Report on the Functioning of the Public Procurement System in 1999
Warsaw, April 2000
Accepted by the Council of Ministers on May 9, 2000

Introduction

The system of public procurement which has been in place in Poland since January 1, 1995, is generally deserving of praise.

The Act on Public Procurement defines clear and transparent procedures for spending public resources in a manner guaranteeing that the most favorable economic results are achieved (the best bids are chosen).

The Act, as well as the mechanisms it introduced, actually guarantees all interested business entities unrestricted and equal access to tenders organized by public institutions.

The unlimited tendering unrestricted tender has become the primary procedure for conducting public procurements. Statistics show that it is simultaneously the most efficient procedure for spending public resources. At the same time, significant year to year increases in the number of bids made for individual procurement contracts demonstrate that competition on the public procurement market continues to grow and that the public procurement system enjoys the trust of business people and entrepreneurs.

In addition to regulating the manner in which public institutions spend public resources, the Act also protects the rights of entrepreneurs who participate in tenders. Under the Act, bidders have the power to control the correctness and integrity of the actions of contracting authorities through the system of protests and appeals which is available to them.

The Office of Public Procurement (OPP) both acts as organizer of the system of public procurement (through its publication of the Public Procurement Bulletin and the organization of arbitration wherever necessary) and directly safeguards the correctness of public procurement proceedings by exercising its powers to adjudicate certain matters related to procurement (its decisions are subject to review by the Supreme Court of Administration), performing audits and controls and disseminating information.

In any decentralized system of public procurement, the quality and integrity of procurement proceedings depend not only on the quality of relevant legal regulations, but also on the professionalism and integrity of the thousands of people who are involved in performing specific functions under public procurement procedures, both on the side of contracting authorities and bidders.

It is the opinion of the European Commission that the Polish public procurement system accords in principle with the system in place in the EU in terms of its transparency, fairness of competition, equal treatment of bidders (the sole exception being certain preferences which are granted to domestic entities), and its system of appeals. It remains somewhat different in terms of its participants and the criteria applied in qualifying and selecting bids. The amendment of the Public Procurement Act which was drafted by the Office of Public Procurement was prepared specifically with the objective of bringing the Act in line with EU solutions and procedures to an even greater degree.

Summary

1. In 1999, 149 issues of the Bulletin of Public Procurement were published, which included 55,262 announcements concerning tenders valued over the threshold of 30,000 EURO.
2. Of the 55,262 announcements, 25,310 represent announcements calling for bids or providing information on the initiation of procurement proceedings, and of this group 23,917 (or more than 94%) represented announcements of unlimited tenders.
3. On the basis of bid announcements it can be estimated that in 1999 the total value of all unlimited tenders announced in the Bulletin of Public Procurement amounted to over 14, 8 billion PLN, on the basis of bid selection announcements it can be estimated that this value totaled approx. 17, 7 billion PLN
4. The average value of unlimited tenders over the 30,000 EURO threshold was approx. 0.75 million PLN.
5. The procuring entity selected the least expensive bid in over 65% of unlimited tenders over the 30,000 EUROthreshold announced in 1999.
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 13% 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 EURO published in the Bulletin in 1999 shows that 79% of funds were spent on construction, 15% on deliveries, and 6% on services.
8. For each tender which ended in the selection of a bid in 1998, 5.4 proposals were received (in comparison to 1998's figure of 4.7). With respect to construction this figure was 5.40, for deliveries 5.57, and for services 5.34. 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 14, 256 administrative decisions.
10. The number of appeals lodged with the Chairman of the Office of Public Procurement by December 1998 totalled 1,327.
11. By the end of 1999 the Office of Public Procurement had undertaken 515 investigation proceedings, in the sense of article 9 paragraph 2 points 2 and 3 of the Act Law on Public Procurement. Of these, in 51 cases (of 350 completed investigations) the Office drew up a notification on the violation of the provisions of the LawAct on Public Procurement, and directed this notification to the competent bodies which adjudicate cases involving the violation of budgetary discipline.

Contents

1. Introduction
2. Current Legal Status
3. The Public Procurement Market in Poland

1. Unlimited tenders over the 30,000 EURO threshold
2. Optimizing economic choices
3. Public procurement of local self-government entities and health care institutions
4. Comparison of public procurement contracting procedures
5. Information on the public procurement market
6. Institutional structure
7. Administrative decisions in public procurement cases

1) Administrative decisions

2) Court control of administrative decisions issued by the Chairman of the Office of Public Procurement

8. Public procurement under special circumstances
   

1) Removal of the effects of flooding
2) The Y2K bug

4. Control and Audit of the Procurement Contracting Process
   
5. Dissemination of Information and Promotion
   

I Introduction

The present report on the functioning of the public procurement system in 1999 includes the period beginning January 1 to December 31 1999 and 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.

II Current Legal Status

A complete and integrated text of the provisions of the Act on Public Procurement was published in Journal of Laws no. 119 item 773 on the basis of a decree issued by the Prime Minister on July 3, 1998.

Pursuant to article 30 in conjunction with article 32 of the Foreign Exchange Act of December 18, 1998 (Journal of Laws no. 160 item 1063), as of January 1, 1999, the ECU currency unit mentioned in legal acts and regulations was replaced with the new EURO currency unit.

As a result, as of January 1, 1999, all values expressed in ECU in the Public Procurement Act and executive regulations issued pursuant to this Act were replaced with values expressed in EURO.

As per the amendment of the Public Procurement Act of April 9, 1999 (JoL no. 45 item 437), the Act accords completely with:

• the provisions of the Public Finance Act of November 26, 1998 (JoL no. 155 item 1014, as subsequently amended),
• the provisions of the Polish Constitution.

The most recent changes in the provisions of the Act clearly and unequivocally state that independent public health care institutions and the National Association of Health Care Organizations (Polish - Kasy Chorych) are subject to the Public Procurement Act, in so far as procurements on their part are not regulated in separate and distinct laws. Under these amendments, funds deriving from health insurance premiums paid by members of the population are classified as "public resources."

The following executive regulations, issued pursuant to article 35 paragraph 3 of the Public Procurement Act, took effect on April 30, 1999:

• Ordinance of the Minister of Internal Affairs and Administration of February 26, 1999 on the methods and bases for preparing an investor�s cost estimates (JoL no. 26 item 239). The introduction of this ordinance coincided with the revocation of the previous ordinance of the Minister of Physical Planning and Construction of December 30, 1994 on the methods and bases for compiling investment cost estimates (JoL no. 140 item 793);
• Ordinance of the Minister of Internal Affairs and Administration of February 26, 1999 on the cost calculation, unit prices of works and prices of production factors (JoL no. 26 item 240).

The following executive regulations, issued on the basis of article 92 paragraph 1 of the Public Procurement Act, took effect on September 18, 1999:

• Ordinance of the Prime Minister of August 20, 1999 on the rules and regulations for reviewing appeals in cases involving public procurement (JoL no. 73 item 815). The introduction of this ordinance coincided with the revocation of the previous instruction of the Chairman of the Office of Public Procurement of October 5, 1995 on the rules and regulations for reviewing appeals in cases involving public procurement (Polish Monitor, 1995, no. 52 item 575);
• Ordinance of the Prime Minister of August 20, 1999 on the definition of remuneration for arbiters (JoL no. 73 item 815). The introduction of this ordinance coincided with the revocation of a previous instruction of the Chairman of the Office of Public Procurement of October 13, 1995 on the definition of remuneration for arbiters (Polish Monitor, 1995, no. 56 item 625).

In 1999 the Office of Public Procurement worked on amending the Act on Public Procurement. These efforts culminated in the approval by the Council of Ministers of a draft amendment of the Act on February 15, 2000.

The two primary objectives of this draft amendment were to harmonize the Polish public procurement system with the uniform system of public procurement which exists throughout the entire economic area of the European Union, and to make public procurement regulations subject to standards stipulated in the new Polish Constitution.

The draft act fixes the general principles which apply to awarding public procurement contracts: equality of access to procurement contracts, transparency of proceedings, universal and equal application of the regulations of the Act. It also seeks to strengthen possibilities for applying the principle that all proceedings must seek to guarantee equality and fairness for all competing participants, except where statutory domestic preferences are applied.

The range of persons and entities to which the Act applies was also modified to match that defined in the Public Finance Act of November 26, 1998, which has been in effect since January 1, 1999 (JoL no. 155 item 1014; JoL, 1999, no. 38 item 360, no. 49 item 485, and no. 70 item 778), and which replaced the earlier Act on Budgetary Laws of January 5, 1991 (JoL, 1993, no. 72 item 344, as subsequently amended).

