Payment guarantee in construction contracts with the Polish treasury
Since October 16, 2023, the Polish Treasury, as an investor, is no longer legally obligated to provide a payment guarantee pursuant to Article 649(1) § 1 of the Polish Civil Code. This change is expected to create new problems related to the absence of this security measure.
New law
Article 649(1) § 1 of the Polish Civil Code (kc) obliges the investor to provide a payment guarantee for construction work if the contractor so requests. In July 2023, § 11 was added to this article, stipulating that Article 649(1) § 1 kc does not apply if the investor is the Polish Treasury. The new regulation entered into force on October 16, 2023, and, according to Article 16 of the amending law (Act of July 13, 2023, amending the Act on Access to and Protection of Environmental Information, Public Participation in Environmental Protection and Environmental Impact Assessment, and certain other Acts), applies to contracts concluded but not yet executed before the law's entry into force, unless the contractor requested a payment guarantee before the law's entry into force. If the contractor did request a payment guarantee, the previous regulations apply.
Criticism did not convince the legislator
Article 649(1) § 11 of the Polish Code of Civil Procedure was added despite significant criticism during the legislative process. The arguments put forward in the explanatory memorandum to the draft law were generally considered unconvincing. The legislator argued that a payment guarantee was unnecessary because the Polish treasury was solvent. It also emphasized that the proposed arrangement would be financially advantageous for the Polish treasury, which would no longer have to bear half the costs of providing the guarantee.
Constitutionality
However, the adoption of the law does not eliminate the question of whether the preferential treatment of the Polish state treasury over other entities (e.g., local self-governing units, commercial companies, other legal persons and natural persons) who must continue to provide a payment guarantee at the contractor's request is constitutional.
According to Article 64, paragraph 2 of the Polish Constitution, property, other financial rights and the right of inheritance are subject to legal protection for all equally, and according to Article 32, paragraph 2, no one may be discriminated against for any reason in political, social or economic life.
There are legitimate doubts as to whether the addition of Article 649(1) § 11 of the Polish Civil Code (kc) was made in accordance with these provisions. The pursuit of precisely the same business activity – the construction of buildings – currently differs significantly depending on whether the investor is the Polish Treasury or another entity. The right to demand a payment guarantee is a property right – a claim arising from a construction contract. It is beyond question that a claim for payment of a fee owed by an entity other than the Polish Treasury currently enjoys much stronger legal protection. Such a distinction is not justified by the solvency of the Polish Treasury. Most investors are solvent, and the purpose of introducing the provisions on payment guarantees into the Polish Civil Code was not to address concerns about the insolvency of investors, but rather those of contractors. The payment guarantee is an instrument to ensure the timely payment of the agreed remuneration – this is expressly stated in Article 649(1) § 1 of the Polish Civil Code, which explains that the guarantee is granted "to ensure the timely payment of the agreed remuneration." The fact that the Polish treasury, as the investor, is solvent in no way guarantees the timely payment of the remuneration to the contractor.
In view of these constitutional doubts, it cannot be ruled out that the question of the constitutionality of Article 649(1) § 11 kc will be raised before the Constitutional Court.
The cancellation of a statutory obligation does not cancel the contractual obligation.
The exclusion of the application of Article 649(1) § 1 kc in construction contracts where the investor is the Polish Treasury does not mean that the investor will never be obliged to provide a payment guarantee.
If the investor is only one of several clients (i.e., if there is a consortium on the investor's side), the contractor retains the right to demand a payment guarantee from the other clients, and in the event of non-provision of such a guarantee, he may withdraw from the entire contract pursuant to Article 649(4) § 1 kc.
Even if the obligation to provide a payment guarantee is directly included in the contract—and such cases do occur in practice—the addition of Article 649(1) § 11 of the Polish Civil Code does not negate the contractual obligation to provide this security. The provisions of the law are incorporated into the contract to make them an independent part of it. Article 649(1) § 11 of the Polish Civil Code is a default provision: the Polish Treasury may still voluntarily provide or undertake to provide security for the performance of the contract.
Finally, each contractor retains the right to request a payment guarantee from the investor, which is the Polish Treasury. Providing security is an ancillary service that the debtor may offer the creditor at any time. However, the provision of this security will be voluntary unless contractually stipulated (including by standard contracts). Consequently, the refusal to provide this security cannot be considered a breach of contract that could lead to sanctions such as contract termination. Although Article 649(4) § 1 of the Polish Civil Code has not been expressly excluded with respect to the Polish Treasury, it is beyond doubt that the exclusion of Article 649(1) § 1 of the Polish Civil Code with respect to the Polish Treasury will also preclude contract termination due to non-performance of the guarantee.
Article 649(4) § 3 of the Hong Kong Convention was also not repealed, which has independent significance and does not only relate to the situation described in § 1 concerning the presentation of a payment guarantee. The contractor can still invoke the claim provided for in this article if the investor hinders the performance of the contract, for example through a lack of cooperation.
Return to the application of Article 491 § 1 kc
The exclusion of the obligation to provide a payment guarantee in construction contracts with the Polish treasury will not eliminate disputes concerning the execution of such investments. The legislature was correct in pointing out in its explanatory memorandum that the payment guarantee regulations were relatively frequently used as grounds for a contractor's withdrawal from the contract, as contractors did indeed make such demands—and, if these demands were not met, issued declarations of withdrawal. The advantage of this strict regulation was that the court had no difficulty determining whether the withdrawal from the contract was valid or not. It was sufficient to examine whether a payment guarantee had been provided.
The lack of recourse to Article 649(4) § 1 of the Polish Civil Code (kc) will not prevent contractors from withdrawing from the contract in the event of a dispute with the Polish treasury as the investor. Failure to pay the agreed remuneration will constitute grounds for withdrawal from the contract after exhausting the remedies provided in Article 491 § 1 kc, i.e., after issuing a short-term demand for payment with a threat of withdrawal. A lack of cooperation from the investor will allow withdrawal under Article 640 kc, although it must be acknowledged that there is no complete consensus in legal scholarship and jurisprudence on this point.
Therefore, the amendment only superficially improves the situation of the parties to a construction contract with the Polish Treasury for the investor. Old disputes regarding withdrawal from the construction contract pursuant to Article 491 § 1 of the Polish Civil Code or Article 640 of the Polish Civil Code will resurface, and the parties' situation will be far more uncertain than in the case of withdrawal due to the failure to provide a payment guarantee. Furthermore, until the regulation is reviewed by the Constitutional Tribunal—or even by an ordinary court pursuant to Article 8(2) of the Polish Constitution—it cannot be definitively established that the Polish Treasury's refusal to grant a guarantee is ultimately lawful. Given these numerous doubts, the addition of Article 649(1) § 11 of the Polish Civil Code cannot be considered a beneficial amendment, even for the party that was ostensibly intended to benefit from it.
For questions regarding payment guarantees in Polish construction contracts, please contact us by email at kontakt@kancelaria-pozniak.pl or by phone at +48 665 246 969 .