State projects become consultantsaa‚¬a„¢ great white hope

Newsroom 22/03/2010 | 11:57

State-funded projects or public works whose beneficiary is the state but which are funded from elsewhere can be big business for consultants from the legal, technical and financial domains. Some have already included such projects as a core plank of their strategy; others are just turning to them now. Large infrastructure projects – some already awarded, others in the making – city infrastructure, public acquisitions across Romania – all these are in the sights of local and foreign consultants.

 

Corina Saceanu

 

With funds having dried up in the private sector, public projects funded with international cash are providing hope of growth for local and international firms working in Romania. The state is currently working on or preparing to start projects in the fields of road infrastructure, water supply, waste management, educational and sports facilities. These ventures are funded with European Union or international financial institutions’ money, which makes them even more attractive for tenderers.

 

Hit the highway

Consultancy companies are keeping an eye on such projects, which could facilitate a badly needed flow of revenue for their firms. Some are focusing only on these schemes, others trying to keep a balance between public and private ventures, while a third category is avoiding public projects altogether. Louis Berger belongs to the first category.

“Romania is the main focus of this division with a portfolio of 100 projects since the division was formed. […] Romania is indeed the largest recipient of funds within our division. With around 100 projects, including successfully completed assignments, the country represents about 60 percent of the division revenues,” Calina Nistor, regional director with Louis Berger, tells Business Review. The company is currently working on several contracts for road infrastructure, either alone or in partnership with other firms.

With an office in Romania which oversees works across the region, Louis Berger is currently involved in several large road infrastructure projects, including the first transport-related public private partnership, the Comarnic-Brasov section of the Bucharest-Brasov motorway.

The tender for technical, legal and financial consultancy was won in September last year by a consortium made up of Louis Berger SAS, Louis Berger Group, Credinvest International Corporate Finance and Tuca Zbarcea & Asociatii. The entire consultancy contract includes the Ploiesti-Comarnic and Comarnic-Brasov sections and is worth EUR 4.37 million without VAT. The consortium is currently working on the Comarnic-Brasov section. The entire EUR 1.2 billion project will be built by construction companies Vinci and Aktor, which have already signed the concession contracts.

What does Louis Berger bring to the table? “Most of our programs and projects have included all aspects of project preparation, implementation and supervision. They have also included the co-ordination, monitoring and review of engineering studies and design, preparation of preliminary and detailed design, contract administration and management, construction supervision and quality control, technical and contractual support, as well as the training of operational staff and assistance in the implementation of public awareness campaigns,” says Calina Nistor of Louis Berger.

For Tuca Zbarcea si Asociatii, public projects contribute only around a tenth of the turnover. “Our portfolio includes mainly private companies, which was also reflected in our revenues last year and in previous years. For 2009, around 90 percent of our revenues came from private projects and 10 percent from public ones,” Florentin Tuca, managing partner with Tuca Zbarcea & Asociatii, tells Business Review. The firm posted a turnover of EUR 22.7 million last year, VAT not included.

Compared to the private sector, public tendering will continue to present new and challenging opportunities, considering the government’s keen interest and commitment to meet EU requirements and standards for major infrastructure, says the Louis Berger representative. “The private sector is still on hold, especially in construction and real estate. So far, only projects within the energy sector have been launched with private financing, and Louis Berger has participated in an insignificant number of tenders for this sector,” she adds.

The firm’s focus is on public funds, “especially European Commission funding, considering our experience in pre- and post-accession projects, both in Romania and in the region. Government co-financed or financed opportunities are also constantly monitored by our division […],” Nistor continues.

 

Not all public projects are cash cows

But while public projects are interesting opportunities for some, they have downsides too and not all of them prove to be money makers for private consultants. “Despite the impressive volume of funds and number of projects, all Romanian projects are now tendered under Romanian rules, where there is no short-listing and price plays an increasing importance in the evaluation and award,” says the Louis Berger representative. “Our recent experience in tendering resulted in a significant number of financially unattractive proposals.”

But this does not deter everyone. On the contrary, competition on the consultancy market has increased, especially in the last couple of years, since many companies in Western Europe have been affected by the financial crisis and have had to focus again on Romanian projects, believes Nistor.

