European funded roads rehabilitated with significant delays

Traseul Peresecina-Orhei, km 27. Foto: Mariana Jacot
Author: Mariana Jacot
28/12/2017 21245

Four out of 13 companies, that have been shortlisted in international tenders over the last five years in order to rehabilitate the national roads of the Republic of Moldova, have been sanctioned for delays in the execution of the works. All fined companies are international and the amount of fines exceeds EUR 3.8 million.

The four companies that were sanctioned for delays in the execution of the works were contracted during 2011-2014 for repairing several areas on national the routes Chisinau - Soroca, Chisinau - Comrat - Giurgiulesti, Chisinau - Ungheni - Sculeni and for the construction of Ungheni bypass road. In most cases, the final completion of the works took place 1-2 years after the deadline. The necessary funds originated from European Commission (EC) grants and loans from the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB). The total budget of the works in the sanctioned contracts is nearly EUR 140 million.

International sanctioned companies and fines retained from the contract

A fine of two million Euro for a delay of two years

The State Road Administration (SRA) signed two contracts with the Italian consortium Toto Costruzioni Generali in association with Taddei Spa, selected in international tenders for therehabilitation of Chisinau-Soroca national route. The execution of the works costs the government over EUR 19.3 million, funds were provided as a loan by the EIB and the EBRD.

Anatol Salaru, the Minister of Transport and Road Infrastructure at that time, was reportedly content with the first signed contract with an international company. “Other similar tenders will be organized and will be conducted in full transparency that will encourage our sponsoring partners”, said the minister.

The Italian consortium has committed to rehabilitate in 18 months - 45 km of road in
two sectors on the Chisinau-Soroca route.
The final reception was 1-2 years ahead of schedule

The works on the two 45 km long sections of the Chisinau-Soroca road started on 3rd May 2011 and were meant to be completed in 18 months.

However, the Italian Consortium has experienced severe delays in contract execution. The first road section was to be commissioned in November 2012, but at the request of the Italian contractor, the deadline was extended by another 43 days. Other delays followed, so the road sector was only finalized on 18th August 2014, almost two years later. In the case of the second sector - Orhei and the Soroca-Sarateni intersection, the execution deadline was exceeded by one year. For delays in completing the two contracts, the Italian consortium was sanctioned by the SRA with more than two million euros, money were deducted from the budget of the contracts.

Road rehabilitated by Italians, put into exploitation on 18.08.2014.
Photo: Mariana Jacot

The Head of the Department for Quality Control of Construction Products and Road at the State Inspection in Construction, Alexandru Untilov, says that the construction inspectors have repeatedly found irregularities on the two roads repaired by the Italian contractor. ICS Toto-Taddei SRL was forced to remove a layer of asphalt from a road section and re-surface it. After receiving several instructions, the deformities were removed and the final state of works was accepted with no objection.

Usatii: "Italian contractor submitted its bid for another tender, but it was disqualified"

The Italian consortium operated on the territory of the Republic of Moldova through its local representative, Toto-Taddei SRL a foreign-owned enterprise. The company also contracted local subcontractors for the job. Several of them have had court trials with Toto-Taddei SRL because of the outstanding debt for the works done. According to a court ruling, the named company was obliged to pay the Poduri Prim SRL approximately MDL 600,000 (which means the debt plus court fees and interest for delay) for the assignment under this contract.

On 26th October 2017, through a decision of the Chisinau Court of Appeal, Toto-Taddei SRL was liquidated due to the debts amounting to MDL 90 million that could not be repaid. We have repeatedly tried to contact representatives of the Italian consortium, however they did not answer the phone.

Shortly after the completion of the contract for rehabilitation of the Chisinau-Soroca National Road, Toto Costruzioni Generali SpA and Taddei SpA submitted their bid for another tender. Anatol Usatii, the State Secretary within the Ministry of Economy and Infrastructure, told us that although the consortium proposed the lowest bid price, it was rejected due to the problematical process of fixing the adjacent area.


