Lard of the rings: why Czech motorways are overpriced

NKÚ audit of Prague ring road construction financing reveals questionable costs, missed deadlines, and breaches of the law

Politics & Policy|Companies
Kateřina Menzelová | 17.05.2012

Neither the Czech Ministry of Transport nor the Road and Motorway Directorate (ŘSD) will take much pleasure from the recently published findings of the Supreme Audit Office (NKÚ) regarding the construction of the Prague ring road. The auditors examined the project from the start of 2006 to last September; their findings confirm that costs and deadlines are flexible when it comes to constructing infrastructure in the Czech Republic, to put it diplomatically.

The total cost of the Prague ring road, calculated in 2001 to be something in excess of Kč 48 billion, has climbed to nearly Kč 107 billion. And instead of being completed in 2008 as originally planned, the project will continue until sometime around 2020. The NKÚ uncovered dozens of irregularities, including several breaches of the Law on Public Tenders. Let’s take a look at the Office’s findings in more details.

More expensive and delayed

In 2001 the Ministry of Transport drew up a transport plan titled “Timetable and financing of the proposed development of transport networks in the CR until 2010.” The ministry, at that time headed by Jaromír Schling (Social Democrats, ČSSD), submitted its proposal to the government, with the 2008 project completion date and projected cost of some Kč 48 billion.

Schling’s successors also compiled conceptual materials (including the “Super Strategy” of Vít Bárta, the Public Affairs (VV) paymaster who was forced to resign as former transport minister). However, these analyses were either not approved by government or failed to address the longer-term construction and financing of infrastructure. Whatever the case, by the time the NKÚ conducted its audit, the Roads and Motorway Directorate (ŘSD) estimated that the ring road would be ready sometime around 2020 and would cost almost Kč 107 billion.

However, in the light of previous experience, not even these estimates by the ŘSD can be relied on. The project might be more expensive and completed even later. In addition, in January 2012 the government headed by Prime Minister Petr Nečas (Civic Democrats, ODS) approved a transport infrastructure construction timetable for 2012 to 2013, including an outlook for 2014 —from which it is clear that work will not begin again on the Prague ring road until 2014. The reason is also clear: there’s no money. (The future of the ring road is only to be outlined in the document “Transport sector strategy 2nd phase – medium-term plan for the development of the transport infrastructure with long-term outlook.” The plan is for the Ministry of Transport to submit this document to the government only next May.)

It is clear from all of this that “construction of the ring road was not based on a binding concept that, combined with realistic sources of financing, would have stipulated the priority sections for the construction of the road and motorway network,” the NKÚ concludes in its audit findings.

Nine breaches of the law

A substantial part of the preparations for any construction project, not only the Prague ring road, involves land use application proceedings and planning permission. The NKÚ discovered that it was taking longer and longer to sort out these matters. While land use application proceedings in the case of the southwest section of the ring road took 18 months to be resolved, in the case of the section between Běchovice and the motorway D1 this figure is already five years and proceedings are still underway. ‘A major factor was the requirement of local authorities and interest groups for additional buildings to be added to the project.’

“A major factor was the requirement of local authorities and interest groups for additional buildings to be added to the project,” writes the NKÚ, justifying the cause of the delay. Another reason is that the ŘSD submitted incomplete documents with its planning permission applications.

However, the auditors also came across many instances of malpractice in relation to the already completed sections of the ring road. The NKÚ examined three construction stages of the section D1 – Vestec-Lahovice-Slivenec, which was opened in October 2010. The total cost came to more than of Kč 32 billion. However, the stages were not given official approval due to problems arising during trial operation and road noise level measurements. Official approval will probably be awarded in the second half of 2012. This represents a five-year delay on the plan compiled in 2001.

The NKÚ found the following offences had demonstrably been committed during the construction of the ring road.

  • Under the original contract the section between Vestec and Lahovice was to cost just under Kč 5.5 billion. “After conferring with the ŘSD, the supplier made 468 changes during the course of the construction work. These changes increased the price by Kč 1.091 million without value-added tax (VAT),” the NKÚ notes. These changes were in the main only approved by the ŘSD after they had been implemented. According to the auditors, 325 changes were made in the section between Lahovice and Slivenec and the price increased by more than one billion crowns.
  • The auditors also discovered problems during the tender proceedings. Two hundred public tenders were inspected worth almost Kč 28.7 billion. Of these, 164 were small-scale tenders which fell outside the purview of the Law on Public Tenders. Nevertheless, the principles of transparency, equal opportunity and the ban on discrimination must be observed. The ŘSD has a special duty to observe these principles. The auditors discovered that the suppliers had often been selected on the basis of telephone consultation.
  • The NKÚ discovered a breach of the Law on Public Tenders in the case of nine tenders worth more than Kč 14 billion. The most egregious of these involved the section between Vestec and Lahovice. Additional work was carried out on this section for more than Kč 4 billion, i.e. more than 90 percent of the total contractual price. We would simply add that the ŘSD did not conclude any contract for this additional work and awarded it to the original supplier without any further tender.
  • The auditors warned that the ŘSD had not demonstrated any active endeavour to reduce the cost of building the ring road. For instance, the supplier himself had proposed savings on the section between Vestec and Lahovice.
  • The ŘSD had also failed to evaluate the possibility of reducing costs by dividing its tenders into smaller contracts, a move which would have expanded the number of potential bidders.
  • The NKÚ also draws attention to the fact that the ŘSD does not actively work with price norms. These are intended to provide assistance when the cost of investment plans is being calculated and allow for comparisons to be made in later phases of preparation.
Déjà vu...

The NKÚ had already audited the Prague ring road project in 2004. What is startling is that the many irregularities that the auditors highlighted back then persist to this day. This includes insufficient coordination between the state and local authorities, delays, cost hikes, and failure to evaluate alternative routes in the northwest section of the ring road.

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CR like a Third World country

A project that doubles in price (due to corruption) and triples in time expected to completion (due to incompetence and corruption)... this sounds like an undeveloped Third World country.

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