Existing rivals on the market don’t make it easy for new entrants to start projects, especially public ones, which require a proven track record and know-how of working with the Romanian authorities. “The consultancy firms which focused late on this market found it very difficult to penetrate, as companies like ours have been constantly working here for almost 20 years. The pool of experts usually works with highly respected companies, which are well known and also constant on the market. The same applies to local subcontractors and partners,” says Nistor. New consultancy firms could overcome these impediments through strategic partnerships with local experts, through good local knowledge of the procedures and legislation. “Some of them, with experience in Poland or countries in the same wave of accession, could bring similar experience, which will enable them to respond to the Romanian tendering processes faster than anticipated, so they could enter the market quite easily,” according to the Louis Berger manager.

 

Slow tendering and bureaucracy vs experienced public servants

What new and old consultancy companies have in common is having to endure the slow tendering process in Romania and to be prepared for potential claims which could delay it even further. “Hopefully this will be improved due to the recent experience in long claims and re-evaluations and pressure the government is coming under from international donors, by revising and clarifying the public procurement documents, including the tender dossiers,” says Nistor.

Growing bureaucracy is another black mark on the list of issues in dealing with public authorities. But these are offset by the fact that the contracting authorities in Romania know exactly what they want and have experience in dealing with complex tenders. “The description of targets is clearly presented in the documentation given to potential tenderers. However, it’s worth noting the slightly higher level of bureaucracy within the public entities compared to the pre-accession period. Nevertheless, public sector clients have extensive experience in managing complex projects and programs,” says the manager.

With the state constantly struggling to fund various projects, the question of timing of payments comes to mind. Cash flow difficulties, especially concerning VAT, stand out. “For the time being, the effects of the financial crisis in Romania are being kept under control. Our clients are trying hard to meet their contractual obligations and we give them full support. […] Public sector clients are having cash flow difficulties, especially concerning VAT. They are making efforts to identify the means to overcome these difficulties and we are supporting them by proposing alternatives for the more efficient use of resources. Most public sector clients have managed to overcome their difficulties, especially with regard to VAT,” Nistor adds.

 

Public vs private

Vass Lawyers is another law firm betting on public projects for future growth. The firm is currently working with several public authorities drawing up contracts for works financed by European funds. So far, it has been focusing on such projects in utilities, IT, infrastructure, media and the environment, says Iulia Vass, managing partner with Vass Lawyers. Moreover, the firm is planning to home in on public acquisitions, among others, with the aim of becoming the main player in this field in Romania, says Vass.

Tenders for public projects are one of the firm’s growth vectors for the future. They were not a priority in 2009 but have now become one. “We have seen many local authorities that need consultancy on public acquisitions. […] This is why these authorities are an emerging market for us,” says Vass. State-financed consultancy projects brought around 20 percent of the firm’s revenues last year, but the managing partner hopes it will increase to 40 percent in 2010. Consultancy on public acquisitions made up 50 percent of the firm’s revenues last year. However, on the public acquisitions segment last year there was a fall in such projects as public spending was cut.

But working on public projects is not part of all consultants’ strategies, as some, such as Musat & Asociatii, choose to focus on private deals. “While other law firms have built their turnover on state contracts, Musat & Asociatii has always preferred to focus on advising foreign investors, which amount to over 80 percent of the firm’s client portfolio. Although private clients usually impose complex performance and quality criteria when selecting their legal advisors, from our point of view it is healthier to establish our business on solid grounds, relying on our professional capabilities to generate legal work,” Catalin Baiculescu, co-managing partner with Musat & Asociatii, tells Business Review.

At the other end of the spectrum is Bostina & Asociatii, which frequently works on public projects and represents state authorities. In 2009 – when it made EUR 17 million in revenue – the firm worked on several public projects on the capital market segment, with local public authorities, on infrastructure and banking, among other fields. Doru Bostina, the firm’s partner and founder, is a strong believer in the growth stemming from projects with the public authorities. “This is one of the areas we’ve been focusing on for several years. We believe in it, as it is one of the priority beneficiaries of EU funding,” said the lawyer. The state, Bostina believes, needs private consultancy on projects even more than private companies do. “Having a legal department doesn’t mean the problem is solved,” Bostina tells Business Review. He sees opportunities for consultants in this area as there is plenty of money from the European Union for consultancy offered to public authorities, he says.

Bostina believes the state has created enough filters to select the right consultant for its projects and that the system is transparent enough. “In Romania there is still a perception that whoever is doing business with the state is automatically a thief. This is wrong and this type of mentality should disappear,” Bostina concludes.

corina.saceanu@business-review.ro

 

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