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Tusk drops Chinese COVEC building the A2 motorway in Poland


Ziemowit 12 | 3,381
4 Jun 2011  #31
I think this is also the case here - this reflects the state of Polish finances too by the way

Rather than explaining things to others, you are diffusing a party political broadcast on behalf of the PiS party here on the Polish Forum. All the construction works on motorways that have run into trouble by now, had their planned budgets almost twice as big as the actual sums agreed by the building consortiums. The bidding regulations in Poland which go back beyond the time that PO came to power favour strongly the price as a main winning criterion. Almost every government would be tempted to accept a price which is only half the money put aside for the purpose. If you are tempted to claim that it is only the government of PO which is so stupid to accept such offers, I shall remind you that in the course the 19th century in Germany a similar rule had once led to the collapse of a newly erected bridge which had been built by the company who ofered the lowest price in the bidding. The choice of the construction company solely on the basis of bidding price has therefore been forbidden in Germany ever since.

You may read further details on the issue in a paper which is a dedicated supporter of PiS and dedicated opponent of PO, the "Rzeczpospolita" daily - edition of Friday the 22th June of 2011.
gumishu 11 | 4,956
4 Jun 2011  #32
dition of Friday the 22th June of 2011.

you sure about the date? -
boletus 30 | 1,367
4 Jun 2011  #33
favour strongly the price as a main winning criterion

Yes, and this seems to be a global problem.

There is a document by European Federation of Engineering Consultancy Association: "Evaluation of EU public procurement legislation and policies, EFCA policy paper",
efcanet.org/Portals/EFCA/ELOKET/1724/Modernisation%20EU%20public%20procurement%20market%20(2011-03-31).pdf

In the introduction they state:

Public tendering incurs high transaction costs and onerous procedural requirements, resulting in "formal competition‟ merely to justify the award decision. The crisis led to increased competition based solely on the lowest price - which is possible under European procurement legislation - which results in abnormally low prices. In construction, this means poor quality, postponed problems, and in general bad value for money:
+ short-term savings often hamper innovation and creativity,
+ life cycle costs are not considered,
+ many relevant aspects or impacts of proposals are ignored.
(...)

They propose some reasonable changes to tendering procedures, such as

Quality based selection principles with related criteria and procedure, and to considerthe lowest price-based award as an exception.

and

To achieve the best outcome, such contracts should be awarded on the basis of qualitative assessment and not on the basis of quoted fees or lowest price.

Ziemowit 12 | 3,381
5 Jun 2011  #34
you sure about the date? -

Sorry, my mistake about the date. It is the edition of Friday the 3rd of June.

Main article of the front page: "Gorzej, drożej, później".
Editorial comment of the second page: "Jak się pozbyć Chińczyka".
Three articles of the fourth page of the economic section:
1. "Sypie się plan budowy dróg na Euro 2012".
2. "Radość z oszczędzania była przedwczesna".
3. "Cena nie będzie decydować o wszystkim?"
OP PennBoy 76 | 2,438
5 Jun 2011  #35
Sejm member Eugeniusz Kłopotek says throw the Chinese out of Poland, and stop with doing business with them. Urged Poland should just use Polish or other European companies.
Ironside 47 | 9,574
5 Jun 2011  #36
Sejm member Eugeniusz Kłopotek says throw the Chinese out of Poland,

It means that there is something fishy about that case, he is not exactly an impartial factor here.

competition based solely on the lowest price - is a nonsense, quality is even more important - but who cares?
boletus 30 | 1,367
6 Jun 2011  #37
they probably now bet on getting those 700 million penalty fee off the Chinese

If the last-ditch talks between the Chinese and GDDKiA fail this week the latter will demand 741 million zł penalties from COVEC. But this looks like an empty threat because the Chinese company has no such assets. During a tender in 2009, COVEC provided banks' guarantees for the amount of 130 million zł - which was the standard 10% security for the contract worth 1.3 billion zł. The guarantees were confirmed by Bank of China, Germany' Deutsche Bank and other banks. Ultimately, each of the participating banks underwrote 10 million zł.

COVEC was registered in Poland in 2007 as a foreign branch of China Overseas Engineering Group, based in Beijing. According to Thomas Starzyk from business information agency Dun & Bradstreet, the holding company is doing quite poorly, below the average for the entire construction industry in China. Its entire annual cash flow is about 4 billion yuan, less the 2 billion zł. This is not much more than the value of the two sections of the A2, which the Chinese have promised to build for the 1.3 billion zł.