The draft amendment contains a redefinition of the concept of public resources, achieved by referring for a part of this definition to the regulations of the Public Finance Act, and includes a series of changes necessitated by the recently introduced reforms of the health insurance system.

The breadth and depth of the amendment made it necessary to compile a whole new integrated version of the Act. The draft amendment included a proposal for modifying the structure and organization of the Act. It proposes that the Act be divided into five sections regulating the following areas: I. General Provisions, II. Public Procurement Procedures, III. Public Procurement Contracts, IV. Appeals Procedures, and V. Amendments of Existing Regulations, Transitional Regulations, and Concluding Provisions.

This proposed structure corresponds to the sequence of stages which exists in the public procurement process and helps to prevent unnecessary repetition in the Act itself.

III The Public Procurement Market in Poland

1. Unlimited tenders over the 30,000 EURO threshold

Pursuant to Article 14 paragraph 1 of the Act, unlimited tendering is the primary procedure for awarding public procurement contracts.

As for unlimited tendering valued more threshold value 30, 000 EURO 23, 917 public procurement announcements were published in 1999 (25, 335 in 1998). The greatest number of were organized in voievodships with greater economic and social potential, e.i. slaskim, malopolskim, wielkopolskim. The smallest number of tenders were announced in voievodships: warminsko- mazurski, opolskim, lubuskim (Attachement no. 3)

In 1999 a total of 29,640 bid selection notices were published in the Public Procurement Bulletin (as compared to 25,450 in 1998). Of this number, 21% stated that tenders had been nullified. Of the remaining notices, in the case of some 17,760 (about 76%), the contracting authorities listed the total price of each winning bid.

The remaining notices provided information in the following form:

• unit prices, e.g. per piece or unit of measure (primarily in the case of supplies of medications, cleaning products, furnace and other fuels, or cleaning or road maintenance services),
• prices in foreign currencies,
• prices in the form of interest rates, e.g. in the case of procurements involving the provision of loans or bank services,
• other information as relevant.

An analysis of notices which listed the total price of procurements showed that in 1999 unlimited tenders over the 30,000 EURO threshold were valued at an average of approximately 0.75 million PLN, compared to average values of approximately 0.69 million PLN in 1998, 0.8 million in 1997, and 0.6 million in 1996.

Based on the average value per contract and the total number of tender notices published, we can estimate that tenders over the 30,000 EURO threshold, notice of which was published in the Public Procurement Bulletin (PPB) in 1999, had a total value of over 14.8 billion PLN. However, if we base our calculations on the total of bid selection notices, we arrive at a total contract value of approximately 17.7 billion PLN for this group of tenders. By comparison, these estimation methods yielded approximately 17.5 billion PLN in contracts for 1998 and 13.6 billion PLN for 1997.

Unlimited tenders with a contract value under 400,000 PLN constituted the largest group of tenders and specifically accounted for approximately 66% of total tenders, about the same share as in 1998 (Attachment no. 2). Procurement contracts exceeding 1,000,000 PLN in value accounted for 14.6% of total contracts (compared to 14.8% in 1998).

On the basis of information on tenders which ended with the publication of a bid selection notice in the Bulletin, we can state that the prices of individual bids were similar in tenders for the supply and for the public works, and decidedly varied in the case of tenders for services.

In approximately 50% of public works contracts and public supply contracts , the discrepancy between the lowest and highest prices fluctuated up to 30%. Interestingly, in approximately 15% of service procurements, price discrepancies totaled as much as 200% (Attachment no. 3).

The highest value tender decided in 1999 was for the supply of a heating energy generation block for Tychy Thermal Electric Power Plant, where the value of the selected bid was 260,927,550.00 PLN (Attachment no. 4).

Classified by subject of procurement contract, in 1999 some 59% of unlimited tenders announced in the Public Procurement Bulletin related to public works contracts (in 1998 - these accounted for approximately 64%), about 23% pertained to contracts for the supply of goods (22% in 1998), and another 18% of tenders related to contracts for services (14%).

Attachment no. 5 presents a month-by-month breakdown of tenders by subject of procurement contract in 1999.

An analysis of bid selection notices published in the Bulletin in 1999 shows that of the unlimited tenders with a value over 30,000 EURO , 79% of resources were allocated to public works procurements (77% in 1998), 15% were allocated to the acquisition of goods (17%), and 6% to the acquisition of services (6%) (Figure 1).

Figure 1

Value structure of public procurements announced in the PPB in 1999, by subject of procurement contract

[Values in pie graph]:

public works - 79%, supplies - 15%, services - 6%

2. Optimizing economic choices

The economic effects achieved in applying statutory procedures can be evaluated by examining the prices of the most favorable bids chosen as a result of applying tendering procedures to procurement contracts with a value of over 30,000 EURO.

Based on the total bid selection notices published in the Bulletin in 1999 and related to procurements over the 30,000 EURO threshold made by way of unlimited unrestricted tender, it can be stated that in some 65% of these cases (69% in 1998), the contracting authorities did indeed select the least expensive proposals (Attachment no. 6). Simultaneously, in another 19% of the cases in this group (17%), the selected bids were no more than 10% more expensive than the lowest priced proposals.

This shows that in order to win a contract, bidders should submit the lowest priced bid or a bid not significantly exceeding the lowest priced bid.

If all bidders in a given tender have fulfilled the contracting authority's conditions related to legal status and ability to complete the procurement contract, selection of the least expensive proposal ensures that public resources are spent efficiently.

Apart from price, criteria taken into account in evaluating bids included, in order of frequency: the experience and professional (technical) qualifications of the bidder (considered in approx. 50% of tenders), the financial credibility of the bidder (considered in 41% of cases), the time stipulated by the bidder as required for project completion (considered in 21% of tenders), conditions of warranty and service (21%), and the quality of contract execution proposed (considered in 19% of cases).

An average of 5.4 proposals were received per tender which ended in bid selection (in 1998 - 4.7; 1997 - 4.16; 1996 - 3.64). Tenders for public works procurements drew an average of 5.40 bids (1998 - 4.47; 1997 - 3.87; 1996 - 3.13). The per tender for public service procurements was 5.34 bids (1998 - 4.6; 1997 - 3.7; 1996 - 3.01), and 5.57 bids were received on average per tender for the supply of goods (1998 - 5.32; 1997 - 4.91; 1996 - 4.78).

Data on tenders which ended with the selection of a bid also shows that 7 or more bids were received in approximately 27% of the tenders organized for public works procurements and about 24% of tenders for public supply contracts (Attachment no. 7).

The average number of bids received per announced tender increased. This demonstrates that interest in public procurement contracts has increased and that potential bidders have access to relatively broad information on the public procurement contracts which are put up for bidding. As a general rule, the public procurement market is becoming increasingly difficult for bidders and easier for contracting authorities, which should help to optimize economic choices and increase the efficiency with which public resources are spent.

In some 63% of tenders (65% in 1998), none of the bids submitted was rejected. On the other hand, 3 or more bids were rejected in approximately 11% of tenders (8.6% in 1998).

These percentages indicate that bidders who submit bids for public procurement contracts are generally well-prepared in substantive terms, and that the percentage of entities which have difficulty in applying the regulations of the Act remains at a relatively constant level.

About 21% of the tenders organized in 1999 were nullified (18% in 1998).

Of the total tenders nullified, in about 70% of cases the reason for nullification was the receipt of less than two bids which were not subject to rejection (article 27b paragraph 1 item 1 of the Act). This was the case in 7.2% of the tenders nullified in 1998. This rather sharp increase may derive from the fact that tender evaluation committees have become more strict in applying formal regulations in the face of increasing numbers of bids.

In submitting bids, bidders should pay especially close attention to formal requirements, even those which may seem of limited significance, as these may prove decisive to a bidder's chances of winning a contract.

Another 14% (1.4% in 1998) of tender nullifications occurred in cases where significant changes in circumstances - changes which could not have been foreseen earlier - rendered completing the procedure or realizing the procurement contrary to public interests (article 27b paragraph 1 item 3). The increase which occurred in nullifications for this reason should be viewed as something negative as in these cases contracting authorities effectively expose potential bidders to expenses which increase business costs.

