, in comparison to 1997's average of 0.8 million PLN.

In some 65% of cases in 1998, the value of individual tenders did not exceed 400,000 PLN, while in 1997 this figure was only 50%.

This drop in the average value of procurement contracts signed as a result of public tendering was caused by such factors as:

• the more restrictive provisions of the Law on Public Procurement after the amendments made on September 29 1997, which significantly limit the possibilities of awarding public procurement through any procedure other than unlimited tendering,
• the activities of the controlling bodies, which pay special attention to purchases made through any procedure other than unlimited tendering,
• increased confidence on the part of procuring entities in the most competitive type of procurement procedure - unlimited tendering.

On the basis of this average contract value as well as the total number of bid selection announcements, the total value of unlimited tenders over the 30,000 ECU threshold announced in the Bulletin in 1998 can be estimated at over 17.5 billion PLN. In comparison, in 1997 this figure came to 13.6 billion PLN. The primary factor responsible for this increase in the total value of tenders announced in the Bulletin of Public Procurement - aside from the effects of inflation - was represented by the restricted possibilities of waiving the unlimited tendering procedure in favour of negotiations with retaining competition.

The largest tender awarded in 1998 was that for the supply of the Warsaw Metro system with new underground cars. The value of the best offer in this tender was 479,194,009.00 zł.

With regard to the subject matter of tender proceedings, 64% of unlimited tenders announced in the Bulletin of Public Procurement were for construction (against 1997's figure of 70%), 22% were for deliveries (18% in 1997) and 14% for services (12% in 1997).

As an analysis of the bid selection announcements published in 1998 shows, under the unlimited tendering procedure in tenders over 30,000 ECU, 77% of all funds were spent on construction (against 84% in 1997), 17% on deliveries (10% in 1997), and 6% on services (also 6% in 1997).

One positive trend visible in the behaviour of procuring entities is an increasing predisposition to utilise tendering procedures for deliveries.

The average value of unlimited tenders for construction is higher than the average value of tender for deliveries or services.

2. Optimising economic choices

The economic effects of the Law can be inferred from the pricing of the best offers selected as a result of tender proceedings.

By analysing the bid selections for procurement by way of unlimited tender above 30,000 ECU, we can establish that in 69% of all cases (against 68% in 1997) the procuring entity selected the least expensive bid. At the same time, in over 17% of all cases (against 16% in 1997) the winning bid was costlier than the least expensive one by no more than 10%.

On the other hand, based on the study of the selected sample we can state that, of all unlimited tenders conducted after permission to conduct negotiations retaining competition instead of unlimited tendering was denied, the least expensive offer was selected in 76% of cases, and in 11% of cases a bid was selected which was higher than the minimum price by 10%.

In a tender where the bidders have all met the conditions set by the procuring entity with respect to their legal status, their capacity to complete the contract, and the subject of the tender, awarding procurement contracts to the lowest bidder ensures the effective management of public funds.

Comparing the results of the survey conducted by the Office of Public Procurement at the end of 1998 with the data from the records of the Bulletin of Public Procurement, it is evident that the Chairman of the Office, in issuing administrative decisions, has an indirect influence on the behaviour of procuring entities, which are more often inclined to select the least expensive bid.

Data obtained on the basis of the Office's survey show that in unlimited tendering procedures conducted after the Chairman of the Office issued an administrative decision refusing consent for negotiations with retaining competition, the procuring entity spent an average of 12.5% less than the estimated procurement value they themselves set.

On the other hand, in the case of negotiations with retaining competition the average price of selected bid was higher than the estimated procurement value set by the procuring entity by approx. 0.62%.

These figures demonstrate the operation of the mechanism of free competition in the case of unlimited tenders, where it is the bidders which determine the tender price and are more inclined to set lower prices. Bidders have only one opportunity to present their price in the tender and cannot change this price once submitted. Offering a price on a level which is too high may mean failure for the bidder and success for their competitor in the same tender.

