Transport Ministry cuts spur meeting

Transport Minister Vít Bárta's pronouncements on road and rail work are becoming increasingly exasperating for construction companies and contractors who are finding their projects canceled and bills unpaid by a ministry that's taking drastic measures to save money.

On Aug. 31, Bárta announced that "all payments have stopped, and we are not paying anything. We will see what further negotiations will bring," according to the daily Mladá fronta Dnes. The halted payments are meant to force construction companies who are building state roads and railways to agree to discounts on already existing contracts.

The State Directorate of Roads and Highways currently owe 1.2 billion in overdue invoices to road construction companies and an additional hundreds of millions of crowns to rail construction firms. Bárta added that the railway companies have agreed "verbally" to discounts, and, once confirmed, will receive payments they are already owed.

"If the railway companies sign off on the discounts we agreed to verbally, we'll start paying them next week," he said.

But the owed companies say the discount will only be in the form of waived late fees. In a pugilistic response, Bárta said any company that tries to collect on the debt will be "destroyed."

"I think we absolutely have to refuse Bárta's arguments," Václav Matyáš, head of the Czech Association of Building Entrepreneurs (SPS), an organization that represents rail, road and building companies, told The Prague Post Aug. 31. "We live in a country where the law should be respected. When you understand commercial law and listen to the rhetoric of Bárta, you realize it's crazy."

Matyáš was planning to meet with Prime Minister Petr Nečas later that day to discuss the impasse between the two sides.

"I think it's about extreme ambitions for results, coupled with a lack of experience," he said of Bárta's strategy.

One day earlier, SPS held a press conference outlining their objections to the Transport Ministry's actions and proposed solutions. The association was reacting to a series of events since Bárta assumed leadership of the Transport Ministry earlier this year. In mid-August, Bárta announced the 12 road infrastructure projects already under way would be halted because of overpriced contracts, and prior to that stopped all railway projects, although work on those continued anyway.

"The commonality of these steps the ministry has taken is an effort to immediately save money without any analysis of the consequences, and the result has been chaotic cuts in investment, the delay of projects already under way and the outright cancellation of programs that support housing projects and building renovations," a press release from the Aug. 30 SPS press conference stated.

At the heart of the standoff is the legality of forcing discounts on contracts that have already been agreed to. Individual construction companies are consulting lawyers but are tight-lipped on what course of action they are considering against the Transport Ministry. Companies will have to insist that existing contracts are honored, Matyáš added.

That's not to say companies aren't willing to find ways to save money, but the larger companies are also tied to prices they agreed to with sub-contractors, said Petr Čížek, chairman of the Road Contractors Association Prague, at the SPS conference. Even if the large companies were to agree to discounts, there's no guarantee the myriad smaller companies they work with would also agree, he added.

"There is a big difference between discounts and savings. A discount would be when someone is asking us for discounts on prices we've already agreed to. That's a very atypical solution," he said. "Our companies could in theory offer savings on projects that have been planned as luxurious or splendid. You could downgrade those and save money, but you cannot just ask for discounts on what the state has already asked for, what they've already ordered."

Bárta has said he believes the construction companies are operating with significant profit margins that could be cut in order to offer the discounts, but the SPS counters there aren't any companies in their organization that are reaping huge profits from state contracts.

"We do not want and we will not deal with companies that have high margins," Matyáš said in response to a question at the Aug. 30 conference. "I can say that companies with high margins are not in SPS, and those companies that do have them were set up quickly for that very purpose," he said. "The companies within SPS have margins of approximately 5 percent."

The Transport Ministry is grappling with a 10 percent cut in its operating budget this year, and part of that will have to come in layoffs, Bárta said Aug. 20. Nečas' government has sought to cut an additional 10 billion Kč from ministerial budgets this year in response to lower-than-expected tax revenues and an effort to keep the budget deficit at its forecasted amount this year.

Claire Compton can be reached at
ccompton@praguepost.com