Contracting authorities are currently free to require a bid bond to be provided, at will and irrespective of contract value. In this way contracting authorities are protecting themselves against the consequences of negligent conduct by contractors for as long as the latter are bound by their bids.

In practice of public procurement, the bid bond guarantee remains the most formalistic — and hence the most sensitive — document to be filed along with the bid. There are no legal regulations whatsoever concerning supplementation, rectification or clarification of its content once the deadline for submitting bids expires - on the contrary, the bid bond guarantee must secure the bid continuously for as long as it remains binding, there must be no doubt as to its enforceability in circumstances set forth in the Public Procurement Law and it must offer a degree of protection comparable to that of monies deposited in the contracting authority’s bank account (cash bid bond). To date, the National Appeals Chamber (KIO) has maintained a very rigorous stance towards bank (bid bond) guarantees, often seeing even the slightest of irregularities as adequate grounds for rulings on improper provision of the bid bond, which then trigger rejections of the tenders at issue. As bank (bid bond) guarantees are used widely in commercial transactions, it is useful to be familiar with the latest case law of the KIO and the approach taken by the Chamber toward two categories of guarantee provisions that are seen as potentially flawed.

“Erroneous” reference to regulations

Let us first of all look at KIO case law concerning bank (bid bond) guarantees filed in procedures under the currently applicable Public Procurement Law of 2019 (“nPPL”) in which — in most instances erroneously — it is not Article 98(6) nPPL that is cited, which sets out the circumstances in which the contracting authority may retain the bid bond, but its predecessor regulations: Articles 46(4a) and 46(5) of the Public Procurement Law of 2004 (“pPPL”).

In what by now appears to be a well-established practice, the KIO issues rulings to the effect that references to Articles 46(4a) and 46(5) pPPL in bid bond guarantees must be seen as adequately reflecting the requirements laid down in nPPL for the grounds warranting forfeiture of the bid bond by the contracting authorities.

One example here is the judgment of the KIO of 19 January 2022 in case no. KIO 12/22, but there are also many others like it (to mention but those handed down in cases nos. KIO 530/21, KIO 623/21, KIO 1700/21 and KIO 3725/21). Importantly, there was also one ruling issued in the first half of 2021 to the contrary (in case no. KIO 1003/21).

The KIO judgment of 19 January 2022 was issued in a dispute over a guarantee provided in a procedure conducted under nPPL in which the bid bond was to be paid out “in all circumstances where the bid bond is forfeited by the contractor, as set forth in Articles 46(4a) and 46(5)” pPPL — an explicit reference to the regulations governing bid bonds in the previously applicable PPL.

The KIO found that this reference to regulations no longer in force was due to an error which — as the adjudicating panel opined — was obvious without having to perform any in-depth analysis of the wording of the guarantee. The disputed guarantee featured all the other elements required by the contracting authority in the procedure at issue and contained unequivocal references to the circumstances of this procedure, as set out in the contract notice and the terms of reference.

It is important to note here that the provision of Article 223(2) nPPL requiring contracting authorities to, among other things, correct obvious errors in bids was till now considered inapplicable to the contents of bid bond guarantees. In this context, the KIO’s assertion just cited may be seen as surprising.

Nevertheless, the KIO found that the circumstances referred to in Articles 46(4a) and 46(5) pPPL correspond to those set forth in Article 98(6) nPPL and that, therefore, the circumstances in which the bid bond may be retained that were set out in the guarantee at issue are in line with nPPL, despite having been indicated with reference to provisions of the now repealed pPPL.

That said, certain differences of greater or lesser import may be discerned in these regulations, especially if we compare Article 46(4a) pPPL with its successor— - Article 98(6)(1) nPPL. Leaving aside the plainly visible references to different passages in pPPL and nPPL (which are however regulating analogous institutions), we now see in the currently applicable law terms like “entity-related evidence” and “subject matter-related evidence” which until now were not to be found in statutory law. Most importantly, the law currently in place now comes with the rather vague reference to “other documents and representations” at the end to the description of grounds for bid bond forfeiture, thus providing for more documents which, if not delivered at the request of the contracting authority, may trigger forfeiture of the bid bond.

One possible conclusion from this line of jurisprudence is that the KIO engages in what is de facto law making, although this may in fact be a useful contribution in that it serves to eliminate needless formalism.

Requests for payment after the tender validity period lapses

The second interesting issue in current KIO case law is the proper specification of the deadline for delivery of the demand for payment of the bid bond.