In the case of negotiations it depends on the procuring entity to push to bring prices down, and this often results in spending the entire quota earmarked for the contract based on the set estimated value. Bidders competing for a contract through negotiations retaining competition submit their offers at the beginning of these negotiations on a higher level in order to be able to bring it down during the course of these negotiations.

The Office's survey shows that procuring entities obtain offers which are decisively better in terms of price if they award the procurement contract through tendering procedures rather than negotiations with retaining competition.

On the basis of data from the survey it can be shown that as a result of the decisions issued by the Chairman of the Office of Public Procurement refusing to give consent for procurement by way of negotiations retaining competition, procuring entities conducted unlimited tenders and saved (within the sample group alone) over 108 million zł.

Therefore, it is evident that unlimited tendering brings the procuring entity greater benefits (i.e. lower expenses) than purchases made through negotiations retaining competition.

Procuring entities select the best offer on the basis of price as well as the other criteria which bidders are informed of.

The most commonly applied awarding criteria, aside from price, include: the experience and professional (technical) preparation of the bidder (which occurs in approx. 26.4% of all tendering procedures), the financial reliability of the bidder (in approx. 23.3%), the deadline for contract completion (in approx. 17.2%), guarantee and service conditions (in approx. 12%), and the quality of implementation (in approx. 11.2%).

On average, there were 4.7 proposals received for each tendering procedure which ended with the selection of the successful bid (in 1997 - 4.16, and in 1996 - 3.64). With respect to the field of construction, this average came to 4.47 (in 1997 - 3.87, and in 1996 - 3.13), with respect to services - 4.6 (in 1997 - 3.7, and in 1996 - 3,01), and with respect to deliveries - 5.32 (in 1997 - 4.91, and in 1996 - 4.78).

Data on the selection of successful bids also show that in over 15% of tenders for construction and 23% for deliveries seven or more offers were submitted.

The increase in the average number of bids received for each tender announced attests both to greater interest in competing for public procurement contracts among potential bidders, as well as to the fact that information on the subject of public tenders which have been awarded is widely available to these potential bidders. Access to such information facilitates competition among contractors and suppliers.

In approx. 65% of all cases the tender commission did not reject any of the proposals submitted (64% in 1997). However, in 8.6% of tenders there were three or more bids rejected.

Of the tenders studied under the Office's survey which were conducted by way of negotiations retaining competition, in 83% of cases none of the proposals submitted was rejected.

These figures may serve to demonstrate that bidders participating in public procurement proceedings are sufficiently well prepared for such participation.

After the amendments made to the Law in 1997, if one of the conditions defined in article 38 paragraph 3 of the Law is met, the procuring entity may itself set a deadline for bid submission which is shorter than that defined in article 38 paragraph 2. On the basis of bid selection announcements, it is evident that in approx. 30% of all tendering proceedings the procuring entity exercised this possibility.

What is characteristic for such cases, setting a shorter bid submission deadline (approx. 34% of the total number of administrative decisions issued by the Chairman) did not have a significant effect on the number of bids submitted in the individual tenders, either in 1997 or in 1998. Data on bid selection show that figures for the number of bids submitted were similar both for the statutory time period and for shorter deadlines.

An issue of great importance for the procuring entity is the length of time the entire procurement proceedings take, from the moment the call for bids is published until the protocol is approved by the director of the procuring entity. The Office's survey shows that in over 40% of tenders announced this process lasts longer than 8 weeks, and in 20% of cases between 7 and 8 weeks.

The length of time taken by proceedings conducted by way of negotiations with retaining competition, calculated in the same way, is between 2 to 6 weeks in 80% of all cases.

Unlimited tendering procedures last longer than negotiations with retaining competition, but they bring better economic results.

In 1998, approx. 18% of all tenders were annulled.

