The contract to build the Transylvania Highway, now named Bechtel Highway after the construction company that landed the deal, was, as most of the large contracts signed by the Romanian state in the last several years have been, a sore point soon after it was signed.
The contract between Bechtel and the Romanian state was signed four years ago but the first layers of asphalt on the highway, which is, according to Bechtel, currently the biggest motorway project in Europe, are still pending.
The first eight kilometers of highway connecting Brasov to Bors should have been asphalted this autumn, according to the contract, but the delay was caused by the lack of ballast and other essential materials, according to Mihai Grecu, general manager of the National Highways Company (CNADR).
Why hasn't Bechtel had the necessary materials to go on with works as scheduled? According to the signed contract, the state should have provided the American company with locations to extract these materials. If it failed to do so, which actually happened due to the slow pace of expropriations, the American company had to buy the ballast on the free market. So in the end the company did so, although it would have been cheaper if the state had provided the land required for the company to set up its extraction units, says Grecu.
The firm could lay a few hundreds of meters of asphalt at this moment, but is not doing so as it is not advantageous to start asphalting unless there is enough material to lay 5-6 km of asphalt. “The asphalt plant needs to work for at least a week. That's what Bechtel told us,” said Grecu.
In response to a question from Business Review on when the asphalting will start, Michael Mix, general manager of Bechtel in Romania, said “Our asphalt plant is fully operational and we started the process of installing pavement layers this summer.” However, media reports quoting sources in the Transport Ministry say the asphalting should start this month, so at least several kilometers of highway will be completed by the end of this year. The entire portion between Ciurila and Savadisla, locations in Cluj County, is more likely to be ready in spring.
The two localities are not directly connected to the highway, so the first portion of the highway that will be usable will be the section between Turda and Gilaru, to be ready in October 2008, according to the schedule.
So, although Bechtel is now currently working on a portion of the highway which will not be usable as fast as possible as it is not connected to the two localities, the company is trying to advance with the works.
“Our main focus is to progress with the works in a logical and efficient way to meet or even beat the delivery deadlines,” Mix told Business Review.
Asphalting delayed, but 2007 schedule ‘20 percent ahead of plan'
While the asphalting is slightly delayed, as ministry officials have said, Bechtel is 20 percent ahead of the 2007 plan, according to Mix. The company is now working on two sections of the motorway, one section being 2B Campia Turzii-Cluj West and the other section 3C Suplacu de Barcau-Bors. These two sections make up 117 km of the total 415 km project. These first two segments of the highway should be ready by 2009.
The minister of transportation, Ludovic Orban, said in the middle of this year that the works were 44 percent ahead of schedule. The deadline for Campia Turzii-Cluj West was moved from the initial 2010 to end-2008, and for the other segment, from 2010 to 2009.
“We are 44 percent ahead of the initial plans for the pace of works. Works are proceeding in a satisfactory way and I think we can hit the acceleration pedal for this project,” Orban said in July.
“We are confident in our plan and that we will meet the contractual commitments we have made,” Mix told Business Review.
Numbers haven't changed, but bigger sums pop up
The Bechtel contract had a bumpy road in Romania, as it was renegotiated two years after being signed. A change of government brought about changes in the views of the no-bid contract, not least because the European Union had mentioned the contracts in one of its country reports at the time as being a black spot for the country.
The Tariceanu government has also underlined the swelling costs of the contract, EUR 2.2 billion at the time.
Several clauses have been renegotiated, mainly those regarding the advance to be paid by the Romanian party. At the end of 2005, the renegotiation was finalized and, although the PM had asked for a cut in costs, in the end the highway is still going to set the country back EUR 2.2 billion. The main change, besides solving several irregularities in the contract, was pushing the deadline from December 2012 to December 2013.
It looks like the renegotiation of the contract was not a very big problem for Bechtel.
“The scope of work and the unit prices have not changed. What has changed are the delivery dates for the project. We are working closely with the government to complete usable sections of motorway at the earliest possible time,” said Mix in response to Business Review's questions on how much higher Bechtel's profit would have been if it had not been for the renegotiation of contract with the state.
Money seems to be a delicate issue in this project, if there is credence to the recent media investigations that found the current value of project is not EUR 2.2 billion, but EUR 7.2 billion. The media reports were quoting a memorandum issued by CNADR a month ago, which explained the increase in value by the failure to mention fixed prices and by the reshuffle of prices imposed by the contractual clauses.
The CNADR recommendation was for the state to cancel the contract with Bechtel after the two segments on which the American company is working are completed. The remaining six segments would therefore need new bids and new constructors, according to recent media reports.
Minister Orban denied that the state has plans to cancel the contract, saying it would accept only those costs which were reasonable. “I am trying to put the contract into practice, without commenting on how it was made, because it was made in such a way to make any renegotiation attempt difficult,” said Orban. The contract however specifies that Bechtel is compelled to finalize the design only for segments 2B and 3C of the highway, which are the ones currently underway.
Bechtel's main problem was logistics
After four years of ups and downs for the Transylvania Highway project, a question that comes to mind is how much the company has invested in the project and how profitable it still is, despite all setbacks. “We invest in people. We ensure a continuous training program for our employees, in order to improve their capabilities and skills. The transfer of ‘know how' is also part of our investment plan. These investments are the main requirements for a successful project. In addition, the project is developed with high-performing equipment, which is also part of our investment plan,” replied Mix.
The American highway constructor says the problems in Romania were mostly about logistics, as is usually the case with motorway construction.
“Generally speaking, motorway construction is all about logistics. It's very important to manage how to get the workers, the materials, the equipment and the design all together in the right place at the right time. Since this is a greenfield project, meaning it is all new construction, the local infrastructure has to be relied on to transport all these elements to the work site. On the other hand, expropriations, utilities relocation, and archeological clearance are elements that we support the government in achieving this,” said Mix.
The company is now using 800 subcontracted personnel on site. “Our execution plan is to hire and train our own personnel for the construction. However, there are elements of work that are better suited to local subcontractors and we will pre-qualify companies for use by the project,” said the GM.
Bechtel works, the state pays
“The contract is very simple. We are paid only for work performed. It is up to us to complete the works so the Romanian government can justify payments. We are ahead of schedule and the payments are in line with our performance,” said Mix. This is set to shed more light to an issue recently raised by the press, that the state is paying Bechtel's bills before checking the quality or volume of work.
The state has hired French company Scetaroute to check the quality and the quantity of works for the Transylvania Highway. Following these inspections, it should then pay Bechtel the money.
Upon signature of the contract, the American company issued a guarantee letter for the quality of works that the Romanian state can use if it observes a lack of quality. “Our focus right now is to develop the infrastructure that supports the development of real estate for Romania. We are here to build a first-class motorway, and this is what we're doing,” concluded Mix.