There are even more doubts concerning the company. According to "Dziennik", a Polish entrepreneur could not find the seat of the company in Shanghai and Beijing. Also, "Dziennik" claims that they we could not get through to the Chinese numbers listed on the official website of COVEC.

Oh, boy!

I glanced at their website as well - a standard professional design (Flash Player) with "pretty pictures" but not much essence. Certain sections, like "HQ Offices" are empty. "Under construction"? :-)
Antek_Stalich 5 | 997
6 Jun 2011  #38
I think I will compile a book made of threads starting with "Tusk does this or that" ;-)
boletus 30 | 1,367
6 Jun 2011  #39
I have no grudges against Tusk, I was just continuing with the topic - hoping for the best. But it does not look good.
OP PennBoy 76 | 2,438
6 Jun 2011  #40
More details

I have no grudges against Tusk

He picks people heading the government, it's his responsibility. Pay more but pick a European firm that knows what it's doing and can front the money.
Monia
6 Jun 2011  #41
Do you think he could predict all of that , I am sure that he did everything with good intentions .

Now, it is obvious that Chinese corp prime intentions were to threaten to breach the contract to force our government to raise higher the agreed earlier sum of money .

It is better to get rid out of them now than to wait until it is too late and present delays are not that big . The sooner the final date is the more problems with them may occur and the more pressure on us can be put .

They could simply stop the work before 1 month prior to deadline date and demand as much money as they only want knowing that nobody can finish up the remaining job on time on which our goverment can`t afford or let to happen .
Ironside 47 | 9,574
6 Jun 2011  #42
I am sure that he did everything with good intentions

Absolutely, that is the most important feature of a politician - their good intension's.
Monia
6 Jun 2011  #43
We all can make mistakes, because we trust someone too much . Tusk obviously trusted those crooks too much .
Monia
6 Jun 2011  #45
I am sure , Antek , he did not take part in any of such discussions , but some blame him for not overseeing the outcome.
David_18 68 | 982
6 Jun 2011  #46
this is the question of Polish government not paying the building companies on time - the Chinese claim they have only received some 130 million PLN from the state while they have already spent 240 million

That's how it works when dealing with a goverment. Bureaucracy takes time and thats why the company who got an order from the country should have money ready so they can pay the subcontractors while waiting for the funds.

(because we don't have the money - read the state finances are in tatters)

Poland got the cash numb nuts, the money is already there.

Poland saved almost half of what they would have to pay from an European contractor.
Antek_Stalich 5 | 997
6 Jun 2011  #47
I am sure , Antek , he did not take part in any of such discussions , but some blame him for not overseeing the outcome.

You think Monia it is the PM who signs all such contracts? Or, maybe his minister?
AdamKadmon 2 | 508
6 Jun 2011  #48
Sejm member Eugeniusz Kłopotek says throw the Chinese out of Poland, and stop with doing business with them.

The President of the Royal Society Martin Rees:

Of course the biggest tectonic shift in the world's science stems from the burgeoning growth in the Far East - in China above all. Since 1999, China's R and D spend has risen by 20 percent each year - up to a level that's now second only to the US.

China's technocratic leadership has astutely targeted its scientific investment on 'growth areas'.

Look, for instance, towards the city of Shenzhen. There, a 500-strong research team is hard at work, on the front line of genetic research. They were only established eleven years ago. Now they have more sequencing capacity than anywhere in the world - enough to sequence 10,000 human genomes in a year. And China strives to lead, too, in the quite different field of solar power.

Education is prioritised in China - and in Taiwan, South Korea and other countries of the Far East - with a focus on the aspirations of their fast-developing economies. And concerns are often voiced that we in the UK are falling behind.


Chińczyki trzymają się mocno i to bez żadnego Kłopotka.
Midas 1 | 571
6 Jun 2011  #49
The guarantees were confirmed by Bank of China, Germany' Deutsche Bank and other banks. Ultimately, each of the participating banks underwrote 10 million zł.

Yeah, that's how things end when you do business with schmucks... I mean, 130 million guarantee on a 1.3 billion contract? Really?

