Experts from DZP's Tax Practice and Infrastructure & Energy Practice have successfully represented Biskupiec municipality before the Supreme Administrative Court (SAC) in a precedential case over the unfounded imposition of financial adjustments by the Authority Managing the Regional Operational Programme in connection with EU funding for a road construction project in Biskupiec.

The appeal proceedings ended successfully when the SAC passed a judgment on 17 April 2013 dismissing the appeal brought by the Managing Authority (Warmińsko-Mazurskie voivodship management board) and upholding the judgment of the Voivodship Administrative Court in Olsztyn of 6 October 2011 which overturned an earlier Managing Authority decision imposing the adjustments.

The dispute in the case involved the meaning of certain provisions of the Public Procurement Law and European law and also their application to contracts awarded by the Biskupiec municipality. The Managing Authority accused the municipality of irregularities in the structuring of the terms and conditions for participating in public procurement procedures. The SAC, referring to the said issues, upheld in full the approach taken during the proceedings by the municipality, i.e. as regards the meaning of both the EU and domestic law provisions.

Crucially, the SAC upheld the municipality's view that the "irregularities" referred to in article 2(7) of Council regulation (EC) no. 1083/2006 of 11 July 2006 (and which have to be demonstrated for financial adjustments to be imposed by a managing authority) constitute a qualified case of breach of public procurement law. Thus not every potential breach of public procurement regulations have to lead to financial adjustments being imposed.

Equally important is the fact that the SAC confirmed that the document drawn up by the Ministry for Regional Development on levying financial adjustments for breach of the Public Procurement Law relating to the implementation of projects co-financed by EU funds (i.e. tariff) is not a source of law and cannot be treated as the basis for imposing financial adjustments. The mere fact that the said error appears in the tariff does not mean that each breach of public procurement law of this type will necessarily lead to the imposition of financial adjustments.

The attorneys acting for the Biskupiec municipality before the SAC were Tax Practice experts, Artur Nowak and Jan Czerwiński. Experts from the Infrastructure & Energy Practice, inter alia, Katarzyna Kuźma and Wojciech Hartung, were also involved in the case.

Our experts take the view that the SAC judgment is a breakthrough as regards the imposition of financial adjustments by managing authorities. In light of the SAC's stance, before imposing financial adjustments a managing authority should carry out a thorough assessment of whether a breach found during public procurement procedure inspections is covered by the definition of irregularity given in Council Regulation (EC) no. 1083/2006. Only if it is found that such a situation has in fact occurred can the imposition of financial adjustments be deemed admissible and justified.