Approximately 10% of the tenders announced in 1999 were nullified due to the fact that the economically most favorable proposal contained a price exceeding the funds allocated by the contracting authority to a given project (in 1998 - this was the reason for 63.3% of tender cancellations) (article 27b paragraph 1 item 2).

The remaining 6% of nullifications were caused by errors committed by contracting authorities. These included the failure of contracting authorities to announce their tenders in the Bulletin as required, definition of procurements in a manner not according with that stipulated in the Act, or the pursuit of procedures burdened by fault or error thereby preventing the conclusion of valid agreements (article 27b paragraph 1 item 4). In 1998, about 28.1% of total nullifications derived from the same reasons. The decline in nullifications deriving from these reasons confirms that contracting authorities are having less and less trouble defining their objectives.

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 3.54 % for construction tenders, 3.63% for deliveries, and 3.36% for services. The average ratio of tender security to the price of the best offer was 3.54 % (in 1998 3.17%). (Table 2).

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

1998		1999
Type	tender security/ price of best bid	type	Tender security/ Price of best bid
Construction	3.10%	construction	3. 54%
Deliveries	3.47%	deliveries	3.63%
Services	3.17%	services	3.36%
Average	3.17%	average	3.54%

In almost 76 % of tenders (in 1998- approx. 80 %) which ended in bid selection, the tender security deposit varied between 1%-5% of the price of the best proposal. In more than 21 % (in 1998 15%) of cases the value of the tender s3 % (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 21% of cases the tendering entity obtained best-offer prices which were lower than those estimated (therefore saving public funds), and in only 3% of cases were these prices higher.

3. Public procurement of local self-government entities and health care institutions

This section of the analysis pertains to tender announcements or bid selection notices published in 1999 in the Public Procurement Bulletin for tenders in which the contracting authority was an entity of local self-government (commune, municipality, municipal enterprise, etc.) or a health care institution (health care clinics, hospitals, and the like).

In 1999 the Public Procurement Bulletin contained some 12,160 invitations (48% of the total) to tender which were placed in the publication by local self-government entities and approximately 3,320 invitations (13% of total) to submit bids in tenders organized by health care institutions. Of bid selection notices, about 41% were placed by local self-government entities and another 19% by health care institutions.

The average value for both local self-government and health care sector procurement contracts was lower than the average as determined on the basis of all bid selection notices published in the Bulletin. For self-government entities the average came to about 0.673 million PLN, and in the case of health care institutions the average was approximately 0.370 million PLN.

The low average for health care contracts is confirmed in the distribution of notices between specific contract value groups. Of all bid selection notices, approximately 66% pertained to procurements with a value of up to 400,000 PLN. In the case of bid selection notices of the health care sector, contracts up to this value accounted for about 81% of the total.

Only about 6.5% of contracts had a value in excess of 1,000,000 PLN.

Therefore, it becomes apparent that lower value contracts account for the greatest number of procurements in this sector.

For local self-government contracts, the percentage of orders up to 400,000 PLN is approximately the same as the average for the totality of public contracts, but the percentage of contracts valued at over 1,000,000 PLN is also lower than the average for all procurement contracts (13.8%).

In terms of the distribution of tenders by contract subject, the structure in both of these sectors differed from that for the totality of public procurement contracts.

In the self-government sector about 77% of tenders announced in the PPB were for public works procurements, to which this sector allocated about 90% of the resources it spent by way of tenders. Self-governments allocated 4% of their resources to public supply contracts which accounted for 7% of announcements, while services absorbed 6% of resources and accounted for 17% of tender announcement.

In the health care sector, 76% of tenders announced in the PPB were for public supply contracts, to which this sector allocated about 61% of the resources it spent on projects contracted out to third parties. Public service contracts accounted for 14% of procurements and absorbed 6% of resources, while public works absorbed 33% of resources and accounted for 10% of the tenders in this sector.

As can be seen from this data, self-governments primarily invest in public works while the health care sector invested in supplies. At the same time, the latter tendered out only a handful of public works contracts which had a relatively high average value.

While self-government entities selected more than the average number of lowest bids, doing so in 69% of their tenders, only 58% of the bids selected by contracting authorities in the health care sector were priced lower than all others submitted in each given tender.

In both tenders organized by entities of local self-government entities and those organized by health care institutions, the average number of bids submitted was higher than the average for all tenders.

An average of 5.5 proposals were submitted for tenders organized by self-government entities, while tenders completed in the health care sector drew an average of 5.8 bids.

In terms percentages of proposals rejected, self-governments did not differ from the average. Within the health care sector, no bids were rejected in about 65% of tenders and 3 or more bids were rejected in only 7% of tenders.

Self-governments took advantage of their right to abbreviate the times allotted for submitting bids more frequently than the average. In 35% of the tenders announced by these entities, bid submission times were shorter than those defined in article 38 paragraph 2 of the Public Procurement Act. As can be seen from tender announcements, health care institutions applied this prerogative in 19% of their tenders.

In 1999 approximately 21% of all tenders were nullified. Only 18% of the tenders organized by self-government entities were nullified while health care institutions nullified 27% of theirs. While self-governments nullified fewer tenders than did contracting authorities in general, health care institutions did so much more frequently than the average.

In the case of both these sectors, the structural breakdown of reasons for nullification were similar to that for tender nullifications as a whole.

Both sectors were characterized by higher than average ratios of tender deposit to price of selected bid. This ratio came to 3.62% for tenders organized by self-government entities and 3.75% for tenders organized by health care institutions. In the health care sector, this ratio was over 5% in over 26% of tenders. It can therefore be assumed that in approximately 26% of the tenders organized in the health care sector, the prices of the bids selected were lower than the values which given contracts were estimated to have.

4. Comparison of public procurement contracting procedures

As was the case last year, this year the Office of Public Procurement performed a survey to investigate the public procurement proceedings of those contracting authorities who, in preparation for their tenders, applied to the Chairman of the OPP for permission to apply a procedure other then unlimited tender in awarding their procurement contracts.

The respondents of the survey included contracting authorities who received the permission of the Chairman of the OPP to apply one of the following procedures in lieu of an unlimited tender:

• two-stage tendering,
• negotiations with retaining competition,
• single source procurement.

Respondents also included contracting authorities who did not receive the Chairman's permission to apply any of the procedures listed above and contracted out their procurements through an unlimited tender.

Based on an analysis of the data contained in survey responses returned to the Office it can be stated that the average contract value for the procurements surveyed differed from the average calculated on the basis of notices published in the Bulletin. This fact confirms the special nature of procurements contracted out on the basis of procedures other than unlimited tenders. Average contract values for the various types of procedures were as follows:

• two stage tenderings - 5,114,804.03 PLN,
• negotiations with retaining competition - 10,464,636.70 PLN,
• single source procurement - 871,791.54 PLN.
• unlimited tenderings - 1,279,842.57 PLN.

In terms of contract subject, the structural distribution of the cases surveyed was different from that calculated for procurements for which notices were published in the Bulletin. Of the procurements posted in the PPB, 59% were for public works contracts, 23% for supply contracts, and 18% for service contracts. The breakdown among the contracts surveyed differed somewhat (Table 2).

Table 2

1998		1999
Type	tender security/ price of best bid	type	Tender security/ Price of best bid
Construction	3.10%	construction	3. 54%
Deliveries	3.47%	deliveries	3.63%
Services	3.17%	services	3.36%
Average	3.17%	average	3.54%

As can be seen from the figures given above, a large proportion of the contracts decided by negotiations with retaining competition pertained to procurements of services while supply contracts accounted for a large share of the procurements decided through single source procurement.

Notices published in the PPB demonstrate that in those tenders, the lowest priced bids were selected 65% of the time. In the cases encompassed by the survey:

• the lowest price bids were selected in 63.4% of cases involving two-stage tenderings,
• the lowest bids were selected in 80.7% of negotiations with retaining competition ,
• the lowest bids were selected in 68.75% of the surveyed procedures decided by unlimited tendering.

Judging on the basis of the average number of bids received per type of procedure, the study - both this and last year - confirmed that unlimited tenders should generally be considered to be more competitive than any of the other methods available for contracting out public procurements. On average, two-stage tenderings drew 3.53 final bids, negotiations with retaining competition averaged 3.25 bids per procedure (last year's survey gave an average of 2.93 bids per procedure of this type), while unlimited tenders drew 4.22 bids (3.41 in 1998). By comparison, the average for the totality of all tenders was 5.4 bids.

