Defense Procurement

Over the past few years, it has been impossible to ignore the rapid growth in Polish defence and security spending. Both the previous and the current governments have made numerous, more or less spectacular and more or less controversial purchases of military equipment both in Poland and abroad. Therefore, and taking into account the fact that many new modernisation programmes are still waiting to be implemented, it is worth taking a closer look at the legal side of the organisation of defence procurement.

Legal framework

When we talk about procurement in the field of national defence and security, two pieces of legislation should come to mind: the Defence Directive and the Public Procurement Law (PPL). The 2009 Directive laid the foundations for the approximation of the laws of the EU Member States on defence procurement by establishing specific procurement rules and opening up the defence market in the EU in a way that does not jeopardise the legitimate security interests of the EU Member States.

The Directive aims to increase competition and transparency in the defence sector and to enable European companies to bid for and participate in more defence and security tenders in the EU.

The Defence Directive was transposed into the Polish legal system by the Act amending the Public Procurement Act and the Act on Concessions for Construction Works or Services of 12 October 2012 by adding Chapter 4a to the existing Act. Currently, the provisions of the Defence Directive are reflected in Section VI of the new Public Procurement Law.

Contract in the field of defence and security – Law Definition

Pursuant to Article 7(36) of the Public Procurement Law, a contract in the field of defence and security is a contract awarded by a public contracting authority or a sectoral contracting authority, the subject of which is:

supplies of military equipment, including any of its parts, components, subassemblies or its software;
supplies of sensitive equipment, including any of its parts, components, subassemblies or its software;
construction works, supplies and services related to protection of facilities put at the disposal of subjects performing contracts in the fields of defence and security or related to the equipment referred to in letters a and b, all of its parts, components and subassemblies involved in the life cycle of such product or service;
construction works and services intended for military purposes, sensitive construction works or sensitive services.

General rules

Defence and security procurement is characterised by specific requirements resulting from the need to protect national interests and ensure national security. Among the characteristics of this type of contract, the following should be mentioned in particular:

High security requirements – defence procurement often involves technologies and equipment of key importance to the country’s defence, requiring special precautions, whether to protect classified information or to ensure security of supply;
Confidentiality – due to the nature of the contracts, a great deal of information relating to the procedures and performance of the contracts is covered by the confidentiality clause (and in the category of state secrets);
Specialised technical requirements – defence procurements often involve advanced technologies that require specialised knowledge and experience from contractors;
Significant financial outlays – defence procurement typically involves significant financial outlays by the contracting authority, not only for the purchase itself, but also for the maintenance (servicing, upgrading) of the equipment, which can have a life cycle of up to several decades;
Long-term commitments – defence procurement typically involves long-term partnerships with contractors, continuity of supply and service, and other life-cycle support.

The specificity of defence procurement is also influenced by another characteristic, namely the protection of national interests. This is such a sensitive issue that, in some cases, defence contracts may be awarded in a manner that deviates from the principles of full competition and from the principles of public procurement law, if this is necessary to ensure national security. Such a derogation is expressly allowed by the Defence Directive, which, in point 16 of its preamble, provides for the possibility of not applying public procurement rules when justified on grounds of public security or necessary for the protection of important national security interests (e.g. due to extremely high security requirements or due to their secret nature), if important security interests cannot be safeguarded in any other way.

In Article 13 of the Public Procurement Law, the legislator excluded certain categories of defence procurement from the application of the Law. For example, the provisions of the Law do not apply to contracts based on international agreements with non-EU countries, contracts based on contracts related to the stationing of troops, contracts awarded for the purpose of intelligence or counter-intelligence activities, or contracts awarded under research and development cooperation programmes with another EU Member State.

This exclusion is the result of the transposition of the Defence Directive, which, in point 16 of its preamble, provides for the possibility of not applying public procurement rules when this is justified on grounds of public security or necessary for the defence of important national security interests (e.g. due to extremely strict security requirements or due to the secret nature of the contract), if essential security interests cannot be safeguarded in any other way.

Other contracts in the field of national defence and security are subject to the provisions of the Public Procurement Law.

Not all modes

Pursuant to Article 395(1) of the Public Procurement Law, the provisions on traditional procurement procedures apply to defence procurement, whether the value is equal to, above or below the EU thresholds.

Paragraph 3 of this provision excludes the application of the provisions on open tendering, innovation partnership, dynamic purchasing system and competition.

The legislator has provided for the following public procurement procedures for the defence and security sector:

limited tender
negotiated procedure with an announcement
competitive dialogue
negotiated procedure without announcement
single-source procedure

The last three modes are available to the contracting authority in cases specified in the regulations.

Brief characteristics – basic procedures

Without going into excessive detail, I will try to briefly characterise the different types of public procurement that may be used for defence procurement.

