The overpricing of the Justice Palace in Brno did not have to occur
Publisher
Tisková zpráva
26.01.2012 10:30
Tisková zpráva
26.01.2012 10:30
On January 10, 2012, the tax office imposed a fine of 1.936 billion CZK on the Regional Court in Brno for incorrect invoicing and thus improper handling of state funds during the construction of the Brno Justice Palace. This fact is often downplayed as a formal error. However, the problematic investment had long been examined by the antimonopoly office, the national audit office, the courts, and the police. Even an institution like the Czech judiciary repeatedly circumvented the public procurement law throughout the project. The Czech Chamber of Architects has also pointed out numerous procedural errors and insufficient preparation of the entire project since its inception.
A large number of public construction investors bypass laws, fail to comply with copyright, impose discriminatory requirements on tender participants, set very short deadlines, etc. The Regional Court in Brno (KS), as the project investor, did no differently during the implementation of the judicial complex. The Czech Chamber of Architects (ČKA) considers the construction process of this building to be a prime example of malpractice and shortcomings in public procurement.
BAD START
The Czech Chamber of Architects has a legal obligation to oversee public procurement in the Czech Republic. Therefore, as early as March 2005, when it learned about the restricted procedure for selecting a contractor for the project documentation for the construction of the Judicial Complex in Brno, it pointed out the inappropriate approach to awarding the contract. "As a professional institution with delegated powers of public administration, we inform you that we cannot relate to the procurement process and must take all possible measures to cancel it," states the position of the ČKA at that time to the contracting authority - the Regional Court in Brno. In personal discussions, the Chamber urged the contracting authority to halt the proceedings and prepare the entire project thoroughly, offering its assistance. The Chamber also requested a working meeting with the Minister of Justice: "Our Chamber understands its activities primarily as a public service, and in this spirit, we would like to personally discuss with you the issue of a significant architectural undertaking, specifically the announcement regarding the public procurement for the Justice Palace in Brno." The letter was also sent to the Ministry of Finance, the Supreme Audit Office, and the Office for Protection of Competition. The Regional Court in Brno convinced the Chamber in a letter that the construction was necessary, that there was allegedly no violation of the law, and that "the process for awarding the public procurement in question is correct and economically and time-saving." The Chamber raised concerns about the situation again in 2006 and 2010.
ABSENCE OF ADEQUATE PREPARATION FOR INVESTMENT PROJECT
For any project, especially for such a large public procurement, thorough preparation is essential. Construction must be seen as a sum of all phases. Ideally, these steps include: preparing the terms of the contract, an idea architectural competition, elaboration and refinement of the construction program, project architectural competition, negotiation procedure without publication, project drafting, procurement documents, and contractor selection, construction implementation, operation after completion, post-completion assessment. The outcome of each construction project depends on the quality of all phases. Like many other contracting authorities, the investor tried to "save" money and time at the beginning. "Without proper preparation, we cannot expect success. It is irresponsible to save during the project phase and its preceding preparation, which constitutes less than one-tenth of total investment costs, when it can cause waste of money in subsequent phases," says Jan Sapák, Vice-Chairman of the ČKA. "The goal is to achieve the best possible relationship between the costs incurred and the quality. Otherwise, we do not respect the public interest," he adds.
Not only was the preparation for the Justice Palace lacking, but the construction program, a very important part of the assignment, was too vague. It was based only on budgets and the operation of court buildings in Hodonín and Jihlava, which cannot be compared in size and complexity with the Brno building. The resulting construction, in this case, was indeed not less time-consuming, and financial savings were certainly not achieved.
THE COMPANY LOST 600 MILLION
The judicial expert considered a realistic budget for the Justice Palace to be 1.2 billion CZK. However, the implementation climbed up to 1.84 billion. The amount proposed by the Regional Office in Brno was originally set at just under 800 million CZK. The initial estimate of investment costs was undervalued, which happens. "It was not possible to realize a project of such scale for the originally unrealistically low estimated amount of 768 million CZK. The initial amount was conceived to get the intention to build the judicial complex moving. The various courts are in competition with each other - in this case, it was a competition between Ústí nad Labem and Brno. It was a question of which of these judicial complexes would come to the forefront regarding the budget of the Czech Republic.", explains Jan Sapák. Due to the effort to save money on the preparation and design (where perhaps 30 million CZK was saved), 600 million CZK was wasted on the construction itself. "Part of the money was probably mismanaged, and part embezzled," states Sapák.
MISSING ARCHITECTURAL COMPETITION
For a construction of such significance and scale as the Justice Palace in Brno, the public authority should have utilized the principle of a public architectural competition. First an idea competition, then a project competition. If at least an idea architectural competition had been announced, it would have been possible to timely determine and responsibly assess the conditions for the construction, including financial requirements. In the next phase, during the project architectural competition, setting a limit on the total investment costs that the competitors would have to respect would have been part of a quality assignment. The Regional Court in Brno did not choose the legally available option to organize a design competition (architectural competition) in order to find the most suitable solution for the construction, but resorted to the often, but unfortunately often inappropriately used public trading competition for the project's contractor. This type of tender does not bring diverse architectural solutions for the construction. The National Audit Office (NKÚ) also believes that "the investment intention was not developed based on the evaluation of solution variants aimed at choosing the optimal solution."