In terms of bid rejections, the number occurring in unlimited tenderings encompassed by the survey was similar to that calculated from notices published in the Bulletin. No bids were automatically rejected for formal reasons in 63% of the tenders announced in the PPB, and no rejections were made in 67% of the unrestricted tenders encompassed by the survey. On the other hand, 3 or more bids were rejected in 11% of the unrestricted tenders in each of these two categories.

For the remaining procurement procedures:

• no bids were rejected in 77% of two-stage tenders while 3 or more bids were rejected in 2% of these tenders,
• no bids were rejected in 77% of the negotiations with retaining competition and 3 or more bids were rejected in 3% of these procedures.

Data obtained from the OPP survey shows that as a result of unlimited tenderings carried out after the Chairman of the Office Public Procurement issued an administrative decision rejecting a request for permission to apply a different procurement procedure, contracting authorities spent an average of 13% less than they previously estimated as the value of their procurement contracts (Table 3).

Expenditures for procurements contracted out through two-stage tenders and awarded in single source procurement procedures were also lower than estimated procurement planning stage.

	Total of estimated contract values	Total of all prices of bids selected	Difference	Difference in %
two-stage tenders	213 294 949.96 PLN	204 592 161.10 PLN	8 702 788.95 PLN	4.08%
Negotiations with retaing competition	519 997 770.84 PLN	565 090 381.93 PLN	-45 092 611.09 PLN	-8.67%
single source procurement	94 602 985.57 PLN	86 307 362.44 PLN	8 295 623.13 PLN	8.77%
unlimited tendering	66 221 875.85 PLN	57 592 915.68 PLN	8 628 960.17 PLN	13.03%

As shown in the table above, negotiations with retaining competition resulted in contracting authorities spending more than they estimated as the value of their procurement contracts (by approximately 8.67%).

Similar results were obtained in the survey conducted for 1998, which indicated that unlimited tenders generated savings of about 12% relative to estimates while negotiations with retaining competition ended with procurements costing 0.62% more than indicated in procurement estimates.

In terms of the time required to complete various procedures, most procurements pursued through two-stage tenders took more than two months to complete. Procedures were completed within two months of inception in only 7.7% of the cases involving this contracting method. In some 73% of procurements contracted out through two-stage tenders, 2 to 5 months elapsed before procedures were completed.

Completion times were as follows for the remaining types of procurement procedures:

negotiations with retaining competition:

• 1 month or less - 58.57 %,
• 1 to 2 months - 31.43 %,
• over 2 months - 10.00 %,

single source procurement:

• 1 month or less - 60.20 %,
• 1 to 2 months - 25.51 %,
• over 2 months - 14.29 %,

unlimited tendering:

• 1 month or less - 36.54 %,
• 1 to 2 months - 42.31 %,
• over 2 months - 21.15 %,

Characteristically, proceeding by unrestricted unlimited tendering did not significantly expand the amount of time needed to complete the public procurement process. For approximately 79% of the procurements decided by unlimited restricted tendering, the contracting process took less than 2 months.

Based on the results of the survey (from both this year and from 1998), we can conclude that contracting authorities received decidedly better proposals when they chose to contract out their procurements through unlimited tenders rather than through one of the other, less competitive methods.

Therefore, survey results suggest that the mechanisms of free competition come into play to a greater extent in unrestricted tenders, where the contracting authorities decide the price of a procurement by selecting an appropriate bid and are more likely to seek opportunities to lower the price.

Therefore, it is clear that unlimited tenders bring contracting authorities greater benefits (in the form of lower expenditures) than do the other procurement contracting procedures provided for under law.

5. Information on 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. 14a paragraph 1 of the Act on Public Procurement, 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 EURO, to be awarded through unlimited tendering, two-step tendering, and pre-qualification.
• announcements of procurement contracts over 20030,000 EURO, to be awarded through limited tendering
• information on negotiations with retaining competition and requests for quotations price inquiries over the 200,000 EURO threshold.
• bid selection announcements.

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

In 1999, 149 issues of the Bulletin of Public Procurement were published, including 55,262 announcements.

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). In 1999 further increase in the number of hits was observed- in January 1999 the number of hits was 730, 251 (an average 23, 556), in June 890, 959 (29, 698 per day) and in December 1, 042, 059 (33, 615 per day).

In this period there were on average 35, 600 hits per day, the record breaking was October, when the Office�s website was visited 1, 579, 885 times or in other words 50, 960 hits per day and in November- 1, 405, 736 (46, 850 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.

The amendment of the Code of Administrative Proceedings which took effect on January 1, 1999 required all public administration authorities to begin accepting all motions sent to them in electronic form:

Article 63 § 1. Official correspondence (motions and demands, explanations, appeals, complaints) may be submitted in writing, by telegraph, or via teletype machines, facsimiles, or electronic mail, as well as in the form of verbal testimony, provided that a written record of the verbal testimony is made.

In an effort to fulfill this requirement and to facilitate matters for contracting authorities, on March 9, 1999 the Office of Public Procurement commissioned a system with the help of which institutions can use the Internet to submit announcements for publication in the Public Procurement Bulletin.

In order to enable submitted announcements to be authorized ("signed"), the Office of Public Procurement introduced a principle under which all announcements must be labeled with a codified sign, which is special, confidential and unique to individual entities, and which is granted to all interested public institutions which may be required to contract out procurements. This system was created to ensure that any announcements published in the PPB would indeed be published as per the intentions of the contracting authorities named in the announcements.

If an announcement is correct and complete, it appears in print no later than on the fourth business day following its submission.

The advantages of the system include:

• simplicity of use - users need only have a knowledge of MS Word and an electronic mail software package,
• speed - immediately after it is sent, an announcement arrives in the Bulletin Department; if received before noon, it is published no later than on the fourth business day following that on which it is received. By comparison, announcements sent by mail may not be delivered to the OPP for as much as a week; furthermore, at the time of sending, the sender does not know when the letter is likely to be received by its addressee,
• reliability - thanks to the application of modern telecommunication technologies, announcements are received by the Office undistorted. Faxes on the other hand may not be received at all or may result in the transmission of a distorted image of any forms or information that is sent in,
• reduced likelihood of errors - because the sender of the e-mail creates the announcement in electronic form, errors which may be made at the time data entry personnel enter submitted announcements into the computer are avoided.

The Internet site of the Office of Public Procurement, located at www.uzp.gov.pl on the world wide web, contains more information and a page from which Internet users can download necessary software and a user's manual.

As of the end of 1999, electronic resources (the PEAR system and the Internet) were used to send in 4,718 announcements (about 7.3% of the total published in the PPB in 1999).

However, interest in this form of submitting announcements continues to grow. While January 1999 saw only 1.9% of notices and announcements submitted in this manner, by July this number had increased to 8%, by September it was fluctuating around 10% and over 11% of the total announcements sent in to the Office of Public Procurement in November were sent in using electronic means.

6. 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 EURO (after the amendment of the Law, in the case of single-source procurement above 20,000 EURO), shortening the deadline for the submission of tender proposals, the waiver 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 Official UE Journal of European Communities, the conclusion of a contract before the final settlement of protests, and domestic preferences.
• executing supervisory powers on the basis of article 9 paragraphs 2 items and 2 and 3 of the Act.

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, 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 12,809 in 1998 to finally 14, 256 in 1999.
• The number of appeals lodged with the Office increased from 348 in 1995, through 837 in 1996, to 1,005 in 1997, to 1,195 in 1998 and to 1, 327 in 1999.
• 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 19, to 53,147 in 1998, and finally to 55, 262 in 1999.
• The total number of letters received by the Office increased from 45,856 in 1996, to 56,774 in 1997, to 76,229 in 1998, and to 83, 391 in 1999

7. Administrative decisions in public procurement cases

1) Administrative decisions

In 1999, the Chairman of the Office of Public Procurement issued 14, 256 administrative decisions.

The majority of decisions were responses to applications for approval to conduct procurement by way of a procedure other than unlimited tendering. There were 6, 874 such decisions issued (484% of the all decisions), of which 83 % were evaluated positively.

Such decisions concerned predominantly situations when there was only one supplier or contractor on the market, which takes place for example in supply of water, gas, telephone, post services etc.). In cases when the Chairman had doubts, before issuing administrative decision- according to the Supreme Chamber of Control� s recommendation- requested for opinion of respective resort.

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 EUROCU, 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 1999 4,274 (30%) of the total number of decisions issued by the Chairman concerned the shortening of the deadline for the submission of tender proposals. In 82% of cases these were positive decisions. Broken down by type of procurement, 69% of these positive decisions were in the field of construction, 16% were for deliveries, and 15% for services.