Good luck sending a Polish "komornik" to China, lol.
gumishu 11 | 4,956
6 Jun 2011  #50
COVEC provided banks' guarantees for the amount of 130 million zł - which was the standard 10% security for the contract worth 1.3 billion zł

I read - can't remember the source now but it must have been gazeta.pl that they spent these 130 million (and they must have spent it for the construction as there are photos enough on the web to show it) an waited for some money from GDDKiA but never received any - and that's how the problem started - actually I read that they have spent quite substantially more than 130 million
Midas 1 | 571
6 Jun 2011  #51
In any construction or development related business, going with the lowest bidder isn't always the best idea, especially if the lowest bid seems to be based on unrealistic assumptions.

In this particular case, if I recall corectly, the Chinese made a bid that can only be viewed as cut-throat undercutting and, again if I recall correctly, even the Polish press wondered how the hell this whole Chinese motorway was going to click, financially speaking.

But who cares, right, on paper it looked wonderfully. And any reservations people had were being treated with "this is China's stepping stone to the European market, they are treating this project specially".

Sorry guys, that's no way to think in business.

And now the Chinese are saying - we dump the site or You change the payment terms ( which I assume they knew prior to the bid ). Rather unethical, to say the least, especially since everyone knows the Polish government has a gun to their head on this one ( if the Chinese dump the the site there's no way on God's green earth the motorway will be finished for EURO 2012.

On principle the Chinese should probably be kicked out, but IMO the Polish government will cave in to their demands.
gumishu 11 | 4,956
6 Jun 2011  #52
the Chinese (Covec) claim now that GDDKiA underpays them - (doesn't pay for the actual advance of the jobs)
boletus 30 | 1,367
6 Jun 2011  #53
OK, here are some details from both sides of the divide: COVEC vs. GDDKiA, which I translated from

GDDKiA
On Friday GDDKiA announced that "in response to the final request, sent on Thursday to COVEC, for submittal of a remedial program regarding works on the A2 motorway, the Chinese consortium announced on Friday its intention to withdraw from further construction."

The COVEC company also asked GDDKiA about the possibility of a meeting and talks, which - according to COVEC - would make it possible to carry out further work on the basis of signed agreements.The government agency announced that the talks would take place before Thursday, the deadline of the 7-day ultimatum issued by the Polish side to the Chinese consortium.

The value of the contract signed with COVEC is this:
- section A: 754.58 million zł gross, 618.51 million zł net
- section C: 534.54 million zł gross, 438.15 net zł.

- The total amount paid to the contractor for the job done on two segments of the highway A2 is 124.76 million zł net, while the 50.31 million zł net is to be paid by the end of June - GDDKiA said.

GDDKiA also reported that the COVEC owns 117 million zł to subcontractors and suppliers. "Even after taking into account the payment of 50.31 million zł for the work done in April on both sections of A2 the overdue payments to subcontractors and service providers will still amount for 66.69 million zł (net) "- says the agency.

COVEC
The consortium sent a termination note to GDDKiA. But the consortium declares its willingness to return to negotiations with GDDKiA.

"The reason for the decision of the consortium are:
- unfair, unnecessary and unreasonable streching of payment deadlines by the investor
- undervaluing quantity and quality of construction work work done by the chief engineer of the contract
- subjective verification and evaluation of work done on site by the person supervising the project
- unexpected increase of market prices of the building materials.
Accordingly, the consortium is unable to continue work on construction"- reads the communique.

The note also stated that over the past two weeks, from 13 May, the two COVEC's presidents from headquarters in Beijing, held talks in Poland with GDDKiA - in order to find an amicable settlement of the work stoppages on the construction sites, in connection with the protests by subcontractors.

"From the very beginning GDDKiA holds the view that changes in the contract with the general contractor are impossible, and it keeps their position inflexible during negotiations, which in no way brings the parties to a compromise; that is, to meet the contractual terms of the completion of sections A and C of highway A2 by May 2012. COVEC, in order to meet the deadlines, accelerated the construction works whenever possible "- reads the note.

The company said it has invested in the construction of sections A and C, over $ 100 million from its own resources.

"According to the agreement, the Consortium should receive payments from GDDKiA no later than in 58 days. However, payments are always submitted on the last day of the agreed cycle. The COVEC's representatives submitted many appeals to GDDKiA - asking for a sensible, practical shortening of the payment period, in order to streamline the work on the sites - reads their note.

COVEC notes that previously they have paid the amount owed to their subcontractors within 5-7 days.

"Recently, in view of the situation, there have been slight delays. If GDDKiA took our appeals seriously the protests could be avoided and the work stoppages would not happened - reads the note.