In 63.3% of these cases the tenders were invalidated due to the fact that the price of the best offer was in excess of the amount allocated by the procuring entity for financing the procurement (article 27b paragraph 1 point 2 of the Law on Public Procurement). The Office's survey shows that the amount procuring entities planned to devote to procurement was underestimated by an average of some 20% of the price eventually selected as the best offer. Procuring entities are required to exercise due diligence in setting the estimated value. However, this difference makes it apparent that on the procurement preparation stage this estimation is in fact not made with due diligence.

Another approx. 28.1% of these tenders were annulled due to the fault of the procuring entity, because it did not meet its obligation to place an announcement in the Bulletin, because it defined the subject of the procurement in a way inconsistent with the rules defined in the Law, or because the procedure was flawed in a way which rendered the conclusion of a valid contract impossible (article 27b paragraph 1 point 4). Approx. 7.2 tenders were invalidated because less than two unrejected proposals were received, while the remaining 1.4% were invalidated because of tendering proceedings in which there was a significant change of circumstances which led to the tendering proceedings or implementation of the contract no longer being in the best public interest, where such a change was not foreseeable. (Article 27b paragraph 1 point 3).

Tenders were most often invalidated due to errors committed by the procuring entity during the procurement preparation phase, and not due to insufficient competition on the market.

On the basis of information on tenders which ended in the publication of an announcement of the successful bid selection, it can be confirmed that the relative price levels of individual offers with were most varied in the case of tenders for deliveries and construction, while in the case of tenders for services there clearly was a wide deviation.

In over 50% of cases of tenders for construction and deliveries, the difference between the minimum and maximum prices fluctuated around 30%. However, it is interesting to note that in 15% of tenders for services this difference reached 200%. Such differences attest to the competition between potential contractors as concerns the proposed prices.

In accordance with the provisions of the Law, the procuring entities must request a tender security deposit amounting to 1-5% of the estimated value of the procurement contract. The relation of this tender security to the price of the successful proposal was 3.10% for construction tenders, 3.47% for deliveries, and 3.14% for services. The average ratio of tender security to the price of the best offer was 3.17%. (Table 2).

Table 2. The average ratio of tender security deposit to the best price offered

1997		1998
type	tender security/ price of best bid	type	tender security/ price of best bid
construction	3.10%	construction	2.73%
deliveries	3.47%	deliveries	3.25%
services	3.17%	services	2.83%
average	3.17%	average	2.81%

In over 80% of tenders which ended in bid selection, the tender security deposit varied between 1%-5% of the price of the best proposal. In approx. 15% of cases the value of the tender security was above the upper limit of 5% of the best price offered, although in 4% of cases this value was below 1%.

On the basis of this ratio of tender deposit to the price of the best bid it is evident that in 15% of cases the tendering entity obtained best-offer prices which were lower than those estimated (therefore saving public funds), and in only 4% of cases were these prices higher.

Overall, we can state that tendering entities have abided by the requirement to set the tender security deposit within 1%-5% of the estimated value of the procurement.

3. Information about the Public Procurement Market

Providing businessmen with wide access to information on public procurement proceedings is of fundamental importance for the functioning of the public procurement market.

Pursuant to art. 11 paragraph 1 of the Law on Public Tendering, the announcements provided for in the law are published in the Bulletin of Public Procurement, which is published by the Chairman of the Office of Public Procurement.

The Bulletin includes:

• announcements of procurement contracts over 30,000 ECU, to be awarded through unlimited tendering, two-step tendering, and pre-qualification.
• announcements of procurement contracts over 30,000 ECU, to be awarded through limited tendering
• information on negotiations retaining competition and price inquiries over the 200,000 ECU threshold.
• bid selection announcements.

In 1998 the Bulletin was published with an average circulation of 10,000 copies, while circulation exceeded 11,000 copies in the third quarter. At the end of last year there were almost 9,200 subscriptions registered. The yearly price of subscription in 1998 did not increase with respect to 1997, but remained at 600 PLN - when the increased number of pages of the individual issues in 1998 is considered, this meant that the retail price of one page dropped to 0,07 PLN in 1998 from 0,09 PLN in 1997.

