A view of the ALT issue from the

consulting industry

15 October 2013

ATKINS POLAND

The Polish Road Programme

2

• National Roads Construction budget for 2011 - 2015 – 20.7 Billion Euros

• EU for 2014 - 2020 perspective – 24.2 billion Euros (including rail)

Projects 2014-2020*

highways & expressways

operational

under construction as of

2013

A1 section (to be done

without EU contribution)

national roads

* based on Implementing Document to the Transport

Development Strategy, assuming similar to the current

perspective EU contribution available

TRANSPORTATION

3

Independent Engineer’s role and site supervision

of construction of 106 km of toll motorway

Overall project value 1,300,000,000 EUR

Client: AWSA

A2 Toll Motorway Nowy Tomyśl - Świecko

Western Poland

TRANSPORTATION

4

Contract Management and Supervision of construction works

and acting as Independent Engineer

under FIDIC conditions of contract

Total project value over 317 m EUR

Client: GDDKiA

North-East Bypass

of Bielsko-Biała

Southern Poland

5

Independent Engineer in construction of

A1 Motorway on section between Torun and Gdańsk

PPP project

Client: GTC S.A.

a consortium comprised of Skanska, NDi, Laing (Roads) plc, Intertoll

A1 Motorway Toruń – Gdańsk

Northern Poland

The contracting market

6

• Number of Contractors increased from 28 in 2008 to 133 in 2012

• Includes many foreign companies, e.g. Spanish, Greek, German,

French, Italian, Portuguese, Irish, Austrian

• Driven by dearth of work in home countries

• Also, thresholds to market entry lowered

• Result – highly competitive environment

The procurement environment

7

• Rigours of Polish Procurement and Construction Law

• Lowest price wins culture – tick box approach to procurement

• Limited scope within lump sum appointments for variations

• Recourse to courts leads to long delay in settlements

• Contracts highly weighted in client favour – FIDIC ‘wrapper’ only

A dangerous cocktail

8

Lowest Price Appointments

Difficult contract and

legal environment

Operating in unfamiliar

environment

• Record number of bankruptcies in construction

companies – almost 300 in 2012

• Numerous disputes and high profile contract

failures

• Letter of concern to Ministries about difficulties

operating in the Polish roads construction

market signed by Ambassadors from Austria,

France, Germany, Ireland, Netherlands and

Portugal

The problems – the client view

9

• Difficulties connected with organization and start-up of new companies in

Poland

• Inadequate combination of partners in consortium

• Lack of co-operation with the Contracting Authority

• Lack of organized delivery networks

• Ineffective management of resources

• Insufficient knowledge about local climatic conditions

• Insufficient knowledge of national law

• Lack of communication between the headquarters of the foreign company

and its construction site

• Poor quality in construction works

• Attempts to modify conditions of the contract after signing

The result – the contractors view

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• Contracts do not accommodate variations

• Engineer not authorised to make fair and timely determinations on

issues raised

• Dispute Adjudication Boards not unanimously respected by Polish

Contracting Authorities

• Rigid contractual penalty policy – even if issue not contractors fault

• Contracts discouraged from filing law suits against penalty policy –

risk of disqualification from participating in Polish tenders for 3 years

if a Polish court confirms a penalty

• But Polish contract and procurement law protects subcontractors

Addressing the problem

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• Thorough prequalification process required

• Trained procurement specialists required – objective to

appoint the right company, not protect the procurer

• Contracts must be fair – revert to FIDIC

• The authority of the ‘Engineer’ under the contract must be

recognised

• There needs to be trust between contracting parties