COVEC also points out to other difficulties, which slowed slowed down the work - namely the deficiencies in the description of the contract. The actual geographical and geological situation at sections A and C of the A2 motorway in many places does not match the description of the project design documents - says the Chinese consortium.

According to COVEC "the status of the construction at the sections A and C A2 is highly advanced, and these delays are the result of external factors. COVEC has commenced the project termination procedure, in order to protect its rights in the event when no compromise could be reached."

"However, we hope to solve all the problems and we can restart our work in the next 14 days" - said in a statement.
gumishu 11 | 4,956
6 Jun 2011  #54
I don't think they are making it up - good job translating the stuff boletus - thank you
boletus 30 | 1,367
10 Jun 2011  #55
You are welcome.

I was waiting for some news regarding negotiations with COVEC. It looks to me that the Chinese are playing the same foxy ball, but dressing their requests differently each time - using delaying tactics. I'll be tempted to say at this point: screw them, take a Polish company, paid them 0.6-1 billion more and let them go to work asap.

Below is my translation of some news from TVN24:

Deputy head of the GDDKiA (General Directorate for National Roads and Motorways), Andrzej Maciejewski, announced on midnight last Thursday that the Chinese company COVEC have offered new conditions of work on highway A2.

- This afternoon the company provided us with an important information about their proposed amendments, regarding the scope of work, which in their opinion is possible to implement on these sections of the A2 motorway, and the new financial conditions that are associated with it. We will be analyzing this data - he informed waiting reporters.

- These new financial conditions, according to the consortium, will lead to acceleration of works on construction of the motorway A2, so the finishing date will be kept as defined in initial contract - he added.

Mr. Maciejewski, did not say whether the proposed price is higher than previously ageed. - I will remain reserved in that assessment - he said, explaining that it requires a prior analysis of the presented conditions.

He reported that on Friday afternoon, the Chinese shall provide detailed information on questions asked by GDDKiA. He did not specify what kind of information. Analysis of these documents will take until Monday, June 13. - We will present our position on Monday - (...) whether it is acceptable or not, whether it makes sense or not, and whether it lawful and in accordance with the contract - he said.

Antek_Stalich 5 | 997
10 Jun 2011  #56
I'll be tempted to say at this point: screw them, take a Polish company, paid them 0.6-1 billion more and let them go to work asap.

Me, too. Or a German, Scandinavian, just a European company with resources available.
Harry
10 Jun 2011  #57
You may read further details on the issue in a paper which is a dedicated supporter of PiS and dedicated opponent of PO, the "Rzeczpospolita" daily - edition of Friday the 22th June of 2011.

Any chance you can have a quick look for me at the section of that paper which deals with share prices?
Monia
10 Jun 2011  #58
Main reason which is not mentioned here is the fact that Chinese are boycotted by suppliers who do not supply them sufficiently with products needed for road construction. Especially they are boycotted by concrete producers ( international corp with mixed polish capital ).

Obecnie zakłady cementowe w Polsce należą do międzynarodowych grup producentów, które dysponują środkami na inwestycje, mają bogate doświadczenie organizacyjne i posiadają ogromne zaplecze techniczne i intelektualne. Obecnie przemysł cementowy w Polsce należy do czołówki przemysłu cementowego w świecie.

polskicement.com.pl/index.php?s=1/3/0

So , there is a lot of scheming going on here and neither Polish government is responsible for nor Chinese .It happens as always when the big money is involved .

I still think the GDDKiA has little money which reflects the state of Polish finances

Thats hilarious !

I am no expert on economy

Of course you are not !

the Chinese (Covec) claim now that GDDKiA underpays them - (doesn't pay for the actual advance of the jobs)

That`s even more hilarious !
Ziemowit 12 | 3,381
10 Jun 2011  #59
Harry

No, no chance at all. People who read post #33:

You may read further details on the issue in a paper which is a dedicated supporter of PiS and dedicated opponent of PO, the "Rzeczpospolita" daily - edition of Friday the 22th June of 2011.

... and don't try to read the neighbouring post #35:

Sorry, my mistake with the date. It is the edition of Friday the 3rd of June.

... before writing their own post #58:

Any chance you can have a quick look for me at the section of that paper which deals with share prices?

should keep themselves out of a stock market at all.
boletus 30 | 1,367
10 Jun 2011  #60
Main reason which is not mentioned here is the fact that Chinese are boycotted by suppliers who do not supply them sufficiently with products needed for road construction. Especially they are boycotted by concrete producers ( international corp with mixed polish capital ).