To date, the KIO’s position in this regard was fairly consistent (as can be seen from judgments in cases nos. KIO 3362/21, KIO 3482/21, KIO 3617/21, KIO 3628/21, KIO 3748/21, KIO 3758/21 and KIO 892/22): the foremost requirement is for the bid bond guarantee to remain valid throughout the tender validity period and be payable upon demand delivered within this period. Contracting authorities wishing to lay down additional terms and conditions for the bid bond and, for example, require contractors to provide bid bonds clearly subject to effective forfeiture also within some specific period following their expiry, must explicitly spell out such requirements in the relevant documentation. In issuing judgments of this kind the KIO relied primarily on the order of the Court of Justice of the European Union ("CJEU ") in Case C-35/17 in which the Court noted that "the principles of transparency and equal treatment applicable to all public tenders require that the substantive and formal conditions for participation in the tender be clearly defined in advance and made public, in particular as regards the obligations incumbent on tenderers, so that they can acquaint themselves precisely with the tender requirements and be certain that the same requirements apply to all competitors."

However, there have also been KIO judgments deviating from the prevailing position just quoted, such as the KIO judgment of 9 July 2020 in case no. KIO 952/20, later upheld by a ruling of the District Court in Częstochowa of 5 February 2021 (case no. V Ga 328/20), the KIO judgment of 3 November 2020 in case no. 2486/20, and the most recent judgment of 2 June 2022 in case no. KIO 1292/22). The latter judgment merits special attention given its major significance in the practice of public procurement.

It was handed down in a dispute over the wording of a bid bond guarantee expiring with the end of the period in which the tender was binding upon the tenderer and which contained the proviso (commonly made in the practice of trading) that the request for payment of the bond must be delivered to the guarantor within the validity period of the bond. According to the KIO, this proviso led to the risk that the contracting authority's claims might not be satisfied in certain circumstances.

While the KIO did not dispute that the respective periods of validity of the bid bond and the tender itself must coincide, and that there are no grounds under statutory law for requiring the bid bond to be provided for a longer period, the KIO panel nevertheless opined that a distinction must be made between the expiry of the validity period of the bid bond and the expiry of the time limit for lodging claims with the guarantor under the bid bond. With regard to the latter time limit, it must be considered whether or not it ensures that the contracting authority's claims relating to events that occur during the guarantee period will in fact be satisfied. A bid bond may be seen as effectively securing the tender throughout the period of tender validity only where the contracting authority is able to effectively request payment in whatever circumstances if the event warranting the retention of the bid bond occurred during that period.

As the KIO also noted, there is nothing in nPPL to regulate the time limits of when the contracting authority can request payment, and it is therefore assumed that these requests should be delivered without undue delay, that is to say as soon as practicable in the normal course of business. However, the KIO panel also concluded that provisions in the guarantee requiring payment requests to be made within the period of the guarantee's validity create unwarranted restrictions on the contracting authority's ability to seek payments from the bid bond as, in practice, it will not always be possible to deliver a payment request within the bid bond's validity period, particularly where the grounds for retaining the deposit emerge on the last day of this period. In situations where the event justifying retention of the bid bond occurs shortly before the expiry of the period for which this security was established, the contracting authority could be left with no possibility of obtaining the payment.

With the above in mind, the KIO ruled in this particular case that the bid bond was not provided in the proper manner and that, therefore, the bid at issue merits rejection.

Author's opinion

While the Public Procurement Law does not define ‘bid bond,’ it does lay down rules for setting the amount of the bond, the form in which it is to be provided, and the rules for its retention and return. A new development in law, in effect since January 2021, is that bid bonds are no longer required where the estimated value of the public procurement is equal to or exceeds the EU thresholds. In other words, contracting authorities are now free to require a bid bond at will, regardless of the contract value.

The purpose, meanwhile, of the bid bond in public procurement proceedings remains unchanged, in that it is meant to secure the potential interests of the contracting authority against negligent conduct by the contractor during the period in which the latter remains bound by its tender.

The cited position adopted by the KIO in its most recent judgment in case no. 1292/22 is seen as debatable, to say the least. While financial security of the contracting authority — which would be safeguarded if the contracting authority was granted a longer period for bringing claims under the bid bond — is indeed important, purely fiscal considerations should not overshadow the principle of transparency, as outlined in the existing case law of the KIO and CJEU. The principle of transparency precludes situations whereby contractors, having submitted their tenders, are suddenly surprised with requirements for the bid bond document that were not expressed a priori in the terms of reference, the nPPL or other legislation — or even in unequivocally worded case-law — especially if one considers that the nPPL does not provide for any opportunities to correct, supplement or clarify the bid bond document delivered under this law. In any case, regardless of what one thinks about the KIO’s position discussed above, reasonable contractors are well advised to take it into account when drafting their bid bond documentation and most probably (while complying with all the other requirements concerning the bid bond laid down by the contracting authority in the given procedure) give the contracting authority a few additional days to pursue any claims it may have under the bid bond guarantee after the contractor ceases to be bound by its tender.