Today´s topic of the daily Hospodářské noviny dealing with the public procurement projects in the Czech capital will certainly be attractive not only for the readers, who are professionally interested in PPP projects, but also for the wide public. The most powerful officials at the municipal council, who make the decisions about infrastructure projects in the capital worth billions of crowns, are connected with entrepreneurs. In case of contracts, about which they later on decide in tenders, the original (resulting from the competition) prices are increase during their realisation, so Prague needlessly wastes billions of crowns, when all these contracts are added together. The reader certainly has the right to ask: “How is that possible? Isn´t there a way to prevent such practices?” The answer is simple. “The PPP model would change practices of officials in case of public procurement projects worth billions”.
Rehabilitation pavilion of the institute Jedličkův ústav
Building work started: 2004
Estimated price: 150 mil. CZK
Real price: 180 mil. CZK
City circle road, tunnel Blanka
Building work started: 2007
Estimated price: 21 bln. CZK
Real price: approximately 30 bln. CZK
Anti-flood protection
Building work started: 1998
Estimated price: 3.9 bln. CZK
Real price: ?
Subway C, stage Ládví – Letňany
Building work started: 1999
Estimated price: 13.8 bln. CZK
Real price: 15.5 bln. CZK
City circle road, North-East stage
Building work started: 2013
Estimated price: 17 bln. CZK
Real price: ?
This is just a selection of the over-the-limit public procurement projects that have been realised in the Czech capital, and those that are or will be realised. If the Prague municipal council wants to search for a tool that would prevent the current practices of the officials and that would minimise the artificial increase in the costs during the construction stage of these projects by dozens of per cent, it would be very simple to find such a solution. As of June 2006, there is a new law valid: law no. 139/2006 Coll., as amended on concession contracts and concession proceedings. This law in many parts also reflects the law no. 137/2006 Coll., as amended, on public procurement projects. The point therefore is, simply put, to only change the old habits of the officials used for many years. These officials are used to deal with classic form of public procurement contracts and the solution is to make them deal with the suitable public procurement projects in a form of concession proceedings, which means PPP projects. The advantage of public procurement contracts realised by the PPP method is fact that the winner of the concession proceedings “wins” the tender and the contract also, in addition to other factors, based on the offered (competition) price of the project. This price is then binding and unchangeable for the whole validity of the project. As a result, there is no further increase in the costs during realisation of the project, which is common in the projects mentioned above. Simply put, if the winner of the tender realized via the PPP method forgets to include in the price of the project this or that, it is only the contractor´s problem and the public sector (as the submitter of the project) does not have to automatically agree with increased price of the contract.
The following examples show that the selected project can be solved using the PPP method in developed countries and that this solution is common and that it works. One of the best examples of PPP projects is the Rehabilitation pavilion of the institute Jedličkův ústav. There are dozens of such projects in the sector of social services realised in United Kingdom and in Ireland. Projects of city circle roads also belong to common and typical projects that are realised using the PPP method. In general, the transportation infrastructure is a field, where we see the most PPP projects being realised. We do not need to travel west of our border to see examples of such projects, as there are such projects being realised also in countries as Hungary, while new projects are planned in Poland and Slovakia and other countries. Subway can also be announced as a contract in PPP mode. Subway is being extended using the PPP method for example in Rome, and experiences can be gained also from projects realised in cities as Athens or London. Anti-flood protection in American New Orleans is also solved by the public sector in co-operation with the private sector, so in fact this is also a PPP project. These projects could serve as examples for the officials of the Czech capital Prague.
So is it a must that the capital Prague wastes billions of crowns in public procurement projects, when there is a solution that has been in the Czech legal system since year 2006? Will the current economic situation (with the taxes revenues missing in the city budget) help to change the behaviour and thinking of officials and will they start acting economically and efficiently, when dealing with public finances?
In the times of the current economic crisis the PPP projects can become one of the pro-growth tools leading out of this crisis. Realisation of most of the PPP projects results in a creation of a corporeal property, which means new and modern infrastructure. These projects help in supporting the employment rate in the region, as well as they support the business activities. Projects are also, thanks to realised risk assessment, liquidity and transparent finances more acceptable to the banking sector. The most important for the development and spreading of PPP projects is the political support and the will to realize changes. And this seems to be the biggest problem of all.
Author: Jiří Došlý