Procuring entities do not pay to publish announcements in the Bulletin.

In 1998, 211 issues of the Bulletin of Public Procurement were published, including 53,147 announcements.

It should be stressed that despite the continuous growth in the number of announcements published in the Bulletin of Public Procurement the Office has maintained the 10-day publication period provided for in the Law on Public Procurement.

At the beginning of November 1997 an internet server located in the Office's headquarters was put into operation for the exclusive use of the Office, under the internet address of www.uzp.gov.pl.

The services provided by the Office's internet site were designed to meet the needs of all its users. It allows for the fast transfer of data, and is easy to use even for those using slow telephone connections. All data made available at the site is updated on an on-going basis, which makes it a quick, and more importantly cost-free source of current information.


The internet service of the Office of Public Procurement includes:

• the Bulletin of Public Procurement - both current issues as well as back-issues (available completely cost-free),
• legal regulations connected to public procurement (both Polish and foreign regulations)
• a bibliography of publications on public procurement topics,
• a list of arbiters,
• other information related to the system of public procurement,
• a list of links to other internet sites devoted to topics of public procurement.

An interesting feature of the Office's internet site is the opportunity to utilise electronic versions of the current forms required to send announcements for publication in the Bulletin of Public Procurement.

The service is also available in English and is equipped with electronic mail which enables the quick and easy transfer of correspondence addressed to the Chairman of the Office of Public Procurement as well as to the individual departments of the Office.

Although the service was not widely used during the first month of its operation - primarily due to insufficient information available about it - in January 1998 the number of hits was 108,477 (an average of 3,499 hits per day), in June - 365,661 (an average of 12,188 hits per day), and in December 1998 - 548.568 (an average of 17,695 hits per day).

The pages associated with the published Bulletins were the most popular, where users are able to browse recent announcements very quickly. Copies were often made of entire issues of the Bulletin. The database of companies successful in previous tenders was also widely used, as were pages containing the legal regulations related to public procurement, the list of arbiters and, finally, the bibliography of public procurement literature.

4. Institutional Structure

The Office of Public Procurement was established in order to ensure the proper organisation of the process of awarding public procurement contracts.

The Chairman of the Office of Public Procurement, as the central organ of state administration in this field, was in charge of handling legal and organisational issues.

The first group of tasks primarily included:

• the preparation of draft laws,
• issuing opinions of draft laws under the process of inter-ministerial consultations
• issuing administrative decisions regarding: the waiver of unlimited tendering in the case of procurement worth over 200,000 ECU (after the amendment of the Law, in the case of single-source procurement above 20,000 ECU), shortening the deadline for the submission of tender proposals, the wavier of the obligation to submit a tender security deposit, consent for tender proposals to be prepared in the language commonly used in international trade, the wavier of the obligatory announcement in the UE Journal, the conclusion of a contract before the final settlement of protests, and domestic preferences.
• executing supervisory powers on the basis of article 2 paragraphs 2 and 3 of the Law.

The second category included:

• ensuring the proper conditions for arbitration proceedings,
• publishing the Bulletin of Public Procurement,
• international co-operation in the field of public procurement.

The growing burden handled by the Office of Public Procurement, when compared to 1996, is illustrated by the following data:

• The number of administrative decisions has grown from 2,800 in 1995 to 7,100 in 1996, to more than 8,700 in 1997, and finally to 12,809 in 1998.
• The number of appeals lodged with the Office increased from 348 in 1995, through 837 in 1996, to 1,005 in 1997 and finally to 1,195 in 1998.
• The number of announcements published in the Bulletin of Public Procurement rose from 11,958 in 1995 through 34,136 in 1996, to 44,657 in 1997 and finally to 53,147 in 1998.
• The total number of letters received by the Office increased from 45,856 in 1996, to 56,774 in 1997, and to 76,229 in 1998.