A limited tender s a procedure in which the contracting authority invites tenders from only those contractors who meet certain conditions and have been qualified by means of “pre-qualification”. This means that all interested parties may apply to participate in the procedure, but only some contractors selected by the contracting authority will be invited to submit tenders.

The provisions of the PPL define in detail the minimum content of the ToR. It should be noted that in the case of defence and security contracts, the contracting authority is not obliged to make the ToR available on the website, unlike in the case of traditional procurement procedures. However, if the contracting authority decides to place the ToR on the website, it must provide free, full and unlimited access to them from the date of publication of the notice until at least the date of the award of the contract.

Pursuant to Article 411(8) of the PPL, the contracting authority may limit the number of contractors invited to submit tenders whose request for participation in the procedure were admissible. In any case, the number of contractors who are allowed to submit tenders must be sufficient to ensure competition and not less than 3.

Requests to participate in the procedure must be submitted in writing or (with the agreement of the contracting authority) electronically within 30 days of the publication of the announcement, on pain of nullity. This period may be reduced to 10 days in the event of urgency in the award of the contract.

The contracting authority invites the contractors whose requests have not been rejected and who also satisfy the criteria laid down to submit tenders, in the number determined by the contracting authority.

If the number of contractors who have submitted requests that are not subject to rejection is less than the minimum set, the contracting authority may: 1) continue the procedure; 2) suspend the procedure and republish the notice with a new deadline; or 3) cancel the procedure in accordance with Article 258(1) of the Public Procurement Law.

The time limit for the submission of tenders may not be less than 40 days from the date of the invitation to tender (Article 411(13)). This period may be reduced in one of three cases:

free, full, direct and unrestricted access to the ToR was provided from the date of publication of the notice- reduction possible to 35 days;
a pre-information notice has been published containing all the information required for the contract notice – reduction possible to 22 days;
there is an urgency to award the contract – reduction possible to 10 days.

The negotiated procedure with notice consists of inviting tenders and conducting negotiations with selected contractors. It can be used when the contract specifications cannot be precisely defined at the stage of the contract notice. This procedure is often used for contracts involving modern military technology.

This procedure is characterised by the fact that all interested contractors can apply to participate in the procedure and that the contracting authority invites approved contractors to submit preliminary offers. It then negotiates with them to improve the content of the preliminary tenders, after which it invites contractors to submit final tenders.

The Statement of Requirements (SOR) – not the ToR – should be made available on the website of the authority conducting the procedure or sent to the contractors together with the invitation to tender. In this way, the contracting authority can limit the potential group of contractors from the outset by sending the invitation to submit a tender and the SOR to selected entities.

In negotiated procedures with notice, it is possible to limit the number of contractors invited by the contracting authority to submit preliminary tenders. This limitation may, of course, be introduced if the contracting authority publishes the SOR on its website. This information should indicate the selection criteria the contracting authority intends to use to limit the number of contractors and the minimum number of contractors invited to submit tenders. The contracting authority may also indicate the maximum number of contractors to be invited.

In the case of defence procurement, the time limit for submitting requests may be reduced from the statutory 30 days to 10 days from the date of submission of the notice for publication if there is an urgent need to award the contract.

When notifying the results of the evaluation of requests and the invitation to submit tenders, the contracting authority is obliged to notify about those requests that have been rejected on the basis of the evaluation of the requests according to the selection criteria.

The deadline for submission of tenders may not be shorter than 40 days from the date of sending the invitation. This period may be shortened in the following cases:

free, full, direct and unrestricted access to the SOR was provided on the website from the date of publication of the notice- reduction to 35 days
a pre-information notice has been published containing all the information required for the contract notice – reduction possible to 22 days;
the existence of an urgent need to award the contract – reduction to 10 days.

The contracting authority conducts negotiations with all contractors who have submitted admissible preliminary tenders. Negotiations may be divided into stages in order to limit the number of tenders. For this purpose, the contracting authority applies the tender evaluation criteria set out in the contract notice and the SOR. At the end of the negotiations, the contracting authority invites the contractors remaining in the procedure to submit their final tenders.

Brief characteristics – additional procedures

As I have already mentioned, in the situations specified in Chapter 3 of Section VI of the Public Procurement Law, it is also possible to award a contract in the field of defence by means of competitive dialogue, negotiated procedure without notice or single-source procurement.

The competitive dialogue procedure may be used when it is not possible to award a contract using the basic procedures due to the particularly complex nature of the contract. Under this procedure, price is not the only criterion for selecting the most advantageous tender. Competitive dialogue is used for complex contracts where the contracting authority does not have sufficient knowledge or experience to award the contract by means of limited tender or negotiated procedure with notice, is unable to determine the technical means of meeting the needs or to determine the legal or financial structure of the project.

