VISEGRAD: Highway robbery in the Czech Republic

By bne IntelliNews May 16, 2012

bne -

The construction industry is a murky business and no more so than in the Czech Republic, where the fate of Miloslava Posvarova, a former employee for the UK engineering firm Mott MacDonald in Prague, has become a matter of fierce debate.

Posvarova was dismissed in early May by Mott MacDonald under circumstances that still aren't clear. People in the industry and media unambiguously link her dismissal to her sterling work highlighting the widespread dodgy practices and cost inflation in the Czech Republic's notoriously corrupt infrastructure construction sector, and that she has been sacrificed by her firm as it seeks to worm its way back into lucrative state construction contracts from which it's been frozen out.

However, Mott MacDonald tells bne that contrary to press speculation, the loss of her job was part of a general downsizing of the Czech office (from 180 to 124 staff) as the UK firm exits parts of the construction business; indeed, she was one of only three people who were offered continued cooperation on a consultancy basis. Further, Mott MacDonald complains that the company is finding itself in the midst of a political battle between the government and certain construction contractors, and this rampant speculation by the press, few of which have bothered to contact the UK company to seek its comment, is part of that battle.

What is clear, though, is that the notoriously corrupt construction industry in the Czech Republic is under scrutiny like never before and Mott MacDonald, long an island of probity in murky waters, is having to make changes at its Prague office to mitigate the difficulties its business has suffered over the years from its principled stance.

Risky business

The brouhaha over Posvarova began when Pavel Kohout, who heads the "Fight against corruption" working group for the National Economic Council of the Czech Government (NERV) that Posvarova voluntarily gave her time to, claimed in the Czech daily Lidove noviny on May 14 that the veteran construction engineer had been fired by Mott MacDonald because she had violated the "omerta" in the construction sector about revealing dodgy practices and was sacrificed to help the UK company regain business in the country. "[Posvarova] lost her job because she violated the 'omerta', a secret promise of silence among firms in the industry," Kohout wrote in the newspaper. "Mott MacDonald was cursed by the rest of the firms immediately after her report was published. In a small market such as the Czech Republic, even competitors cooperate. After a full dry year, the British headquarters of Mott MacDonald decided to replace the management in order to get back to the good old times of cooperation."

The report Kohout is referring to is one that Posvarova authored last year as a part of Kohout's NERV working group. The report, entitled "Quality control and delivery standards for road construction," caused a huge stink by revealing in detail how it is that constructing roads and bridges in the Czech Republic go so over budget, so past deadlines, yet are of such poor quality that roads buckle and bridges collapse, including one notorious case in 2008 that killed eight people.

An illustration of the scale of the problem can be found in a survey from the Supreme Audit Office (NKU), parts of which were published by Czech Position on May 15, which showed that of 28 projects relating to motorways and high-speed communications started after 1999, all had their deadlines extended by up to seven years and investment costs rose by a total of CZK35bn (€1.37bn), or about 68%.

The key finding of Posvarova's report was that the problems of cost inflation, delays and sub-standard work in the industry began from about 2000, when the system of independent supervision of public construction works - initially set up in 1995 to comply with European Investment Bank (EIB) subsidy requirements - started to erode, then was finally removed completely when the country joined the EU in 2004. "This brought about an imbalance between the supplier and the customer (the Road and Motorway Directorate, or RSD)," she wrote in the report. "Independent construction oversight firms hired by RSD could not withstand the pressure applied from the supplier and from its client, the RSD, which approved works despite the negative opinion of the oversight firm. Suppliers then also started to press for extra work. If the oversight firm disagreed with the extra work, it was replaced."

Her report also highlighted a basic conflict of interest in construction projects, in that companies that prepare plans for road construction for the Czech state often work at the same time for the winners of the said tender. This too-cosy relationship also means that the contractors often succeed in getting approval from the project coordinator for changes in the project's specifications, which causes the cost increases, delays to the project and helps avoid the contractor from being lumbered with unforeseen extra costs.

The conclusions of the report were backed by her former boss at Mott MacDonald, Jiri Petrak, who told bne in an exclusive interview before he retired earlier this year that Mott MacDonald's problems operating in the Czech Republic as an engineering advisory company on construction projects began when the country joined the EU. "In the 1990s, we were well-positioned as an international independent company, we were trusted by donors to supervise funds and projects co-financed both by the EU and the EIB, and there were strict requirements for co-financed projects," he said.

"Of course, for projects without co-financing by the EU there was this corruption growing, but after joining the EU in 2004, the EU changed its approach and said, 'you handle it and we'll check later.' For those intent on stealing money, this is the best way how to do it. We were pushed out totally from business - nobody wanted or needed a non-corrupt company involved. The Ministry of Transport of the government of former prime minister Mirek Topolanek issued an order that Mott MacDonald shouldn't work for Ministry of Transport projects, as we were 'unpredictable', and I became public enemy number one," he said.

Petrak went on to detail to bne other scams by the construction business, such as those centred on land use. "The government land was first sold to someone, and this was then resold to government as a building plot, which was more expensive than if it was just a forest or a field. This 'land swapping' may have created billions for some people," he said, adding, "It is hard for you as westerner to comprehend the scale of the stealing."

Posvarova's report for NERV also addresses the issue of construction quality, which is where, Mott MacDonald tells bne, it believes the current battle being waged through the press centres on. Her report says that in the absence of spot checks on construction works as they progressed, the contractors have often gotten away with using shoddy materials and products, which has had fatal consequences like the 2008 collapse of the motorway bridge near Studenka in the Moravian-Silesian region that caused a train to derail, killing eight people and injuring over 90 others. "For example, they use replicas, false crash barriers or reinforced concrete for bridges and tunnels," Posvarova wrote in the report.

However, sources say there is another a fuller, unabridged version of this NERV report, not available on the NERV website, in which Posvarova details forensic evidence of negligence and failure (she is an expert in technical and measuring methods, which enables "x-rays" of any construction to reveal even its hidden defects) in construction works and ties this to specific companies, and this is being used in criminal prosecutions by the government against certain contractors. "There are ongoing problems regarding highways in North Moravia and close to Prague, and threats of lawsuits from the state against the contractors, due to technical problems. The state is now refusing to pay the contractors and lawsuits are brewing," argues Radko Bucek, the new managing director of Mott MacDonald's Prague office. "This whole story has been created by the press as part of that campaign."

But while making for good headlines, none of this current spat will do much for the poor taxpayer who has had to pay for the all this rotten construction and has to travel on it. Indeed, the past misdeeds were so widespread that Petrak warns that there are likely to be more cases of bridges collapsing. "Everyone was cheating, not doing proper work. As an engineer, you can't cheat because it will come back to haunt you one day - a road becomes bumpy, a bridge collapses. I hope that things will get better because we have reached bottom."

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