Applications for permission to abbreviate the time allotted for submission of bids are processed immediately. Because decisions on submission times often need to be made as a result of the appearance of special or unusual circumstances (i.e. social reasons/needs do not allow for the application of the times stipulated in the code of administrative procedures - because they are too long), the Legal Department has devised a procedure under which contracting authorities are contacted by telephone if their application is determined to be deficient in any way. The applicant may be informed that, for example, a precise justification for the application must be submitted or the application must otherwise be supplemented to enable the issuance of a decision.

Applicants frequently justify their applications for permission to abbreviate bid submission times by citing deadlines established by Voivodeship Environmental Protection and Water Management Funds for the submission of documents required for the allocation of subsidies. The time limits established by these funds are simply too short to allow for the completion of public procurement procedures as per the Act on Public Procurement.

Among other things, the Act on Public Procurement Act was to ensure the preservation of competition while affording domestic entities an appropriate degree of protection through a system of domestic preferences. Application of domestic preferences is mandatory for all public procurement procedures.

In accordance with § 4 paragraph 3 of the Ordinance of the Council of Minister of December 28, 1994 on Applying Domestic Granting Preferences for Domestic Entities in Awarding Public Procurement Contracts, the Chairman of the OPP may issues decisions allowing contracting authorities to refrain from applying domestic preferences or to reduce the share of domestic raw materials or goods for selected public supply contracts. The Chairman of the OPP must obtain the opinion of the relevant government minister and issue his decision within 14 days of the date upon which a contracting authority files such application along with a justification for it. In accordance with the regulation mentioned above, addresses requesting the opinion of relevant government ministers were prepared immediately upon receipt of applications for exemptions. Many of the addresses included brief descriptions of the procurement contracts in question. Applications containing insufficient descriptions of procurement contracts were returned to the Office of Public Procurement by ministries with a request that applicants supplement the documentation. This in turn protracts procedures related to these matters.

In 1999 the Chairman of the OPP issued 281 decisions (2% of the total administrative decisions issued by the Chairman) in response to applications for exemptions from the domestic preferences policy. In approximately 74% of these cases, the Chairman of the Office of Public Procurement allowed contracting authorities to go forward with procurement contracting procedures without applying the customary domestic preferences.

On the other hand, 4 decisions (0.03% of the total issued) were issued in response to applications for the right to realize public procurements using solely domestic entities and domestic goods and raw materials. Three of these decisions were positive.

By issuing decisions allowing contracting authorities to exempt bidders from paying tender deposits, the Chairman of the Office of Public Procurement also influenced the costs which entities were forced to incur in vying for procurement contracts.

In 1999, the Chairman issued a total of 268 decisions in response to applications on this matter (2% of the total issued) and 90% were approvals.

Approximately 53% of the positive decisions related to public service contracts (in 1998 - 30%), 43% to public supply contracts (1998 - 66%), and only 4% pertained to procedures for public works contracts (1998 - 4%).

Decisions nullifying procurement procedures have increased in recent times. While in 1997, decisions of this kind were issued in only 2.6% of cases, they pertained to 9.4% of procedures in 1998 and 9% in 1999.

The number of decisions nullifying procedures increased above all because contracting authorities applied to the Chairman of the OPP on the following matters:

• permission to apply single source procurement for procurement contracts with an estimated value of under 20,000 EURO,
• permission to shorten bid submission times for procurements with an estimated value of under 50,000 EURO,
• permission to apply procedures other than unlimited tenders (with the exception of single source procurement) to procurements with an estimated value of less than 200,000 EURO,

and, additionally, in instances where the contracting authority was not in fact subject to the Public Procurement Act and in cases where the applicant had not allocated any resources to the realization of a given procurement contract.

In 1999 the waiting time administrative decisions ranged from 6 to 12 days (10 to 20 days in 1998); the average number of days which elapsed between the time an application was filed and a decision ranged from 6 to 12 days (10 to 20 days in 1998); on average it was was issued in response was 9 days.

2) Court control of administrative decisions issued by the Chairman of the Office of Public Procurement

Approval of non-standard procurement contracting procedures

The Public Procurement Act states that if a contract valued at more than the equivalent of 20,000 EURO is to be awarded under a single source procurement procedurean unrestricted public procurement procedure, application of a single source procurement procedure the unrestricted procurement contracting method must be approved by the Chairman of the Office of Public Procurement (article 71 paragraph 1a in conjunction with article 14 and article 9 paragraph 1 item 1 of the Public Procurement Act).

In one instance involving single source procurement of a public procurement, the contracting authority submitted a letter expressing some doubts as to the deadline by which the authority was to apply to the Chairman of the OPP for approval of the proceduresingle source procurement method.

Although the contracting authority applied for approval of the single source procurement method, the Chairman of the OPP was forced to nullify the proceedings because the procurement had already been effected. The contracting authority appealed this decision to the Supreme Court of Administration, claiming in his complaint that the Act stipulates "approval of the application of procedures", i.e. the approval of an action that has already been performed and completed.

The Supreme Court of Administration rejected this argument and decided (in a decision dated April 22, 1999, File no. I S.A. 1008/98) that, in accordance with article 71 paragraph 1a and article 9 paragraph 1 item 1 of the Act, any application of a single source procurement n unrestricted procurement cocontracting procedure must be pre-approved by the Chairman of the OPP in a relevant administrative decision (if the value of the contract is estimated to be over 20,000 EURO). The cited regulations state that it is the choice of the single source procurement procedure that requires approval and not the actions that are performed as a consequence of this choice. Approval of the method to be used in contracting out a procurement must come before any negotiations with a supplier or contractor are initiated as per article 70 of the Act.

Public procurements made in response to the appearance of special social or economic circumstances

The decision of the Supreme Court of Administration of May 28, 1999 (File no. I S.A. 2226/98) pertaining to a complaint lodged in response to a refusal of permission to apply single source procurement touched on issues that are very important to the application of single source procurement procedures in public procurements due to special economic or social circumstances and to the division of procurement contracts into parts.

The Supreme Court of Administration rejected a complaint against the decision of the Chairman of the OPP in which the Chairman denied an entity's request for approval to apply an single source procurement procedure. In its justification the Court stated that in order for the circumstances of article 71 paragraph 1 item 6 to be fulfilled, economic or social circumstances unforeseeable to the contracting authority would have to surface, making it necessary (cause and effect relationship) for a procurement to be contracted out immediately (time relationship).

In other words, this procedure can only be applied in cases involving the appearance of social and economic circumstances which the contracting authority, applying a reasonable amount of care, could not have foreseen, and the appearance of which makes it necessary for the contracting authority to provide immediately for the issuance and execution of a public procurement contract (by a supplier or contractor).

Therefore, efforts made at removing the effects of the flooding which occurred in July 1997 mid way through 1998 (when the plaintiff filed for approval of an single source procurement procedure) could not be qualified as a response to special economic or social circumstance. After all, these efforts at removing the effects of flooding were being made nearly one year after the flooding itself. By that time the applicant had a very good knowledge of the magnitude of flood damage and the derivative need for renovations. Receipt of a bank loan which had to be utilized in a relatively short time, which was not previously foreseen by the contracting authority, also cannot be classified as a special social or economic circumstance justifying the approval of special procedures.

In light of article 3 paragraph 2 of the Public Procurement Act (which bans the division of procurements into their constituent parts) a uniform order made at one time to a single entity, within the same pool of public funds managed by a given contracting authority, should be viewed as a single procurement with a value of over 20,000 EURO.

Application of single source procurement for additional procurements

In a letter dated October 12, 1998, the president of limited liability company "B" located in the city of W. applied to the Chairman of the Office of Public Procurement for approval, pursuant to article 71 paragraph 1 item 1, of the application of an single source procurement procedure for additional work which needed to be completed in order to enable the completion of a basic procurement. The justification stated that need for the additional work was noted as a series of deficiencies were discovered during performance of finishing work on the basic procurement. In addition, the letter explained that the value of this additional work would not exceed 20% of the value of the initial procurement contract.

In a decision dated October 13, 1998 the Chairman of the Office of Public Procurement refused to approve the procedure stipulated in the application described above.

