Subcontractors in Public Procurement: Contracts, Contracting Authority Requirements and Risk Management

Engaging a subcontractor to fulfil a public contract is standard business practice — yet it brings with it a precisely defined set of legal obligations. Many small and medium-sized enterprises underestimate the volume of documentation a contracting authority may demand, or incorrectly conflate the role of a subcontractor with that of a member of a joint venture. The result: disqualified bids, contractual penalties, or invoicing disputes. This guide is based exclusively on Act No. 134/2016 Coll., on Public Procurement (hereinafter "the PPA") and its implementing regulations.

1. Legal Framework: What the PPA Says About Subcontractors

Act No. 134/2016 Coll. governs subcontracting structures primarily through three provisions.

Section 105 PPA obliges a supplier to state in its tender which part of the contract it intends to perform through subcontractors, including the identification of those persons if known at the time of submission. If a subcontractor covers more than 10% of the contract value, it must be named in the tender. For above-threshold public contracts, the supplier must additionally submit a signed agreement with the subcontractor — or at least a binding commitment to conclude one — before signing the main contract with the contracting authority.

Section 106 PPA entitles the contracting authority to request that the supplier produce documents concerning subcontractors, their share of performance, and documents demonstrating their eligibility. This right is not confined to the selection phase; it persists throughout the entire duration of contract performance.

Section 83 PPA addresses a different but related situation: a supplier may rely on the capacities of a so-called "other entity" to satisfy missing technical or economic qualification criteria. This mechanism is frequently confused with ordinary subcontracting, even though it differs both in the scope of commitment required and in the documentation needed.

For construction contracts, the legal framework is supplemented by Decree No. 169/2016 Coll., which specifies requirements for contracts and invoicing in that segment.

2. When and Why to Use a Subcontractor

Companies opt for a subcontracting structure for three main reasons.

Supplementing Missing Qualifications

The most common reason, especially among smaller firms. If the contracting authority requires references for contracts worth more than CZK 5,000,000 or ISO 9001 certification and the tenderer does not meet those prerequisites, it may demonstrate them through an "other entity" under Section 83 PPA. Note: that entity must be an actual subcontractor for the part of the contract to which the demonstrated qualification relates. Simply "borrowing" references without real participation in performance is not sufficient.

Specialist Works

The supplier meets all qualification requirements but, for a specific part of the contract (e.g. high-voltage electrical installations, translation into less common languages, or bespoke software), it is more efficient to engage a specialist subcontractor. This type of subcontracting does not require special documentation under Section 83 PPA; compliance with the obligations of Section 105 PPA is sufficient.

Capacity Reasons

On time-sensitive contracts or when multiple contracts run concurrently, the supplier outsources part of the work. The obligation to disclose in the tender and to comply with the rules on subcontracting agreements applies here too.

3. Demonstrating Qualification Through an "Other Entity" Under Section 83 PPA

The "other entity" mechanism under Section 83 PPA is a specific tool that cannot be equated with ordinary subcontracting. Key differences and obligations:

• The other entity must document its basic eligibility under Section 74 PPA (criminal records extract, no outstanding tax or social-security debts, no enforcement proceedings, etc.) using its own documents.
• The other entity must sign a commitment (a statutory declaration or an agreement) in which it undertakes to make its capacity available throughout the entire duration of contract performance.
• The demonstrated capacity must have a direct substantive link to the part of the contract in which the other entity will actually perform. It is not permissible to demonstrate technical capacity in IT and then assign that entity to the delivery of construction works.

Where the other entity demonstrates economic eligibility (turnover), the contracting authority may, under Section 83(3) PPA, require that entity to be jointly and severally liable for the performance of the contract.

Difference compared with an ordinary subcontractor:

4. The Subcontracting Agreement: Mandatory Requirements

Under Section 105(2) PPA, an agreement concluded between the supplier and a subcontractor must satisfy at least the following conditions:

1. Payment terms for the subcontractor's invoices must not exceed 30 days from the date of receipt of the invoice. This rule mirrors the principles of Act No. 340/2011 Coll. on late payments and protects subcontractors from bearing the cost of delays caused by the contracting authority or the main contractor.

2. Payment conditions must not be less favourable for the subcontractor than those agreed in the main contract between the supplier and the contracting authority. If the contracting authority pays the main contractor within 30 days, the supplier cannot stipulate a 60-day payment term in the subcontracting agreement.

3. For above-threshold public contracts, the agreement must exist (or a written commitment to conclude one must exist) before the main contract with the contracting authority is signed.

Direct Payment to the Subcontractor

The contracting authority may reserve the right to pay the subcontractor directly, bypassing the main contractor. This optional clause is used in practice primarily on larger infrastructure contracts as a protective mechanism against the main contractor's insolvency. Where the contracting authority has embedded this option in the tender documentation or the contract, the supplier is obliged to provide the subcontractor with the information needed for direct invoicing to the contracting authority.