This increase in the number of cases handled in 1998 when compared with 1997 was primarily caused by the changes made in the provisions by the amendments passed on August 29, which involved:

• extending the powers of the Chairman of the Office of Public Procurement to include the authorisation to issue decisions on awarding public procurement by the single-source procedure in procurement over 20,000 ECU threshold,
• expanding the number of entities obliged to abide by the provisions of the Law on Public Procurement,
• further restricting the prerequisites for applying the procedure of negotiations with retaining competition.

5. Administrative Decisions in Cases Involving Public Procurement

In 1998, the Chairman of the Office of Public Procurement issued 12,809 administrative decisions. In 20.1% of these cases, a negative decision was issued.

The majority of decisions were responses to applications for approval to conduct procurement by way of a procedure other than unlimited tendering. There were 5,817 such decisions issued (45.4% of the all decisions), of which 78.6% were evaluated positively.

Such a significant increase in the number of decisions concerning single-source procurement (1997's level was only 56.5%) was caused by the new requirement that the consent of the Chairman of the Office of Public Procurement must be obtained before such procurement can take place for values exceeding 20,000 ECU (before the amendments made to the Law this requirement was only binding for procurement above the value of 200,000 ECU).

The second largest number of decisions was connected with applications for the shortening of the statutory deadline for the submission of tender proposals.

After the amendment of the Law, the deadline for the submission of tender proposals remained unchanged (Article 38 paragraph 2 of the Law on Public Procurement), although a set of conditions was established on the basis of which the procuring entity may independently set a shorter deadline than the one specified in paragraph 2.

Consequently, if:

• the deadline provided for in paragraph 2 would make it impossible to award and implement a procurement contract in a given budgetary year,
• the deadline provided for in paragraph 2 might cause significant negative consequences,
• no contract was awarded in the course of previous tender proceedings conducted in the same case, or
• the procurement contract is for deliveries, services, or construction which are commonly available of an established standard quality,

then the procuring entity may independently set the deadline for the submission of tender proposals, provided that such a deadline may not be shorter than three weeks. When the value of a public procurement contract exceeds the equivalent of 50,000 ECU, the deadline may be shortened in any of the above circumstances only with the prior approval of the Chairman of the Office of Public Procurement.

In 1998 4,358 (34%) of the total number of decisions issued by the Chairman concerned the shortening of the deadline for the submission of tender proposals. In 76.3% of cases these were positive decisions. Broken down by type of procurement, 75.1% of these positive decisions were in the field of construction, 16.1% were for deliveries, and 8.8% for services.

One of the objectives of the Law on Public Procurement is to ensure competition in the public procurement market, while at the same time providing for the necessary protection of domestic entities via the system of domestic preferences. The application of domestic preferences is obligatory.

In 1998, 279 decisions (or 2.2% of the total of administrative decisions issued by the Chairman) were responses to applications for the waiver of domestic preferences. In 81.4% of these cases the Chairman of the Office of Public Procurement approved the award of public procurement without domestic preferences.

Only 5 decisions (or 0.04% of the total all decisions issued by the Chairman) concerned the execution of public procurement with the exclusive use of domestic contractors, raw materials, and products. All of these were positive.

The Chairman of the Office of Public Procurement may influence the costs of proceedings by way of issuing administrative decisions - at the request of the procuring entities - concerning the waiver of tender security. In 1998, the Chairman issued 266 such decisions (1.8%), of which 90.3% were positive. Broken down into type of procurement, 66% of positive decisions concerned the procurement of supplies, 30% - services, and 4% - construction.

One phenomenon of importance is the rise in discontinued proceedings. Insofar as in 1997 the percentage represented by these decisions was only 2.5%, in 1998 it rose to 9.4%.