They have only completed 3% of the works in three years

Route contracted by SC Pa & Co International SRL

The Romanian company SC Pa&Co International SRL was also fined with almost EUR 340 thousand for delaying the road works on the two sections of the national route Chisinau-Giurgiulesti-Romania border, that were contracted for. Based on the first two contracts signed in 2012, SC Pa&Co International SRL would receive EUR 24.6 million from the EBRD grant for repairing 55 km of the area. The completion of the project was scheduled for April 2014, however at the beginning of 2017, only 65 percent of the first contract and over 80 percent of the second contract were executed. The State Inspection in Construction has checked the quality of 26 km of section one and has identified several cracks throughout. Subsequently, Alexandru Untilov assures that the irregularities were partially removed. In 2017, the company did not carry out any works on 29 kilometers of the sector two, according to the same source.

In 2014, the Romanian company also won an international tender for the rehabilitation of another 31 km of road on the same route Chisinau-Giurgiulesti-Romania border. With EUR 18.8 million of the EBRD loan, the contractor assumed the responsibility to repair Ciumai - Vulcanesti - Cismichioi road section during the period of two years. Although the works had to be completed in August 2016, at the beginning of this year, the company had met only three per cent of the commitments assumed. After several delays and penalties, the Ministry of Transport and Road Infrastructure decided to terminate the three contracts with Pa&Co International SRL. The Romanian company is the only one that the government has applied such extreme sanctions.

As of today, no works are taking place on the three named areas.. The SRA is due to organize a new tender for this project on 12th December 2017. In the spring of 2018, the works could possibly be resumed.

Debtors go to court

Due to the fact that they disagreed with the sanctions applied, Pa&Co International SRL attacked the decision of the Moldovan authorities at the International Court of Arbitration, which will decide whether the Moldovan state has applied the penalties accordingly or not.

Km 137, Bălăbanu, Taraclia. Intersection rehabilitated by SC Pa & Co International SRL.
Photo Capture from cameras installed on national roads by ASD. 14/12/2017

So far, the Romanian company has lost the right to participate in tenders organized by the State Road Administration. The general manager of the state enterprise, Gheorghe Curmei, says that “the Romanian firm will no longer have the right to participate in any tender initiated by the SRA. At the same time the EBRD could also forbid them to participate in other projects. It is not known whether they will be able to participate in European tenders".

Being contacted by phone, Dan Balcanu, the project manager at Pa&Co International SRL, refused to comment on the case because lawyers did not allow him to make any press statements while the company is in dispute with the SRA.

The SRA has similar litigations with other international contractors, such as the Italian Consortium Toto Costruzioni Generali in association with Taddei Spa. In 2017, EUR 230,000 were envisaged for arbitration costs.

Anatol Usatîi, State Secretary, Ministry of Economy and Infrastructure.

Anatol Usatîi, the State Secretary at the Ministry of Economy and Infrastructure:

“All those having penalties will try to go to arbitration. We believe we have correctly applied deductions for delays. If it turns out that we were wrong, the funds will be returned. The arbitration take a long time”.

Penalties of EUR 800,000 for the Czechs

The payments of more than EUR 800,000 are also to be withheld from the value of the contracts signed with the Czech company OHL Z.S. for delays in repairing 52 km of the two sections on the Chisinau-Ungheni road and the bypass of Ungheni.

OHL ZS a.s. works along the Chisinau-Ungheni route with Evrascon JSC

In July 2014, the Czech company committed to rehabilitate the first 44.2 km of road on the Chisinau-Ungheni road for the amount of EUR 27 million.

The road was to be repaired in two years, i.e. by July 2016. In December 2017, the Czech company had performed only 60 percent of the works. Contacted by phone, the site supervisor, Sergiu Iuras, refused to tell us why the works were so late on the route. We also phoned the OHL C.Z. project manager, Moises Louredo, but he did not answer the phone.

