In house procurement vs. subcontracting

In house contracts are contracts awarded on a negotiated basis under Article 214 (1) (11-13) of the Law of September 11, 2019. Public Procurement Law. In house contracts are contracts awarded within related entities in such a way that control is exercised over the entity similar to control over its own business unit.

Prohibition of subcontracting

When awarding an in house contract, it should be borne in mind that a Contractor who has been awarded a contract under paragraph 1(11-13) may not subcontract a part of the contract that relates to the main subject matter of the contract. This is because the prohibition on subcontracting applies to “the part of the contract that relates to the main subject matter of the contract,” and not to “the key part of the services or works.” Moreover, the prohibition in question is not limited to the contract execution phase itself, but also applies to situations in which the entity receiving the contract must already have a resource for its execution at the contract award stage. The contracting authority awarding such a contract must be aware that the subordinate entity is capable of performing it and that it will perform such a contract.

Contracting Authority inspections

An example of a violation of the prohibition on subcontracting in in-house contracts was brought to the attention of the President of the Public Procurement Office in case KND/122/22/DKZP. The contracting authority awarded the contract in 2021. to the Municipal Utilities Company, hereinafter: “GZK” under a sole-source procedure, pursuant to Article 305(1) in conjunction with Article 214(1)(11) of the Public Procurement Law. According to § 1.1 of the contract, the subject of the contract was the winter maintenance of roads, sidewalks, walkways and squares on properties owned by the Municipality. The Contractor submitted a notification of subcontractors to the Contracting Authority: (…) we inform about the rental of heavy equipment and specialized equipment with operators. The Contracting Authority agreed to the subcontracting. The total percentage of GZK’s remuneration paid to subcontractors is 26.64%.

In the circumstances of the case, both the President of the Public Procurement Office and the NAC found that the Contracting Authority violated the provisions of the Public Procurement Law. It was emphasized that if a given in-house contract is not able to perform on its own or does not perform on its own despite having the necessary resources, and subcontracts the contract to other entities – then by its very nature the in-house contract ceases to have such a character.