This increase in the number of decisions which discontinued proceedings was caused primarily by appeals to the Chairman from procuring entities in cases involving:

• approval for applying the procedure of single-source tendering where the estimated value of the procurement is less than 20,000 ECU.
• approval for shortening the deadline for submitting bids where the estimated value of the procurement is less than 50,000 ECU,
• approval for applying a procedure other than unlimited tendering (with the exception of single-source tendering) where the estimated value for the procurement is less than 200,000 ECU.

and also in the case where the entity making the application is not subject to the Law on Public Procurement or when it does not have funds budgeted for the implementation for the planned procurement.

In 1998 the average time spent awaiting a decision was, on average, between 10 and 20 days. In the period of July-September this fluctuated between 5 and 8 days.

IV Control of the Award of Public Procurement

The Law on Public Procurement extended the existing system of controlling public funds management. The award of public procurement is monitored, as is financial management, by the Supreme Audit Chamber and the Regional Clearance Chambers. Those entities awarding public procurement contracts which are defined as procuring entities in Article 4 of the Law are subject to the above inspection.

Before the amendments made on August 29 1997, violations of budgetary discipline were violations of the Law on Public Procurement only to the extent of the principles, forms, and procedures of awarding public procurement contracts.

Since November 9 1997, when the amendments to the Law on Public Procurement came into force, violations of budgetary discipline are violations of the provisions of the Law on Public Procurement.

On the basis of a document published in May of 1998 by the Supreme Audit Chamber entitled "The Award of Public Procurement by the Largest Cities and Their Organisational Units", the critical points in the practice of awarding public procurement can be evaluated.

Inspection was conducted in the 10 largest cities (from the perspective of their population), i.e. Warsaw, Łódź, Cracow, Wrocław, Poznań, Gdańsk, Szczecin, Bydgoszcz, Lublin, and Katowice, as well as four organisational units in each of these cities (or 5 in the case of Poznań).

During the course of the inspection, the Supreme Audit Chamber confirmed cases where the provisions of the Law on Public Procurement were violated in all of the cities and organisational units inspected.

Most alarming was the method of keeping documentation of public procurement awarded. Most often such documentation did not include justification for applying a different procedure other than unlimited tendering.

The inspection uncovered numerous cases wherein public procurement was awarded through single-source tendering in a situation where - in the analysis of the Supreme Audit Chamber - none of the conditions necessary for this procedure had been met.

Similarly, cases were confirmed wherein procuring entities divided procurement into smaller parts in order to avoid applying the procedures required by law.

Article 15 paragraph 2 of the Law on Public Procurement was also violated, by awarding public procurement contracts over the value of 200,000 ECU through a procedure other than unlimited tendering without having received the necessary consent from the Chairman of the Office of Public Procurement.

According to the Supreme Audit Chamber, shortening the deadline for submitting bids did not have a significant influence on the smooth course of the investment process, although it did limit competition to a significant degree.

As concerns the specification of the terms of reference, one irregularity frequently found in the municipal offices of cities was non-compliance with the provision requiring the procuring entity to possess an investment cost-estimate with respect to construction work.

In community institutions, however, the specification lacked such elements as a description of how the cost is calculated or information on the means of appeal the bidder is entitled to.

With respect to health care institutions, in a document entitled "Information on the results of inspecting the purchase of medical equipment and apparatus by public health care institutions", published in October 1998, the Supreme Audit Chamber reported violations in the application of the Law on Public Procurement in every second health care institution inspected. The irregularities discovered involved the violation of various parts of the regulations, or a complete failure to apply the Law on Public Procurement in making purchases.

Irrespective of the control of the legal aspects of the award of public procurement by the Supreme Audit Chamber and the Regional Clearance Chambers, the Law on Public Procurement also introduced the possibility for the bidders themselves to monitor the proceedings of procuring entities, as well as the possibility for the Chairman of the Office of Public Procurement to conduct inspections.

On the basis of the provisions of the Law on Public Procurement, suppliers and contractors whose legal interest has suffered as a result of the procuring entity having violated the regulations for awarding public procurement have the right to lodge protests and to apply to the Chairman of the Office of Public Procurement for the settlement of disputes through of appeal proceedings before an independent arbitration tribunal.