The Czech company also builds the 7.7-kilometer bypass road of Ungheni city, for which EUR 10.7 million have been allocated from a European Commission grant. More than 70 percent of the works were carried out so far. The final completion of the assignment was set for the second half of 2018.

OHL ZS a.s. rehabilitated over 70 percent of the Ungheni bypass

Three contracts and all with delays

On the same national road Chisinau - Ungheni - Sculeni, together with the Czechs, rehabilitation works are carried out on a segment of almost 40 km by the Azerbaijani company - Evrascon JSK. In 2014, the company gained a contract of EUR 23 million to rehabilitate the Chisinau-Ungheni road, from km 6 to km 24 by July 2016. As of today, the Azerbaijani have performed only half of the works and have been sanctioned with over EUR 115,000 and the penalties could increase.

the state of the works for another 22 km of Chisinau-Ungheni road is Even worse , which Evrascon JSC was supposed to repair by November 2016. So far, only a quarter of it has been executed. for which the state has assumed the responsibility to pay EUR 15 million borrowed from the EBRD

About the same progress was achieved by Evrascon JSK also under another contract for the repair of the Hancesti-Lapusna national road. The road was to be paved by November 2016, but the Azerbaijani repaired only 28% of the 37 km. Under this contract, the company has already been sanctioned with EUR 225,000 of the total budget of EUR 18 million.

Evascon repaired only 28% of the 37 km of the Hancesti-Lapusna route.
The road had to be finished in November 2016

The total amount of penalties imposed on the Azerbaijani entrepreneur exceeds EUR 620,000. This amount is to be withheld from the payment certificates. The SRA hopes that this company will honor all its obligations by the second half of 2018.

Being contacted by phone, the representative of the Azerbaijani contractor, Nazim Hajiev, told us they have substantiatal reasons for all the delays. “We disagree with these penalties, and if necessary, we will reach the Permanent Court of Arbitration to defend ourselves. We have good reasons for not being penalized, we have all the arguments as to how the works were executed”, he said.

Three other companies, the same problems

Two more firms involved in repairing the national roads risk from being penalized for failing to serve the terms of the contract, and a third company could lose the contract. The first is a Portuguese company MSF Engenharia S.A. In 2015, it signed a EUR 36.4 million contract from an EBRD loan to rehabilitate around 30 km of Balti-Sarateni road by April 2017, but the works ceased developing, only 6 percent of it being executed. We requested a comment from the project manager, Manuel Campos, but we did not receive a reply to the letter sent by us. The company's translator, Tatiana Tarasenco, advised she does not comment on the relationship between the beneficiary and the company.

Sangerei bypass is rehabilitated by MSF Engenharia S.A. Photo: Mariana Jacot

There are also problems related to Balti - Falesti - Sculeni site, where the Italian entrepreneur Impresa Pizzarotti is also behind schedule. The EUR 50.5 millionworth contract, a loan offered by the EIB, was signed in August 2015. Road surface repairs of approximately 55 km began in February 2016 and are due to be completed by February 2018. So far, the contractor has received more than EUR 10.4 million and executed 24 % of the works. Being contacted by telephone, the project manager, Alessandro Capizzi, told us that the delay in the works would have occurred because the State Road Administration would have endorsed the draft project details too late. For this reason, the Italians demanded for the works execution period to be extended for another year. “We are awaiting the decision. We reasoned that we received the approved project too late” says Alessandro Capizzi.

With a zero percent progress, the company JV Serenissima Costruzioni S.P.A. in association with the PST, Italy, risks to remain without any contracts. Following the international tenders, the consortium won two contracts for the rehabilitation of Hancesti - Leova - Cahul and Soroca - Arioneşti roads in 2016 in a total amount of EUR 71 million from the EBRD loan. So far, no work has been carried out on the two roads.

Management of the SRA expresses the hope that by the end of January 2018, there will be clarity on all contracts, especially those with long delays. “The only option is termination. The potential companies are MSF Engenharia Portugal and JV Serenissima Costruzioni S.P.A. in association with PST, Italy”, director of the SRA revealed.

