The growing importance of out-of-court dispute resolution in public procurement

The co-author of this text is Mrs. Marta Janowska, legal counsel, expert in AML, compliance and public procurement law.

On 1^st January 2021, the new act which regulates public procurement came into force putting the previously binding norms in order, but also introduces novelties in this sector. One of these significant changes is providing explicitly in the act the facility of resolving disputes which arise from public procurement contracts out-of-court, which in the sphere of public law is not a very common practice, especially in light of public finance discipline.

In accordance with the provisions on public finance (art. 54a), a public finance sector entity may conclude a settlement on disputable civil law rece­­ivables as long as the settlement is more beneficial than the probable outcome of a court or arbitration proceedings. The assessment of the effects of the settlement must be made in writing, taking into account the circumstances of the case, in particular the legitimacy of the disputed claims, the possibility of satisfying such claims and the expected duration and costs of the court or arbitration proceedings. Settlements based on the above mentioned article of the act on public finance are not concluded in large numbers, which is indicated, among others, in the statistics conducted by the State Treasury Attorneys’ Office of the Republic of Poland.

Will the contracting authorities be willing to use this novelty which the act seems to popularise?  New regulations in this area may cause it an interesting, cheaper and faster tool for contractors and contracting authorities to properly implement public procurement. They also give the parties a sense of greater control over the dispute and its resolution. Bearing in mind previous practice, mediation in cases which may be more complicated can take up to several months.  However, it is also worth remembering that classic, well-run commercial mediation may end a dispute in a matter of weeks.

The new act provides that in a property case where a settlement is permissible, each party to the contract, in the event of a dispute which results from the procurement, may file an application for mediation or other amicable resolution of the dispute with the Arbitration Court at the State Treasury Attorneys’ Office of the Republic of Poland, a selected mediator, or a person who conducts another amicable resolution to the dispute. Indicating the Arbitration Court at the State Treasury Attorneys’ Office of the Republic of Poland as one of the arbitration courts should be regarded as an interesting solution and one that gives the contracting authority a greater sense of certainty. However, the provisions also provide for the appointment of another mediator or a person who conducts other “types” of amicable dispute resolution, which in turn is an important element from the contractor’s point of view. In this context, current discussions on professionalising the mediator profession and efforts to specialise in it seem to be important, as disputes which arose in the context of public procurement are usually complicated and complex issues which require the appropriate preparation and practice in resolving them.

The lawsuit or the contracting authority’s reply to the lawsuit includes information as to whether the parties have attempted mediation or other amicable resolution of the dispute, and if they have not, an explanation of the reasons why they have not done so, which is a solution analogous to civil procedure in this respect.

Unlike the Civil Procedure Code, however, if the lawsuit or the contracting authority’s response to the lawsuit does not contain the information listed above, in cases of significant value the court obligatorily refers the parties to mediation or other amicable resolution of the dispute to the Arbitration Court at the State Treasury Attorneys’ Office of the Republic of Poland, unless the parties have indicated another mediator or person who will conduct other amicable resolution of the dispute. This solution distinguishes mediation in public procurement law from mediation regulated by the Civil Procedure Code. The Civil Procedure Code only requires the parties to indicate in the first pleading whether they have attempted to resolve the dispute amicably, e.g. in mediation (but there is no obligation to do so). The November 2019 amendment to the Civil Procedure Code goes slightly further, introducing the institutions of a preparatory meeting to the trial, during which the parties, with the assistance of the court, are to seek an amicable conclusion of the dispute. The judge is even supposed (according to the content of the justification for these changes) to “mediate” between the parties. Thus, in principle, the direction of changes concerning mediation in public procurement law is consistent with the general trend in the trial, including the promotion and use of Alternative Dispute Resolution.

If the Arbitration Court at the State Treasury Attorneys’ Office of the Republic of Poland refuses to mediate or otherwise resolve the dispute amicably, the court refers the parties to mediation or other amicable resolution of the dispute:

1. to a mediator or a person who conducts other amicable settlement of the dispute, according to the choice of the parties; or
2. if the parties have not chosen a mediator or a person conducting another amicable resolution of the dispute, the court appoints, as appropriate:

• a mediator in accordance with Article 183(9) of the Act of 17 November 1964 – the Civil Procedure Code, or
• by an order, a person with the appropriate knowledge and skills to conduct another amicable resolution of the dispute in civil matters and procurement.

The Arbitration Court at the State Treasury Attorneys’ Office of the Republic of Poland conducts mediation or another amicable resolution of a dispute pursuant to the provisions of the Act on the State Treasury Attorneys’ Office of the Republic of Poland of 15 December 2016. In matters not regulated for mediation or other amicable resolution of a dispute, the provisions of the Civil Procedure Code shall apply accordingly.

It is worth noting that the mediator and the person who conducts other amicable resolutions of the dispute may not be representatives in court in the proceeding concerning the dispute covered by mediation or other amicable resolution of the dispute, as well as may not participate in such court proceeding in any other manner.

Finally, it is important to emphasise that the settlement agreement must not result in a violation of the provisions regarding the permissibility of modifying the content of the agreement, which may pose some challenges for the mediating parties and the mediator. Practice will show how the parties to the dispute will cope with this rule of the act.

The introduction of mediation into public procurement should be regarded as the right direction which forces some changes in the organisational culture of disputes arising out of the award of public contracts. In addition to the introduction of solutions facilitating the exercise of the right to a court (reduction of the fixed fee from five to three times the appeal fee), this is another step toward streamlining these proceedings. For this solution to be accepted in the world of public procurement, however, a real and bottom-up change is needed in the organisational culture of public procurement proceedings and disputes in this area. What is needed is a mitigation of the principle of formalism in favour of a matter-of-fact conduct of public procurement proceedings and disputes in this area.