As in the case of negotiated procedures with notice, the SOR may be published on the website or sent to selected contractors together with an invitation to dialogue. In the case of publication of the SOR on the website, the contracting authority is obliged to provide information on the optional grounds for exclusion set out in Article 405(2) of the PPL. Obviously, such an information obligation does not apply to the mandatory grounds for exclusion (Article 405(1) of the PPL). The contracting authority should also include in the SOR information on the number of contractors to be invited to the dialogue and on the selection criteria.

The contracting authority invites selected contractors to a dialogue – it is possible to hold a dialogue with more than one contractor. During the dialogue, detailed requirements, solutions and the form of the subject matter of the contract are specified. At the end of the dialogue, the contracting authority selects contractors and invites them to submit tenders, on the basis of which it makes the final selection.

Negotiated procedure without noticeis used in the event of one of the following circumstances:

the subject of the contract are products manufactured solely for the purposes of R&D
where, in the course of the previous procedure in the form of a limited tender, a negotiated procedure with notice or a competitive dialogue, no requests or all requests were received, no tenders were submitted or all tenders were rejected

due to the urgent need to award a contract as a result of a crisis situation as defined in Article 408(3) of the PPL (war, armed conflict, other situation in which damage has occurred or will inevitably occur which exceeds the scope of damage occurring in everyday life, which endangers the life and health of a large number of people or which has a serious impact on property)

for reasons of urgency to award the contract not attributable to the contracting authority and which could not have been foreseen in advance;
the subject of the service or supply contract is intended for the purposes of R&D services;
in the case of contracts related to the provision of air and sea transport services for the Polish Armed Forces and forces whose tasks include security protection;
in the previous procedure in the form of a limited tender, negotiated procedure with notice or competitive dialogue, all requests or offers were rejected or the procedure was invalidated pursuant to Article 255(3) of the PPL

In the latter case, the condition for using the negotiated procedure without notice is that all contractors who are not in one of the situations of exclusion, who meet the conditions for participation in the procedure and whose tenders have not previously been rejected, are invited.

As you can see, this procedure can only be used in emergency situations. The Defence Directive specifies that certain exceptional circumstances may make it impossible or inappropriate to use the procedure with notice. It should be noted that the use of this procedure is also justified when only one of the potential contractors is able to perform the subject of the contract because of the possession of exclusive rights or for technical reasons, e.g. in the case of the need to modify or modernise particularly complex military equipment.

The final procedure available for defence procurement is the single-source procedure, which may be used in the following circumstances:

the contract may be performed by only one contractor for technical reasons or protection of exclusive rights
it is possible to award a contract on particularly favourable terms in connection with the liquidation of another entity’s business or enforcement or bankruptcy proceedings;
the contract is made in a market where a regulated and supervised trading structure naturally guarantees market prices;
the contract is awarded to a legal person which is a subsidiary of the contracting authority
the contract is awarded to an entity superior to the contracting authority
circumstances arising from Article 414(2), with the exception of circumstances relating to previous proceedings
due to the crisis situation specified in Article 408(3) of the PPL, it is necessary to perform the contract immediately;
due to an exceptional situation not resulting from reasons attributable to the contracting authority, immediate performance of the contract is required;
the contract concerns additional deliveries carried out by the existing contractor (partial repetition or increase of deliveries, renewal or expansion of the installation, etc.).
within 5 years from the award of the basic contract to the current contractor for services or construction works, a supplementary contract of the same type is awarded
in the previous procedure conducted in the limited tender procedure, negotiated procedure with a notice or competitive dialogue, no request was submitted or all requests were rejected, or no tender was received or all tenders were rejected.

Obviously, in this procedure, the contracting authority does not carry out a competition, nor does it collect competitive offers from potential contractors, but awards the contract to a specific contractor, after appropriate negotiations, of course.

Evaluation of tenders

It should be noted that, according to Article 417(1) of the PPL, the criteria for the evaluation of tenders in defence procurement are price or price or cost and other criteria related to the subject of the contract, such as economy, security of supply, interoperability and operational characteristics (tactical and technical requirements). It should be recalled that the contracting authority is obliged to specify in the procurement documents (ToR, SOR) the criteria for the evaluation of tenders with their description, the weighting of these criteria and the method of evaluation of tenders.

Elements of the jigsaw puzzle

It should be borne in mind that the definition of procurement procedures is only one of the pieces of the jigsaw that make up the picture of defence procurement. It should not be forgotten that, particularly in the procurement of military equipment, it is often necessary to reconcile the interests and requirements of many entities (administrations, logistics services, potential service centres), which may prove to be more complicated than the procurement procedure itself and its implementation.

We should also not forget the issue of offsets in the case of supply contracts with foreign suppliers or other forms of maximising the benefits to the domestic defence industry.

These issues are clearly beyond the scope of this article and will be the subject of subsequent texts.

Learn about our service: Aviation law and defence

Ask for an offer