Effective Trade Secret Protection in Public Procurement: A Challenge for Contractors in Poland

The protection of trade secrets in public procurement has been a controversial issue for contractors in Poland for years. The direction of the rulings by the National Appeals Chamber (NAC) remains unchanged and contractors often face the risk of their trade secrets being disclosed if they fail to effectively protect confidential information during public procurement proceedings. Appeals concerning trade secret protection are among the most common types of cases before the NAC. Why is this the case?

In practice, the scenario is straightforward. A contractor takes part in a public tender, submits a bid with an exceptionally favourable price, and wins the tender. The price is so favourable that it becomes what is known as an abnormally low price.

According to Polish Public Procurement Law (Article 224 of the PPL), if the offered price is at least 30% lower than the estimated value of the contract or the arithmetic mean of all submitted bids, the contracting authority must ask the contractor to provide an explanation with regard to the price.

And this is where the problem begins.

The contractor (often in good faith) submits a detailed explanation, including evidence, regarding the calculation of the bid price. He gives the contracting authority the most confidential information from a business perspective. This includes email correspondence with business partners, pricing offers from partners, partner data, information on applied margins, methods of price calculation, production process management methods, information on selected technical solutions, and much more.

At the same time as presenting this information, the contractor asserts that it is confidential and justifies such a claim (and, in the contractor’s opinion, is in accordance with the law).

The contracting authority decides that the trade secret protection is justified (acting seemingly reasonably and considering the confidential nature of this data for the contractor). It does not disclose the protected information to other contractors.

At this point, a battle begins with the other contractors (usually those who submitted less favourable bids and lost). These contractors file appeals with the NAC, arguing that the justification for the trade secret protection is incorrect because it does not include all the elements and detailed evidence required by law.

The NAC upholds the contractors' objections (legal and business arguments rarely convince the NAC) and orders the contracting authority to disclose the information. The contracting authority discloses all the confidential information. The winning contractor, in practice, can do little. They are bound by the offer, and their confidential data is now in the public domain.

What causes this to happen and how can it be prevented?

The regulations concerning trade secret protection in Poland are exceptionally strict.

To effectively protect confidential information as a trade secret under the Public Procurement Law and the Act on Combating Unfair Competition:

1. The contractor must assert the non-disclosure of information at the time such information is provided, and
2. The contractor must demonstrate that the protected information constitutes a trade secret, meaning that: 
   1. The information is of a technical, technological, organisational, or other nature, and must have economic value, and 
   2. The information, as a whole or in a specific combination and set of its elements, is not generally known to people that usually deal with this type of information or is not readily accessible them, and
   3. Actions have been taken with due diligence to maintain the confidentiality of this information.

This means that the contractor must justify (very specifically) each of the above conditions. In practice, he often cannot claim the confidential nature of all the information provided to the contracting authority, emails and so on. He can only protect specific, selected information that meets the above requirements (e.g. has economic value, is not generally known, etc.). 

The most crucial aspect is that the contractor must present specific evidence demonstrating actions taken to maintain confidentiality. For example, agreements with partners containing confidentiality clauses protecting the confidential nature of this data must be presented. If the contractor fails to do this, and thus does not convince the NAC that the conditions for effective trade secret protection have been met, the NAC will disclose this data – which is not uncommon and creates a significant problem.

As can be seen, effective trade secret protection (from a legal standpoint) is challenging in practice and must be carried out at the time this information is disclosed to the contracting authority. Later, it may be too late, and the consequences cannot be reversed. The regulations and their judicial practice are unfavourable for contractors. It is important to remember that to avoid negative consequences of disclosing the trade secrets (even such sensitive like commercial margin) during the public tenders in Poland it is necessary to seek advice how to properly protect the confidentiality BEFORE and NOT AFTER submitting any documents in the procurement procedure.