Protest and appeal proceedings are only carried out when the value of procurement set by the procuring entity exceeds 30,000 ECU.

The Chairman of the Office of Public Procurement maintains a register of arbiters and organises the central aspects of arbitration within the Office of Public Procurement.

In 1998 the Chairman of the Office of Public Procurement received 1,195 appeals. This demonstrates the continued increase in the number of appeals lodged in public procurement procedures over previous years. In 1995 the Chairman of the Office received 348 appeals, in 1996 - 837, and in 1997 - 1,005.

The Office of Public Procurement received between 4 and 8 appeals daily during 1998. There were also certain days when this number exceeded 10 appeals.

In 1998, the provisions of the Ordinance of the Council of Ministers on March 10 1998 introduced the requirement for a supplier or contractor to submit a registration fee when lodging an appeal.

Of the 1,195 appeals lodged with the Chairman of the Office of Public Procurement in 1998, 125 were revoked before the date of trial.

Of the 993 cases examined, 635 appeals were dismissed, while 356 were found to be justified. The remaining 79 appeals, due to the failure to pay the registration fee, remained without judgement.

Despite the considerable accumulation of appeals in 1998, the average period spent awaiting a trail did not exceed 13 days, while the statutory deadline is 14 days.

In cases carried out before the panel of arbiters , bidders most frequently complained that the procuring entities had not evaluated the tender proposals in accordance with the criteria defined in the terms of reference. Errors made by procuring entities also included violations of the Law through the discretionary rejection of tender proposals.

Independent of the recourse which suppliers or contractors are entitled to through lodging protests or appeals concerning cases of public procurement, the Chairman of the Office of Public Procurement - on the basis of article 9 paragraph 2 points 2 and 3 of the Law - is himself authorised to request information concerning the course of a procedure awarding public procurement contracts and to request access to documentation related to the procurement. In the event this inspection confirms any violation of the regulations the Chairman may inform the appropriate body which adjudicates cases involving the violation of budgetary discipline.

The Chairman of the Office of Public Procurement takes these actions through the assistance of the Department of Auditing, Analysis, and Training, which makes inspections of the public tender proceedings. Information used in the investigation proceedings primarily originates from complaints and appeals, as well as from other sources (the press, the Office of Public Procurement).

In 1998, 292 investigative proceedings were conducted, of which 180 were completed. In 18 of these cases notification was drawn up, as described in article 9 paragraph 2 point 3, concerning the violation of the provisions of the Law on Public Procurement, and this notification was directed to the competent bodies adjudicating cases involving the violation of budgetary discipline.

After the documentation of the proceedings was checked by the Office, irregularities were found in 10% of cases investigated (18/180).

The violations of the Law on Public Procurement that were found primarily involved the selection of the best proposal in a way which violated article 48 paragraph 1 of the Law, through applying rules and criteria which were different than or additional to those which were set in the call for bids or terms of reference. This therefore resulted in the selection of a different bid than the "best offer" understood in the sense of article 2 point 8 of the Law, which in turn resulted in the violation of Article 49 of the Law.

These procurement proceedings also violated the principle of ensuring equal treatment for all entities competing for a public procurement contract and conducting public procurement proceedings in a way which guarantees the preservation of fair competition as expressed by article 16 of the Law. This especially occurs during the phase of evaluating the formal aspects of the tendered proposals, when the procuring entity allows a proposal to pass on to the stage of content evaluation even though it has not met the requirements of the Law and/or the requirements set by the procuring entity in the documentation of the proceedings. Violations of this principle also occurred at the content evaluation stage when analyses were made not in accordance with the principles and criteria set in the terms of reference.

Among the violations of the Law on Public Procurement that were found attention should be paid to cases involving the award of public procurement contracts by way of a procedure other than unlimited tendering, in violation of article 14 paragraph 2 of the Law, conducted therefore under conditions which do not meet those set out in the Law for the given procedure.