The Supreme Administrative Court concurred with the position of the Chairman of the OPP and in a decision dated November 3, 1999, rejected the complaint. filed in response to the Chairman's decision of October 13, 1998. ThThe Court's justification of its decision includes a statement which seems to define the fundamental principle in interpreting and applying article 71 paragraph 1 item 1 of the Public Procurement Act. Additional procurements "must in their nature clearly derive from previous norms, standards, and parameters, yet their clarity should not justify the application of any exemptions. (...) The existence of similarities in parameters or norms is not sufficient basis to allow for application of single source procurement."

Application of the regulations of the Public Procurement Act by Health Care Organizations (Polish - Kasy Chorych)

In a decision dated March 3, 1999 issued pursuant to article 71 paragraph 1a in conjunction with article 71 paragraph 1 item 2 of the Public Procurement Act of June 10, 1994 (JoL, 1998, no. 119 item 773, as subsequently amended), the Chairman of the Office of Public Procurement refused "to approve single source procurement as the procedure to be applied in concluding a contract for the legal servicing of a regional Health Care Organization." On March 25, 1999 the Organization in question applied for nullification of its procurement contracting procedure having arrived at the conclusion that as an entity it was not required to apply the Public Procurement Act.

According to a legal opinion compiled by Professor Ryszard Mastalski, Ph.D., which was attached to the letter, Health Care Organizations are not included in the public finance sector, and health insurance premiums do not constitute public resources as defined in article 3 of the Act of November 26, 1998 on Public Finances (JoL no. 155 item 1014).

This motion of the Health Care Organization was classified as a petition for re-examination and in a decision dated April 20, 1999, issued on the basis of article 127 § 3 of the Code of Administrative Proceedings, the Chairman of the OPP upheld his previous decision and underlined that the health insurance system is based on the Constitutionally guaranteed in (article 68 paragraph 3 of the Polish Constitution) principle of equal access to health care benefits financed from public resources. Therefore, health insurance premiums are equivalent to a tax which is why Health Care Organizations should be required to apply the regulations of the Public Procurement Act.

In its complaint to the court, the Health Care Organization moved for the nullification of this decision of the OPP Chairman due to a lack of relevant legal bases and cited the same arguments as those presented in its application to the OPP of March 25.

In a judgment issued on December 16, 1999, the Supreme Court of Administration revoked the decision against which the complaint was filed and the decision of March 3, 1999 no. ZT/.../99 that preceded it and considered the following:

The allegations and conclusions of the complaint are formulated on the assumption that - on the date the issue was reviewed and ruled upon by the Chairman of the OPP - the procurement of legal services by Health Care Organizations was not subject to any of the procedures provided for in the Public Procurement Act.

The Court shared the position of the Chairman of the OPP - a position which was expansively justified - that Health Care Organizations were subject to the provisions of the Public Procurement Act prior to introduction of the Act's final amendment, which took effect on June 4, 1999. Following the addition of certain regulations, among others, article 2 item 7 letter (g) and article 4 paragraph 1 item 9, all doubts as to whether health insurance premiums constitute public resources were eradicated and the regulations of the Act were deemed to be applicable to the public procurements of independent public health care institutions, health insurance organizational units and the National Association of Health Care Organizations, within the scope not regulated by separate and distinct laws. The doubts manifested in this case did not derive from the existence of regulations contrary to those introduced by the amendment outlined. Instead they resulted from the need to devise a systemic and historical interpretation of the law. In the opinion of the Court this was done in an exemplary manner by the Chairman of the OPP in response to the original complaint when he referred to the provisions of the Polish Constitution and the legal acts which act jointly to create the system of universal health insurance. No rational reasons could be found for exempting such important organizational units of the health insurance system from the Public Procurement Act, particularly as these entities manage significant funds which qualify as public resources. It is worth noting that the reference to the Act on Public Finances, which was not introduced until the Act was amended (article 2 item 7 letter (a) of the Public Procurement Act), assisted in the evaluation of the comments contained in the opinion attached to the organization's complaint.

In reviewing the case, the Chairman of the OPP had failed to note that the estimated value of the procurement identified by the contracting authority did not exceed 20,000 EURO, i.e. the threshold which is defined in article 71 paragraph 1a as defining the limits of the OPP Chairman's prerogatives.

8. Public procurement under special circumstances

1) Removal of the effects of flooding

On March 24, 1999, the Chairman of the Office of Public Procurement, Marian Lemke, and the Minister - Member of the Council of Ministers, Jerzy Widzyk, concluded an agreement which supplemented another agreement concluded in May of 1998 regarding the removal of the effects of the flooding which occurred in July of 1997.

The purpose of the agreement was to establish procedures for reviewing applications for the abbreviation of bid submission times in unlimited tenders and to accelerate the speed with which tender announcements could be published in the Public Procurement Bulletin. The agreed procedures would pertain to tenders organized for procurements related to removing the effects of the flooding which occurred in 1998. These procurements were to be financed or co-financed from resources managed by the Minister - Member of the Council of Ministers.

Given that the statutory prerequisites - as delineated in article 38 paragraph 3 of the Public Procurement Act - to abbreviating bid submission times in unlimited tenders were present in the case of the procurements described above, the Chairman of the Office of Public Procurement agreed to the following:

• to approve applications for abbreviating to 3 weeks the bid submission periods for unlimited tenders organized for procurements pertaining to removal of the effects of the flooding which occurred in July of 1997, whenever the estimated value of these procurements exceeded 50,000 EURO (if the estimated procurement contract value did not exceed 50,000 EURO, the contracting authority was entitled to abbreviate the bid submission period on its own),
• to grant priority consideration to the applications described above sent in by PEAR-2 electronic mail,
• to publish in the Public Procurement Bulletin notices of contracting procedures for procurements related to the removal of the effects of flooding, and to publish said notices sent in by PEAR-2 electronic mail prior to 12:00 p.m. on a given day no later than 4 business days from their receipt, on the minimum condition that the relevant application was received at the same time and that the notice the notice was properly formulated (i.e. as required under relevant regulations).

Under this same agreement, the Minster - Member of the Council of Ministers was given the responsibility of providing interested parties with application forms for abbreviating bid submission periods in unrestricted tenders and of working with voivodeship governors to ensure that applicants would have access to the PEAR-2 electronic mail system. The Minister also became responsible for servicing applicants and assisting them in the preparation and submission of notices for publication in the PPB, using the "public procurement" software package.

2) The Y2K bug

Due to fears that computer systems would be unstable at the beginning of the year 2000, on March 12, 1999, the Chairman of the Office of Public Procurement, Marian Lemke, and Leszek Burzyński, Under Secretary of State in the Ministry of Internal Affairs and Administration, concluded an agreement under which tender proceedings for public procurements related to the Y2K bug would be abbreviated as would the periods required to prepare notices of the above-mentioned procedures for publication in the Public Procurement Bulletin.

The agreement mentioned above stipulated that sufficient legal justification existed for abbreviating bid submission periods to 3 weeks for tenders organized for procurements related to the "Y2K bug". These bidding period abbreviations could be effected:

• by the contracting authority if the estimated value of a procurement did not exceed 50,000 EURO,
• by the Chairman of the OPP if the estimated value of a procurement did exceed 50,000 EURO.

The Chairman of the OPP would give priority to reviewing applications for the abbreviation of bid submission periods in Y2K related tenders and notices sent in by PEAR-2 electronic mail prior to 12:00 p.m. on a given day (provided that they were accompanied by the relevant application) would to be published no later than 4 days from the date of their receipt.

Under the contract, Leszek Burzyński, Under Secretary of State in the Ministry of Internal Affairs and Administration, agreed to disseminate information about the agreement, to provide interested parties with an application form for abbreviation of bid submission periods and to work with voivodeship governors to ensure that applicants would have access and the knowledge needed to use the PEAR-2 electronic mail system.

The agreement remained in effect through December 31, 1999.


IV Control and Audit of the Procurement Contracting Process

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. According to Article 138 paragraph 1 item 14 Public Finance Act violations of principles, forms or procedures during awarding public contracts are violations of public finance discipline.

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 EURO.

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 1999 the Chairman of the Office of Public Procurement received 1,327 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, in 1997 - 1,005, and in 1998- 1, 195.

Of the 1,327 appeals lodged with the Chairman of the Office of Public Procurement in 1998, 150 were revoked before the date of trial, while 133 due to the failure to pay registration fee remained without judgement.

Of the 1, 044 cases examined, 657 appeals were dismissed (including 140 cases dismissed for formal reasons), while 387 were found to be justified.

As for the subject of public procurement Appeals were lodged in the case of tenders related to all contract categories. A total of 57% of all appeals pertained to tenders for public works contracts, 24% related to tenders for public supply contracts, and 19% to tenders for public service contracts.

