The Ireland Poland Business Association

4 March 2011 Michael Shelly

Winning Public Tenders in Poland – An Overview

Poland in Context

Largest beneficiary of EU funds amongst the most recent 12 accession countries with €67.3bn over the period 2007-2013

Poland, as the biggest new member of the single European market, offers a good balance between low business risk and high growth opportunity

Attractive domestic market of 38m consumers – larger than the other seven 2004 EU entrants combined in terms of population and GDP

CEE gateway to regional sales, manufacturing and logistics hub – EU expansion opportunity

Human capital – young, skilled, ambitious workforce

EU Funds – Comparison with Neighbouring countries

EU Funds in Poland 2007 - 2013

The period 2003 to 2008:

PM Group developed a strong position in the Public sector in Poland (EU funds of €11bn+ provided backbone 2002-2005)

Mainly winning Construction Supervision Services (FIDIC Contract Engineer) - environmental / roads / airports / public buildings

Design Services in Public Sector – bid selectively (3rd level Education facilities / Lifesciences / Research)

Public sector consultancy – steadily growing capacity and presence on the market since 2006

In parallel we continued to build a strong position in the private sector primarily in industrial FDI projects

PM Group – Our Experience in the Public Sector in Poland

Opole

Wrocław

Szczecin

Poznań

Brzeg

Kraków

Jelenia Góra

Nowa Ruda

Kielce

Kołobrzeg (Karlino)

Legnica

Gdańsk

JCI Sp. z o.o.

Krosno

                                                  

                                             

Uniwersytet Jagielloński

PM Group Polska – Public Sector Clients

Foreign Direct Investment in Poland

Overview of public sector market - 2008-2010

Year 2008 – Economic crisis hits Poland!

While Poland did not officially go into recession, there was an immediate and definite impact on the construction sector

Many projects suspended or cancelled in the private sector (Commercial Sector stalled totally and many Industrial FDI projects slowed or suspended)

Most international and local consultants turned to the public sector to win work (instances of over 25+ proposals being submitted for some bids)

Average winning fee levels dropped dramatically - now as low as 25% of the Public Client’s stated budget

Other Factors impacting on Public Sector tenders

Time and money – difficult public procurement procedures, (demanding legal support & monitoring of frequent changes) consume significant time and money

Polish Procurement Law – a moody animal! Frequent changes, confusing tender rules and regulations

Low technical and capacity requirements and 100% price-evaluation criteria make it very difficult for sizeable, experienced companies to compete with low cost operators (dumping prices)

Overview of public sector market - 2008-2010

Poland Market Status 2009/2010

Steady decrease in charge out rates and margins in both public and private sector

Engineering and Architecture unemployment rate going up (lay offs in some sizeable International companies)

International companies bidding at low margins to keep staff

Quality standards threatened due to low pricing

European Football Championships – need to make up for lost time in infrastructure development – some oppportunities for experienced and sizeable companies

Procurement of Public Sector Projects is seriously behind schedule

To speed up the procurement process, the Government introduced changes to Polish Procurement Law in December 2009

Significant changes re the use of another entity’s knowledge and experience. Bidders may utilise subconsultant’s experience, resources, and financial strength to meet tender requirements.

This opens new opportunites for joint bidding - yet the Contracting Authority may still require complete formal documentation from the subconsultant

Assembling formal documents for foreign companies is a laborious task - Every document needs to be signed “True to copy” by the company owning the copy of the references. A proxy can be appointed only for legal activities

Dealing with Polish Procurement law

There is definitely opportunity in Public Sector projects in Poland, BUT

Although Procurement law allows other tender evaluation criteria, (e.g. 60% technical / 40% price) usually 100% price evaluation criteria used – leads to exceptionally low bids

Tender technical and capacity requirements are very often too low for the actual scope of the project

Service Contracts - no standard template in Poland (white book FIDIC rarely used) can result in unacceptable T&C’s for International Companies

PM ‘s View of the Market –Areas of Concern

Level of responsibility required very often too high for the budget set by the Public entity

Additional activities required from company due to external auditing

Red-tape and Bureaucracy - projects require significant additional written records and procedures compared to norms elsewhere

Variation orders difficult to achieve – rarely do Public entities agree variations or agree to pay additional monies even though many changes are Client initiated

PM ‘s View of the Market – Areas of Concern

FOR THE YEARS: 2007 – 2013:

Poland receives €67bn co-financing from the EU

Projects budgeted for 2011 – €16bn

Projects still to be contracted up to 2013 will involve €32bn of EU co-financing

Operational Programme Infrastructure & Environment - Basic list – 348 Projects; value – €49bn - Reserve list – 73 Projects; value – €14.7bn

Public Sector Depends on EU Funds

Operational Programme Infrastructure and Environment

Sector No of Projects Total cost (estimated)

(PLN ‘000)

EU Funds (estimated)

(PLN ‘000)

Basic list Reserve list

Basic list Reserve list

Basic list Reserve list

Environment 80 1 20 072 217 11 051 155

Transport 178 53 154 024 53 240 74 451 34 954

Energy 18 6 16 218 4 014 3 089 84

Culture 24 11 2 172 1 130 1 204 775

Healthcare 22 2 641 123 512 92

Highier education

26 0 2 030 0 1 522 0.00

TOTAL 348 73 195 160 58 726 91 832 36 827

Our view of the Public Sector – Suggestions

Build relationships and try to convince Public Sector clients to see value in high technical/financial requirements in Complex project Bids (JCI a good example)

It is not an easy market. There is no mercy from clients – Don’t assume that you will get a fair hearing or tolerance if something isn’t right

PPP projects surfacing –opportunity to work with either Private Entity or as technical support to Public Entity (Healthcare & Energy sectors)

But the key issue ……….. Be selective in what you bid

Thank you!