5. Changing a Subcontractor During Performance

Replacing a subcontractor after the main contract has been signed is in practice one of the most problematic situations. The PPA does not generally prohibit the replacement of a subcontractor; however, the following rules apply:

• If the subcontractor was named in the tender and its capacity or references formed part of the evaluation, the replacement constitutes a material modification of the contract within the meaning of Section 222 PPA and requires the contracting authority's consent. The contracting authority is not obliged to give that consent.
• If the subcontractor was listed solely to fulfil the disclosure obligation under Section 105 and the new subcontractor meets identical or higher qualification requirements, the contracting authority's consent is more readily obtainable.
• If the subcontractor was an "other entity" under Section 83 PPA and the qualification demonstrated through it is a condition of participation, the new subcontractor must provide the same or equivalent qualification. The contracting authority is entitled to review that qualification.
• Unauthorised replacement of a subcontractor without the contracting authority's consent may be treated as a breach of contract, with all resulting consequences, including contractual penalty claims or immediate termination.

Recommendation: include a clause in the subcontracting agreement requiring the subcontractor to cooperate in the event of replacement, including the handover of all documentation and work in progress.

6. Joint Ventures vs. Subcontractors: A Practical Comparison

Tenderers frequently face the decision whether to submit a bid as a joint venture under Section 82 PPA or whether a main-contractor-plus-subcontractor structure is sufficient. The two approaches carry different legal and commercial consequences.

Practical recommendation: Choose a joint venture when none of the partners holds sufficient qualification independently and the contract is large enough that joint and several liability of all members reflects their actual risk exposure. Prefer a subcontracting structure when the main contractor meets the qualification and only needs to supplement capacity or specialist expertise.

7. Most Common Mistakes and Risks

Based on experience monitoring public contracts in the NEN, E-ZAK and TenderArena systems, and from analysis of decisions by the Office for the Protection of Competition (ÚOHS), the following errors recur most frequently:

Failure to disclose the subcontractor in the tender. The supplier plans to use a subcontractor covering 20% of the contract value but does not name it in the tender. Following a check by the contracting authority or ÚOHS, this is treated as a false declaration, which can lead to exclusion from participation or to penalties during contract performance.

Deficient subcontracting agreement. The agreement does not include the 30-day payment term, or the payment conditions are less favourable than those in the main contract. Breach of Section 105(2) PPA may be sanctioned by a penalty imposed by the contracting authority or by a complaint to ÚOHS.

Confusion between "other entity" and subcontractor. A firm demonstrates technical qualification through another entity but lists it in the tender solely as a subcontractor, without a commitment to perform and without eligibility documents. The result is exclusion of the tender for failure to demonstrate qualification.

Joint and several liability in a consortium. A smaller consortium member underestimates its scope of liability. If the lead member fails to fulfil its obligations, the contracting authority can enforce the entire performance or contractual penalty against another member of the consortium.

Impact on evaluation under social criteria. A contracting authority may, under Section 116 PPA and related regulations, evaluate conditions for employees or persons participating in performance. If a subcontractor employs workers on terms that do not meet the criteria set by the contracting authority, this can negatively affect the overall evaluation of the tender or give rise to a claim by the contracting authority.

Late identification of the subcontractor. The subcontractor is selected only after tender submission, leaving the supplier in a position where it must retrospectively document information that should have been part of the tender.

8. Pre-Submission Checklist for Tenders Involving a Subcontractor

Before finalising any tender in which a subcontractor appears, verify each of the following points:

• Subcontractor identification: Are all subcontractors whose share exceeds 10% of the contract value listed in the tender? (Section 105(1) PPA)
• Scope of subcontracting: Does the tender include a percentage or substantive description of the part of the contract the subcontractor will perform?
• Other entity under § 83: If the subcontractor is demonstrating qualification on behalf of the supplier, are the subcontractor's basic eligibility documents and a written commitment to perform attached?
• Subcontracting agreement: Does a signed agreement or binding commitment exist? Does it include the 30-day payment term and payment conditions that mirror the main contract?
• Direct payment: Has the contracting authority reserved the right to pay the subcontractor directly? Has the subcontractor been informed of this mechanism?
• Replacement of subcontractor: Does the subcontracting agreement provide for cooperation in the event of replacement, including handover of documentation?
• Review of tender documentation: Does the contracting authority require additional subcontractor documents beyond the PPA (e.g. extracts, certificates, references)?
• Joint venture vs. subcontracting: Was the structure consciously decided upon? Are all partners aware of the differences in liability?
• Social conditions: Does the subcontractor meet the employment conditions if they form part of the evaluation criteria?
• System registration: Are the subcontractors registered in the relevant system (NEN, E-ZAK) for the purpose of communicating with the contracting authority during performance?

Monitoring relevant contracts in systems such as VVZ (Public Procurement Bulletin) or NIPEZ significantly reduces the time needed to identify opportunities where subcontracting capacity can be the decisive factor. Tools for targeted contract monitoring by CPV code and NUTS region, such as mrickwood.cz/docs/leads, allow this preparation to be systematised at the opportunity-identification stage — rather than only when reading the tender documentation.

The legal framework for subcontracting relationships in public procurement is strict, but predictable. The key to success lies in accurately identifying the role of each partner (subcontractor or consortium member), preparing contractual documentation in good time, and rigorously complying with the obligations arising from Sections 83, 105 and 106 of Act No. 134/2016 Coll., on Public Procurement. Firms that systematise these steps avoid the most common grounds for tender disqualification and simultaneously build credibility for repeat collaboration with public-sector contracting authorities.