Of all appeals, 91% pertained to procurement proceedings which involved unlimited tenders. In 6% of appealed cases, procurement contracting was decided through two stage tenders, and the remaining 3% of appeals in cases involving limited tenders, competitive negotiations and price inquiries. One of the appeals filed related to a procurement in which the contracting method was single source procurement. unrestricted.

Despite the considerable accumulation of appeals in 1998, the average period spent awaiting a trail did not exceed 10- 12 days (on average 11 days), while the statutory deadline is 14 days.

Participants of public procurement procedures who filed protests and appeals stated, as their reasons for taking such action, violations by the contracting authority of general principles applying to the public procurement process. Cited violations pertained to the principle of equal treatment for all tender participants and the principle of fair competition, neither of which were guaranteed in cases where the conditions of procurement formulated were automatically discriminatory of certain participants or classes thereof. Another principle that was often cited as being violated in protests and appeals was that of the transparency of proceedings.

Allegations formulated in protests and subsequently in appeals most frequently centered around the following circumstances:

1. the content of a notice of unlimited tender was demonstrated to violate one of the following regulations:
   

1. article 17 paragraph 2, which states that the subject and conditions of a procurement may not be defined in a manner which could hinder fair competition,
2. article 38 paragraph 2 item 1, which guarantees that certain minimums must be observed in defining times allotted for the submission of bids in limited and unlimited tenders,
   

2. the contention that the specification of the core conditions of a procurement violated one of the following items of article 35 paragraph 1:
   

1. item 6 - in that part of it relating to listing and defining all criteria other than price which the contracting authority aims to apply in evaluating bids,
2. item 8, regarding the need for describing all constituent elements of a procurement contract if submission of partial bids is admissible,
3. item 16, which requires contracting authorities to supply information on the methods to be used in evaluating bids,
   

3. the contention that the contracting authority violated article 39 of the Act by not extending the deadline for bid submission,
4. lack of information on bids selected, as per the provision of article 50,
5. lack of information on the procurement contract conclusion date, which was deemed to be a violation of article 51.

The body of decisions of competent authorities shows that most protests and appeals pertain to the final stage of the competition for procurements, i.e. that which involves selection of the most advantageous bid.

The allegations raised most frequently in this area were as follows:

1. contracting authority evaluated bids according to criteria different from or additional to those listed in the specification of selection criteria,
2. contracting authority was not justified in rejecting a bid or failed to reject a bid despite having sufficient reason to do so,
3. contracting authority applied non-objective criteria in evaluating the "technical reliability", "economic reliability" or, simply, "reliability" of bidders,
4. the contracting authority replaced or modified the criteria used in evaluating bids after the bid submission deadline,
5. the price proposed in the winning bid was not the lowest of those offered,
6. the contracting authority was imprecise in defining evaluation criteria or failed to give any such definition.

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).

A total of 515 procurement procedure audits were initiated in 1999. A total of 350 audits were completed in that year and 51 of them - constituting 15% of the total initiated (the same ratio in 1998 was 10%) - ended with the issuance of notification as per article 9 paragraph 2 item 3 of violations of public procurement principles, forms or procedures as stipulated in the Public Procurement Act, and the provision of these notices to competent bodies responsible for examining and deciding in cases involving possible violations of discipline in the management of public finances.

The greatest number of notifications as per article 9 paragraph 2 item 3 of the Act were filed pertained to self-government entities (49%) and health care institutions (20%).

Audits initiated on the basis of bidder complaints generated the greatest number of notifications (34), which were followed by those resulting from information provided by the Legal Department or the Bulletin Department of the OPP (16). One notification was generated through a bidder -lodged appeal that was subsequently resolved.

Of the cases which resulted in the issuance of notifications, 25, or 49%, involved procurements completed through single source procurement procedureunrestricted contracting procedures, 16 (31%) consisted of procurements made through unlimited tenders, and 3 notifications each were issued in procedures involving two-stage tenders, request for quotations price inquiries and competitive negotiations with retaining competition. In one case resulting in the filing of notification, none of the procurement procedures provided for by law was employed.

In 31% of the cases which resulted in the issuance of notification, the fundamental allegation related to the violation of article 71 paragraph 1a of the Act, and pertained to the fact that an unrestricted contracting procedure was applied to procurements with a value in excess of 20,000 EURO.

Among the violations of the Public Procurement Act identified during audits, a significant percentage (27%) related to the application of procedures other than unlimited tenders in violation of article 14 paragraph 2 of the Act, i.e. without sufficient justification, as stipulated in the Act, for the application of a method other than unlimited tender.

Apart form the cases cited above, violations of the Public Procurement Act identified as a result of the program of audits involved selection of the most favorable bids in violation of article 48 paragraph 1 of the Act, i.e. through the application of principles or criteria other than or additional to those specified in the invitation to participate in the procurement procedure or in the specification of the core procurement conditions. This in turn resulted in the selection of bids which were not the most favorable in terms of article 2 item 8, and consequently in the violation of article 49, of the Act.

Some of the audited cases involved violations of article 16 of the Act, which defines principles guaranteeing equal treatment of all entities seeking public procurement contracts and the preservation of fair competition in public procurement contracting procedures. In particular these related to the stage at which bids are evaluated form a formal point of view and consisted of the admission to the technical evaluation stage of bids which failed to fulfill requirements of the Act and/or procedural documentation produced by contracting authorities. These principles were also often violated at the technical evaluation stage of procedures when evaluations were completed according to principles and criteria differing from those defined in the conditions of the procedure.

As a result of the notifications issued by the OPP, in 7 instances the relevant public finance commissioners filed motions with committees responsible for adjudicating possible violations of discipline in the management of public finances requesting that the persons responsible for violating the Act be punished, and in 4 instances the relevant commissioners refused to file motions for punishment. In two cases, the persons identified in the notifications were censured. The Office does not possess information on the steps taken in response to the remaining 38 notifications issued.

Apart from audits initiated in response to complaints and appeals, in 1999 the Chairman of the Office of Public Procurement also performed audits of the following:

• prices of forms specifying the essential provisions of the procurementcore conditions of procurement contracts,
• procurement contracts regarding rectification of the effects of flooding, awarded on special terms,
• procurements related to Pope John Paul II's pilgrimage to Poland.

Article 34 paragraph 4 of the Public Procurement Act stipulates principles for calculating the price of forms specifying essential conditions of public procurementcore procurement contract conditions. The price for forms specifying essential provisions of public procurementcore procurement contract conditions may not exceed the costs incurred for printing the forms and mailing them to interested bidders.

A contracting authority may elect to distribute forms specifying essential conditions of public procurementcore procurement contract conditions free of charge or to price them lower than the amount determined by completing the calculation delineated above. However, establishing a price higher than the sum of the costs incurred in printing and mailing the form is inadmissible.

As a result of an analysis of notices published in the Public Procurement Bulletin (from January 1 to June 8, 1999), a total of 90 procedures in which the price for specification forms exceeded 300 PLN were qualified for audit.

In these 90 cases, the relevant contracting authorities received letters containing a request for information on the manner used to calculate the price of specification forms and information on the stage of advancement of the procedure.

On the basis of the information obtained, it was determined that the prices of forms specifying essential provisions of public core procurement contract conditions were calculated incorrectly in 58 of the cases (69% of those investigated).

In calculating the prices of specification forms, institutions possessing access to public finances did so in violation of article 34 paragraph 4 of the Act by taking the following costs, into account:

• the costs of drafting the form specifying essential provisions core of public procurement contract conditions,
• the costs of compiling estimates of investment outlays and take-off quantities,
• the costs of drafting a blind estimate,
• the costs of office supplies like folders, document holders, binders,
• the costs of corresponding with bidders to provide additional explanations of contract specifications, including the costs of fax and telephone connections,
• the costs of publishing advertisements of tenders in the local or national press.

In some cases the wages of permanent technical employees or employees of economic departments were included in calculations of the costs of forms specifying essential provisions of core procurement contracts conditions. For the purposes of these calculations, wages for economic and technical employees were expressed in the form of a rate per hour as stipulated by in-house price lists for 1999. Among other things, employees were paid to perform the following tasks:

• issuing invoices to purchasers of the form specifying essential provisions of core proprocurement contract conditions,
• compiling 1 set of the specification form,
• completing unfinished inventories (needed to enable the compilation of a specification form),
• dismantling, supplementing, and rebinding technical documentation,
• writing specification forms to diskettes,
• retyping specifications on computers.