Yes, I have heard about it. The suppliers decisively deny any wrongdoings.

Highway A2: negotiations are so secret that it is not known whether they actually happened

According to unofficial information GDDKiA wants to entrust the completion of the A2 to other companies, without the tender.

Minister of Infrastructure Cezary Grabarczyk argued yesterday in parliament, the Sejm, that the roads are being built at a good pace. The Sejm, however, has not heard any specifics on the situation on the two key sections of the highway between £ódź and Warsaw, which the Chinese want to abandon.

Completing the work without going through a tender would not be a precedent. For example, the city of Wroclaw has removed an original contractor from stadium construction and entrusted the work to another contractor. This decision was taken to the European Commission and the eventual defeat of Wrocław will mean massive damages to be paid.

The presidents of the largest construction firms, interviewed by our editorial staff, responded that it is still possible that the highway will be usable in June 2012.

- This would mean entering the construction site in the next dozen or so days and starting working on three shifts - says President Bu-dimex Mark Blocher. Unofficially, we have heard that in such scenario the cost of construction will grow up by 600 million to 1 billion more than the price of 1.3 billion, negotiated with the Chinese.

There are growing doubts about the credibility of the COVEC. We have no contact with them, but the Polish PR company, which works for them, argues that - according to a reputable website of the construction industry "Engineering News Report" - they are the 127th biggest company in Asia.

A simple verification shows that the supposedly reputable website belongs ... to the same company that owns the domain Covec.com, or Network Solutions, llc. This American company offers services on the Internet, such as creation of mutually linked Web pages, to add credibility to their customers.

The original financial documents of Chinese COVEC show that their cash flow in 2009 was about 1.7 billion zł - that is, only slightly more than the value of the contract for the construction of two sections of A2.

What do we actually know about the COVEC? It was established in 1987, and for several years his sole shareholder has been the China Railway Group Limited.

Thomas Starzyk, with a reputable business information agency Dun & Bradstreet, told us that he ranks them at 5, on scale 1 to 10, with 7 being an average for the construction industry. - Our assessment of China Railway is even worse - he said.

Polish source, Gazeta Prawna.

boycotted by suppliers

Apparently there is more to that than I thought. So yes, a clean good bye seems the best of bad options.

Will Chinese move from Poland to Hungary?
According to our source the Chinese consortium COVEC, constructing highway A2, won the tender for the construction of an airport in Hungary. The Chinese therefore might be no longer interested in continuing work on the A2. It may be possible that this new contract is influencing the Chinese to protracted talks with GDDiK.

(...)
According to experts, COVEC underestimated how hermetic the Polish market is. Native contractors have long ago divided the country regions among themselves and they do not interfere with a process of winning contracts by the others. This is why they waited for a new rival from such a big country, which can easily provide cheap labour, with such an anxiety. However, Polish companies have found a weak point of COVEC - lack of specialists who know the language, the Polish law and the twists and turns of the complicated bureaucracy.

- This is the problem the Chinese business faces everywhere in Europe. In Poland it is so much greater, because finding engineers cost them more than they have bargained for - says a market analyst. The same was true with contractors. No one seemed eager to work with the Chinese, because he knew that if he accepted such an order the Polish contractors will not forgive him and he will be literally "cut" of the market - tells us a person with the industry.

Those who have decided to cooperate, demanded exorbitant rates, and - in addition - were systematically "warned" againsted further cooperation. - This practice is an open secret - says the analyst.

The Chinese have problem not only with specialists and subcontractors but also with a "civilization leap", which emerged since the UEFA has awarded us the rights to host Euro 2012. Prices of building materials in Poland, where strategic investments are carried out, went up sharply.

- Imagine that the price of sand, for example in the area motorway A2 under construction, has increased from several to tens of złoty per ton. Seller knows that the client is at his mercy, because the time limits he chases, so he will not be fussy - says a person with the road industry.

Everything changed when COVEC realized that they might get their references (to European market) somewhere else - and with a smaller financial loss. This is why they recently put forward the matter differently - they want to negotiate a better price, and they have their arguments. The GDDKiA agency knows well that full recovery of damages is almost impossible.

- Banks will pay 130 million guarantee, that's for sure. But what about the rest of the 741 million zloty penalty, written in contract? COVEC in Poland has only a desk with a secretary. Therefore the full recovery amounts to a dream. Polish side knows that it is irresponsible to throw COVEC out just like this. So they must negotiate - says the analyst.


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