 “Penalties must be applied equally”

Jan Kovalcik, an analyst at the Institute for Economic and Social Reforms in Bratislava, Slovakia, points out that if there is a delay without justified reasons, the punishment should be applied in accordance with the terms of the contract.

“It is very important for the penalty clauses to be applied equally to all contractors. Otherwise, the companies that face stricter sanctions than others may not participate in subsequent tenders. This can reduce competition to fewer companies, which can count on less stringent contract enforcement. Ultimately, it can lead to higher prices, lower quality or more delays”, explains the Slovak expert.

The rules are dictated by the international financial institutions

The application of fines for delays has become possible since 2007 when, along the launch of the international projects, the International Federation of Consulting Engineers (FIDIC) conditions became compulsory. The sanctions are deducted from the value of the interim payment certificates submitted for payment of the works executed by contractors. These are penalized only after a supervisor engineer finds that the entrepreneur is in delays. The penalty is 10 percent of the contract value. All the amounts in these fines are retained on the project account with the National Bank of Molova and are used to fund other projects.

“You can also set a 30% penalty. But we have to justify this figure. Now, we can justify 10%. Each country sets the size of the fine. The penalties could be increased, but should be coordinated with the financing banks”, Curmei said.

None of the companies fined for delays in the implementation of the EBRD and the EIB funded contracts was included in the Public Procurement Agency's black list. This is because the procurement rules of the EBRD and the World Bank do not involve the blacklisting of companies that have not complied with their contractual commitments except in case of fraud and corruption.

See the graph where the money from the penalties went

The sanctions taken from the penalized contracts came to the account of several companies to finance the rehabilitation works, selected from international tenders. The technical supervision of the execution of some works was financed also from the penalties

What solutions do the authorities propose?

One reason that has led to the delay of the works executed under international tenders is related to the financial problems and the default situation in which the contractor found itself, the SRA officials and the Ministry of Economy and Infrastructure argue. From now on, in international tenders, the authorities assure that the selection will be more rigid and some contract terms have already been adjusted. The priority will not be given to the lowest bid price.

European loans and grants directed to rehabilitate national roads in Moldova

The companies will be selected in advance and will be thoroughly checked for their history, including whether their financial condition allows them to perform the works. The authorities from the SRA and the ministry assure that they will also ask for information from beneficiaries from other countries where these companies have performed similar works. Upon submission of documents in order to participate in tenders, contractors will need to submit materials delivery contracts, bitumen delivery contracts. A set of documents will be required to know the real market prices in order to avoid the situation of falling into default.

EBRD, EIB, WB and EC are concerned

Anatol Usatîi, State Secretary in Construction and Road Infrastructure, Ministry of Economy and Infrastructure:

“We have undertaken over 17 contracts, all of them being problematical. Not a single one goes smoothly Either a delay of one year or a year and a half or no works are conducted, companies are in bankruptcy. No contract goes normal. Good management is required. Both contractor and engineer require a permanent management and continuous monitoring by SRA. There have been omissions from both ends. Usually, it is about engineer-contractor-beneficiary triangle. Everyone has its part of guilt for this situation”.

The financial institutions are also concerned about the lack of progress in road repairing. At the beginning of December, representatives of the financing banks visited Moldova and evaluated theexecution of the contracts. They were also on site to assess the estate of the roads. So far, there is no information on the outcome of the visit of the international financial institutions. According to Curmei, the possibility of terminating the contracts with three international firms is being considered.

This investigative article was developed with the support of the Project “Strengthening civil society capacities in the field of open data use", implemented by the United Nations Development Program and financed by the SlovakAid Transition Knowledge and Experience Transfer Program of the Slovak Republic. All opinions belong to the authors/author and do not reflect the official position of UNDP Moldova, the Government of the Republic of Moldova, the Government of the Slovak Republic or their affiliates.

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