In 20 of the cases in question (24% of those investigated), the price given in notices published in the Public Procurement Bulletin was higher than that which could be derived from calculations provided by contracting authorities in response to the request of the OPP. On average prices were augmented by approximately 13 PLN. In two cases, the discrepancy was as high as 50 PLN.

In one of the cases investigated, the contracting authority (an entity having access to and responsible for managing public funds) increased the price of the form specifying essentail conditions of procurement core contract conditions from 500 PLN (as given in the notice) to 800 PLN (actual charge at time of purchase). The entity in question justified this change by claiming that bidder interest in the procurement contract was lower than expected.

It should be noted that violations of article 34 paragraph 4 of the Public Procurement Act may render effective any protests filed by potential suppliers or service providers and result in the lodging of appeals with the Chairman of the Office of Public Procurement.

At the same time it is worth noting that violation of this regulation of the Act could be viewed as a violation of one of the fundamental principles which apply to public procurement procedures: the principle of openness. This in turn could lead to a violation of article 138 paragraph 1 item 12 of the Public Finance Act and to accountability for lack of discipline in the administration of public funds.

Under the audit program of the Chairman of the OPP, contracting authorities who were discovered to have violated article 34 paragraph 4 of the Act received general or specific letters noting the transgression identified in their case.

The Chairman of the Office of Public Procurement, acting within the scope of his rights and duties as stipulated in article 9 paragraph 2 item 2 of the Act, conducted an inquiry into the procurements which were contracted out on special terms in connection with efforts to repair and remove damage and destruction caused by the flooding which occurred in July of 1997. The Office's investigation encompassed approximately 450 selected procurements contracted out by five entities responsible for what was broadly termed to be the management of water resources.

An analysis of documentation pertaining to the procurements mentioned above shows that in most of these cases (about 85% of the total), contracting authorities applied unrestricted contracting as their method of procurement and cited the appearance of the circumstances defined in article 71 paragraph 1 item 6 of the Act as their reason for doing so. This was particularly true for one of the regional water management centers, which, as determined from explanations submitted by the center, applied the unrestricted contracting procedure in 364 of the 427 procurements it contracted out under the program of rectifying the effects of the flooding.

The application of single source procurement unrestricted procedure contracting in the analyzed cases, citing the regulation of article 71 paragraph 1 item 6 of the Act as the reason for applying this procedure, gives rise to justified doubts. Application of this procurement procedure (even under the circumstances described in article 71 paragraph 1 item 6) must be justified by the advent of the concrete, factual circumstances that are defined in this regulation. It should be noted that the stipulated regulation limits possibilities for completing procurements to those instances where "...due to special economic or social circumstances which could not have been foreseen by the contracting authority, the procurement or procurements must be contracted out immediately." Only a section of the procurements investigated were contracted out in 1997, i.e. shortly after the occurrence of the event which necessitated immediate contracting and completion of specific tasks. Most of the procurements were contracted out in 1998 and later, i.e. a significant time after the flooding of 1997, which the contracting authorities were using to justify the application of special principles provided for in the relevant ordinance. A significant amount of time elapsed between the flooding and the procurements which were contracted out in 1998 and 1999 in connection with efforts to remove and rectify the effects of the flooding. This elapsed time is sufficient justification to assume that these procurements should not have been contracted out on the special terms defined in the relevant ordinance.

Another essential circumstance discovered as a result of initiated audit and control procedures involved contracting authorities amending already concluded contracts and using the regulation contained in article 76 paragraph 1 of the Public Procurement Act to justify said amendments.

At this point it should be underlined that amendment of concluded public procurement contracts or the introduction of new provisions into said contracts is admissible under the Act. As clearly stated in article 76 paragraph 1, this may be done provided that any changes made are not to the disadvantage of the contracting authority and would not necessitate any modification of the bid which served as the basis for selecting the entity contracted for the procurement, except where the amendment becomes necessary as a result of circumstances which could not have been foreseen at the time the procurement contract was concluded.

In light of the above, contract amendment is inadmissible in cases which meet all three of the following conditions:

• amendment would require modification of the bid on the basis of which a given contractor was selected to fulfill the procurement contract,
• contract amendment would be to the disadvantage of the contracting authority,
• contract amendment is not sufficiently justified by the appearance of new circumstances which could not have been foreseen at the time the contract was concluded.

In a majority of the instances analyzed, amendment of concluded contracts involved prolonging the time allotted for the fulfillment of contract conditions or expanding the subject of the procurement contract. Contracting authorities most frequently cited circumstances beyond their control as their justification for amending contracts. The circumstances cited included financial shortages and unusual or special conditions under which procurements were being completed, conditions which had prevented the scope of work to be done from being defined precisely at the time contracts were being concluded. However, these justifications were specifically documented in only a handful of the cases investigated. As a result, it was difficult to determine if all instances involving the modification of the subject scope of contracts were justified in light of the regulation of article 76 paragraph 1 of the Public Procurement Act.

As a result of the audit, the Chairman of the Office of Public Procurement, acting on the basis of article 9 paragraph 2 item 3 of the Act in conjunction with article 165 paragraph 1 of the Public Finance Act of November 26, 1998 (JoL no. 155 item 1014, as subsequently amended) notified competent budgetary discipline commissioners of violations of public procurement contracting principles, forms or procedures in two instances. Audit proceedings have yet to be completed in one more case.

The Chairman of the Office of Public Procurement, acting within his scope of responsibilities as stipulated in article 9 paragraph 2 item 2 of the Act, also undertook to audit public procurements contracted out in connection with Pope John Paul II's visit to Poland.

Of the several dozen proceedings for which the Chairman authorized use of single source procurement procedureunrestricted contracting, a total of five tenders were chosen for audit because there were certain doubts as to whether the proceedings had been performed in accordance with the Chairman's decision. Out of these five audits, one culminated with the OPP notifying competent bodies of a violation of public procurement principles, forms and procedures. In this case, the contracting authority was accused of violating article 71 paragraph 1a of the Act by applying single source procurement procedure unrestricted contracting to a public procurement contract valued at over 20,000 EURO prior to receiving the permission of the OPP Chairman to apply this contracting method.

V Dissemination of Experience Information and Promotion

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

Information is disseminated by the Office of Public Procurement 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 1999 the Office of Public Procurement published the following additional books and brochures on topics related to public procurement:

• "The Decisions of a Panel of Arbiters. A survey of selected judgments issued between August and December of 1998",
• "How to Avoid Making Errors in the Public Procurement Process. Findings of audits performed by the Chairman of the Office of Public Procurement",
• "Public Procurement in the European Union. Directives related to public procurement of supplies, services and public works",
• "Public Procurement in the European Union. Judgments of the Justice Tribunal, Part I",
• "Public Procurement. The Decisions of a Panel of Arbiters. A survey of selected judgment issued between January and June of 1999".

Since 1998, the Office of Public Procurement has been working with voivodeship governors to organize regional meetings (mini-conferences) for individuals who must apply the provisions of the Public Procurement Act in their work.

In 1998, meetings of this kind were held in Rzeszów, Szczecin, Lublin, and Łódz. In 1999, meetings were held in Opole in the month of June, in the cities of Bydgoszcz and Torun in the month of September and in Bialystok in November.

In addition, the Office of Public Procurement hosted conferences for the following groups:

• institutions representing entrepreneurs - November,
• managers of public procurement departments and sections within ministries and other central government institutions - December.

Discussions at these conferences centered around issues relating to the functioning of the public procurement system in Poland, including, among other things, the degree of control authorities exercise over the public procurement process and the changes which were to be made in the Public Procurement Act in the future.

Their general objective was to provide a forum for discussion of the more important practical problems which were raised by contracting authorities responsible for allocating and spending public resources, and to provide participants with opportunities to exchange information and experiences about the application of the Public Procurement Act.

Due to the changes which occurred as a result of the January 1999 reforms of the State system of public administration, the Office of Public Procurement supplied voivodeship governors, speakers of voivodeship self-government assemblies, district commissioners (Polish - starosta powiatu) and chairpersons of Regional Accounting Offices with a document which outlined basic information on awarding public procurement contracts. This document discussed the most essential issues in public procurement procedures and in the awarding of public procurement contracts.

Disseminating knowledge and providing information on the errors committed most frequently in the public procurement process are the most effective method for improving the efficiency with which public resources are expended, and one that requires few outlays.