Charging contractual penalties during the implementation of specific, in particular long-term projects, is a certain standard. For example, contractors, when submitting a bid in a public procurement procedure, often even include the assumed contractual penalties in the bid price.
The article was written in cooperation with the Partner Kancelaria Sadkowski i Wspólnicy. The following article has been prepared for you by legal advisor Michał Szczęsny
Contractual penalty is a lump sum compensation in the event of non-performance or improper performance of certain obligations. Therefore, the question arises whether the imposition of contractual penalties in the course of the implementation of, for example, a public procurement precludes the possibility of issuing references, which are to confirm the proper performance of works.
This issue has repeatedly been the subject of the jurisprudence of the National Appeal Chamber, where it was indicated that charging contractual penalties during the performance of a specific contract does not in itself constitute an obstacle to issuing a reference.
“In the opinion of the Chamber, there are no formal or legal obstacles for the awarding entity, despite the contractual penalties paid in this case, to obtain a positive assessment from the awarding entity” – KIO 459/18.
“The mere calculation of contractual penalties does not prejudge the improper performance of works, and this assessment must be made in specific circumstances of the actual state of affairs. When assessing the proper performance of works in the event of imposing contractual penalties, one must take into account the circumstances and the importance of the breached contractual obligations ”- KIO 2637/19.
As a consequence, the mere calculation of a contractual penalty in the course of the performance of a given contract does not constitute an automatic obstacle to recognizing that a given project is improperly implemented and no reference can be issued. In this case, it should be analyzed in detail whether the imposed contractual penalties have an impact on the final treatment of the given performance as due.
Nevertheless, when assessing whether it is possible to issue a reference in connection with charged contractual penalties, the following issues should be taken into account, for example:
1.what% of the total value of remuneration are the contractual penalties;
- whether the obligations breached by the contractor were of significant nature and constituted a real damage, including in particular the image-related damage (each contractual penalty is a different burden);
3.General assessment of the performance of services by a given contractor – assessment of cooperation with a given entity,
4.payment, recognition of a contractual penalty – payment of contractual penalties does not change the fact that a given obligation has not been performed properly, but the payment of the aforementioned lump-sum compensation should be taken into account when deciding to issue a reference, as it constitutes the fulfillment of one of the contractor’s obligations.
When deciding to issue a reference, the individual circumstances and the specifics of a given case should be examined each time. In one case, the imposition of contractual penalties in the amount of 5% will not affect the proper assessment of performance, and in other cases it may be a real obstacle to issuing a reference.If you are interested in detailed information regarding the above-mentioned issue, please do not hesitate to contact us.
Michał Szczęsny, Legal Advisor
The Public Procurement Law Department of the Sadkowski i Wspólnicy Law Firm
Michał Szczęsny, attorney-at-law at the District Chamber of Attorneys at Law in Katowice. Specialist in the field of public procurement law and civil law. He has been involved in public procurement from the beginning of his professional career. He gained professional experience advising both ordering parties and contractors. He was responsible for the control of public procurement procedures financed from EU funds as part of the conducted audits, and he also actively participated in legal services in the implementation of infrastructure projects. He also has experience in representing clients before common courts and the National Appeals Chamber. Author of legal publications.