Region: Chinese contractor stiffs Poland

The controversial tender that brought China into the European construction market for the first time appears to be heading toward a disastrous end.

The Chinese Overseas Engineering Company (COVEC), which, in 2009, burst on to the Polish - and EU - construction scene with its shockingly low bid for a contract to build 50 kilometers of Poland's A2 highway, has walked away from the project, leaving the Polish government seeing red.

"We let them into the market of large EU investment projects, and now here's this mess," Radisław Sikorski, Poland's foreign minister, tweeted June 7. "They should save their reputation."

In December 2009, COVEC won the contract with a bid of 1.3 billion złoty, which was nearly half the original estimate of the project. The company was accused of price dumping by many rival bidders, which argued COVEC's segment of the project could not be completed properly for such a small amount of money. The protests went nowhere in Warsaw as the contract was hailed as a major political victory for the government of Prime Minister Donald Tusk, who began touting a future of cheap highway and infrastructure projects thanks to the market-setting contract with COVEC.

But the relationship soured in just under 18 months. In May, many of the project's subcontractors began complaining COVEC was late in paying them for their work, claiming they were owed at least 117 million złoty and staging protests and blockades of the company's Warsaw office.

After resigning from the project June 7, COVEC claimed it was late paying its subcontractors because the Polish government's road and building agency, the General Directorate for National Roads and Highways (GDDKIA), had delayed several payments and because of "unexpected" increases in raw material costs.

But the GDDKIA is already threatening to sue COVEC for 724 million złoty if the company does not restart the project immediately.

"I expect tough action," Tusk told reporters shortly after COVEC resigned from the project. "This is why we have agreements, regulations, deposits to be able to deal in a tough way with those who can't fully or don't want to meet their contractually guaranteed obligations."

COVEC has faced a barrage of criticism both in Poland and internationally over its handling of the project, and the company has begun to backtrack a bit, claiming it is still willing to negotiate in hopes of reaching an agreement so it can resume work.

"Meetings are continuing, and cooperation is continuing," said Yang Wencheng, a COVEC spokesman. "The problem of construction lies in cooperation and understanding."

The government has confirmed it is still in talks with COVEC, but officials are also looking for other firms who might be able to complete the so-called Chinese section of the A2 project. Other firms building separate sections of the highway have said they would be able to step in if needed, but the project would likely be re-bid if COVEC officially leaves the project.

Such a setback would be a political nightmare for Tusk, who is under pressure to have both the highway project, as well as a $460 million soccer stadium project, completed in time for the Union of European Football Associations (UEFA) Euro 2012 championship, which Poland is co-hosting with Ukraine. Construction on what is known as the National Stadium may also halt soon as the National Sports Complex, the company created by the Polish government to own and operate the facility, has threatened to cancel its contract with a joint venture led by an Austrian firm, which has also been accused of undercutting other bidders for the project last year. Because of the lower-than-expected tender, several problems have arisen during construction, including several stairwells that were built below specifications because contractors were forced to cut costs.

National Sports Complex has given Alpine Bau, the Austrian head of the joint venture, until June 16 to come up with a plan to complete the project; otherwise, the contract will be terminated, and the project will be re-bid. Alpine will have to pay 190 million złoty in compensation if it is removed from the project.

"If someone wants to build roads and stadiums in Poland, they either have to do it perfectly or pay the penalty," Tusk said.

Jack Buehrer can be reached at
jbuehrer@praguepost.com