In two cases the investigation found a flagrantly wide divergence between the estimated value of the procurement set by the procuring entity and the prices of the proposals tendered in the proceedings, which justified, in the analysis of the Chairman of the Office, initiating a charge of violating article 3 paragraph 2 of the Law (which prohibits lowering the value of the procurement in order to avoid having to follow the procedures the Law prescribes for awarding the procurement).

In 12 cases, the Chairman of the Office obtained information on the review of the notification directed to the competent body. In 11 of these cases a verdict was issued, and in 1 case the budgetary discipline officer initiated explanatory proceedings in connection with expanding the proceedings to include other individuals who took actions in connection with public procurement.

The adjudicating bodies, in reviewing the charges included in the notification, in 5 cases imposed sentences on those guilty of violating the provisions of the Law (this sentence constituted: in 3 cases - a warning, in 1 case - a reprimand, and in 1 case - a financial penalty). In one case the body found the defendant innocent of the charges of violating the provisions of the Law, and therefore refrained from sentencing, and in 2 cases the body suspended the proceedings.

In 3 cases the adjudicating body recognised the innocence of those charged in the notification. It should be noted that in these three cases the charges were in connection with the violation of the provisions of the Law concerning the principles and procedures of awarding public procurement, and this violation was confirmed by the documents attached to the notification. Thus, in the opinion of the Chairman of the Office, it was justified to appeal the verdicts in the first-instance proceedings. However, from the information presented it is apparent that the budgetary discipline officers did not make use of their right to appeal.

V The dissemination of information and experience

The dissemination of information and experience concerning the awarding of public procurement contracts is of fundamental significance for the functioning of the system.

In 1998, information was disseminated in electronic form as well as in the traditional form of published brochures and books.

Since April of 1998, the Guide of the Office of Public Procurement is published on a monthly basis, and is distributed in electronic and - if necessary - paper form.

The Guide contains materials concerning the activities of the Office of Public Procurement as well as how the system of public procurement functions in Poland, including information on published regulations in the field of public procurement, information on draft laws, analyses conducted by the Office, interpretations of the regulations, and judgements.

The primary objective the Guide is to provide up-to-date information on the legal status of public procurement regulations and to clear up any doubtful interpretations.

The Guide of the Office of Public Procurement is directed to all those interested in the issues of public procurement, both from the perspective of procuring entities, as well as bidders.

In addition, 1998 saw the issue of the following publications:

• �The Green Book. Public procurement in the European Union�,
• �Public procurement in the European Union. Appeal procedures in the light of directives",
• �The Decisions of the Panel of Arbiters. A survey of judgements issued in the period of January - July 1998�.

The wider dissemination of knowledge, and providing information on the most common mistakes, seem to be very effective methods for improving the effective spending of public funds which at the same time require minimal financial expenses.

VI Conclusions
After four years of the Law on Public Procurement being in force, the experience of 1998 demonstrates that future activities should concentrate on the following tasks:

• to maintain the restrictive nature of the regulations on waiving unlimited tendering in favour of other procedures, as the higher level of competition between firms competing for public procurement contracts ensures that optimal economic choices are made by the procuring entities,
• to eliminate decisions of the Chairman in matters involving shortening the deadline for submitting proposals in tenders, which will reduce the amount of bureaucracy involved in proceedings,
• to strengthen the investigative activities of the Office on the basis of the powers of the Chairman of the Office established by article 9 paragraph 2 points 2 and 3 of the Law on Public Procurement, through changing the regulations and organisational structure of the Office in order to increase the staff of the department which handles auditing and investigative duties,
• to widen the range of informational services provided by the Office to disseminate experience on the public procurement system, especially as concerns the procuring entity's phase of preparing to award a public procurement contract.

The introduction of a comprehensive set of amendments to the Law on Public Procurement (a draft set of amendments was submitted to inter-ministerial consultations on Dec 31 1998) should ensure that the above conclusions are put into effect.