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Indexation of remuneration in public tender contracts

Changes in prices of materials and raw materials on international markets have a major effect on the Polish public procurement market. The May 2022 consumer price indices published by the Central Statistical Office show an increase in prices of goods and services in May 2022 of 13.9% (prices of goods by 14.9% and services by 10.8%) compared to the same month in the previous year.

The increasing costs of performing public contracts has led contractors to submit requests en masse to  contracting authorities for remuneration to be indexed, i.e. for adjustment in real terms of the fee payable under a contract to account for a change in the purchasing power of money. Although this institution has been known for a long time, and this includes with regard to public procurement, it has rarely been used in the IT sector. As a result, it poses many problems for contractors, but also contracting authorities, as to the manner of indexation. The most problematic issue is selecting the appropriate remuneration index rates, and documenting the increased costs on the part of the contractor.

These difficulties are pointed out by the President of the Public Procurement Office, who announced in June 2022 that the Office plans to publish indexation clause templates for contracts in the construction industry and maybe for IT contracts. A working group has been established for this purpose, including representatives of Traple Konarski Podrecki & Partners.

The need for real adjustment of contract fees arises primarily in long-term contracts, and thus article 439 of the Public Procurement Law requires that indexation clauses be included in contracts for construction work or services concluded for a period longer than twelve months (this obligation does not apply to supply).

The question of indexation can be addressed in a number of ways. First, this can be in the form of an annex to the contract, although the contracting authority may also introduce a mechanism for automatic indexation (that does not require an annex to the contract). The automatic indexation solution is more advantageous for contractors. In most cases, contracting authorities link the fee to the average annual consumer price index published by the President of the Central Statistical Office in a statistical bulletin. However, reference may also be made to the index of the real average monthly gross remuneration in the national economy in the PKD “Information and Communication” section, also published by the President of the Central Statistical Office.

Finally, indexation may be made subject to a certain level of fluctuation. For example, if the index is higher or lower by at least 5% in relation to the corresponding period of the previous year, the remuneration is increased or decreased accordingly.