CIRCUMVENTION AND VIOLATION OF THE LAW
In the case of the Justice Palace in Brno, the main criteria for evaluating offers in the public trading competition for the project processor were only a template price and the shortest execution time of the public contract. The tender process was non-transparent and included discriminatory requirements (which is contrary to the public procurement law, just as failing to conclude the correct contract for work). Among the requirements was, for example, proving an insurance amount exceeding 25 million CZK or experience with a construction whose investment costs exceeded 700 million CZK. Such requirements naturally excluded most designers from the game. At the same time, they violated the original purpose of the competition (which was based on a large number of competitors vying against each other). Conversely, no qualitative indicators were requested from the project processor. "At that time, the contracting authority could not even imagine what quality it should require, which is wrong," says Jan Sapák. From the findings of the NKÚ, which investigated the matter, we learn: "The designer was not contractually constrained by technical and economic standards and parameters; he proposed solutions for structures that were demanding in architectural, technical, and material use terms, thus overlooking the economy of the construction. The costs for the realization of the construction were cited at 2.2 billion CZK, while the offer in the tender was 805 million CZK." The Ministry of Justice then quietly approved costs 170% higher than had been planned in its budget.
ONE FINE AFTER ANOTHER
Deficiencies in the award of the project delivery contracts also led to a private legal dispute over copyright, which had a sequel in court¹. The project documentation processors were ultimately sentenced to pay 14.3 million CZK.
In August 2010, the Chairman of the Office for Protection of Competition confirmed a 200,000 CZK fine for the construction cost overruns. The antimonopoly office was then bothered that the scope of additional work had increased by more than 100 percent.
Everything culminated on January 10, 2012, when the tax office imposed a fine of 1.936 billion CZK on the project investor for incorrect invoicing of state funds (thus a formal error by the Regional Court in Brno, which, however, is also often presented as improper management of public finances). This is the highest fine imposed on a state authority. The verdict is not yet final.
From the information provided, it follows that an unlawfully and improperly initiated process generates and chains further illegalities, unnecessary disputes, and costs.
COMPLAINTS AND COURTS
Problems and complaints about the investment process were not only addressed by the Office for Protection of Competition and the NKÚ, but there were also various court disputes, and the case was also investigated by the police. After investigating the case, the NKÚ published this conclusion: "The errors and deficiencies of the Regional Court in Brno during the project management, the non-conceptual and inconsistent control activities of the Ministry of Justice caused overall imprudence in the investment project. The inadequate actions of the KS and MS during the project documentation elaboration were difficult to rectify during the actual construction. The ministry demanded efficiency measures from the investor only when it was no longer capable of securing financing for the project."
WHAT NEXT
Insufficient preparation did not pay off this time either (just like, for example, with the Justice Palace in Michle in Prague and many others). The Regional Court in Brno failed to secure either a quality building or achieve the economic and financial savings it spoke of at the beginning. The media are asking whether the two-billion fine will be waived or whether the budget of the Ministry of Justice will be increased by this amount so that the fine can be paid. Increased by public money. By taxpayers' money. Let us hope that the fine of one state institution to another will be forgiven. The wasted at least 600 million CZK from public sources will probably no longer be repaid to the common property. Just as it does not seem realistic that specific individuals who are undoubtedly responsible for this alarming state will be prosecuted.
Isn't it time to ask whether irresponsible decision-making about state contracts can be prevented? Whether a systemic change should occur and whether the approval of such significant investments should be clearly coordinated?
Markéta Pražanová
spokeswoman for the Czech Chamber of Architects
In Prague, January 18, 2012
Notes:
1) This was decided by the Regional Court in Brno as the court of first instance in January 2010. The defendants appealed against the obligation to pay the overdue amount. After the appeal, the High Court in Olomouc annulled the verdict, but only for procedural reasons (it concluded that the lawsuit was filed late). The first-instance decision on the violation of copyrights remained valid. Moreover, the High Court noted the unlawful procedure of the Regional Court in Brno during the contract awarding (this time, however, the judicial administration in organizing the palace's construction). The final verdict was issued in the fall of 2011 (see judgment - 1 Co 107/2010-535 - High Court in Olomouc; valid after delivery; the clause of legal validity marked). If the matter were to be discussed before the Supreme Court, this issue cannot be addressed, as the Regional Court cannot be a participant in the proceedings. The facts are thus irrefutable. The Regional Court in Brno (regional court administration) acted non-transparently as the contracting authority and was a violator of the law.
For more information on the progress of the project, see Bulletin ČKA 2/2005 p. 33, 3/2005 p. 39, 1/2010 p. 48, 3/2010 p. 46, and www.cka.cc - ČKA - press releases.
A large number of public construction investors bypass laws, fail to comply with copyright, impose discriminatory requirements on tender participants, set very short deadlines, etc. The Regional Court in Brno (KS), as the project investor, did no differently during the implementation of the judicial complex. The Czech Chamber of Architects (ČKA) considers the construction process of this building to be a prime example of malpractice and shortcomings in public procurement.
BAD START
The Czech Chamber of Architects has a legal obligation to oversee public procurement in the Czech Republic. Therefore, as early as March 2005, when it learned about the restricted procedure for selecting a contractor for the project documentation for the construction of the Judicial Complex in Brno, it pointed out the inappropriate approach to awarding the contract. "As a professional institution with delegated powers of public administration, we inform you that we cannot relate to the procurement process and must take all possible measures to cancel it," states the position of the ČKA at that time to the contracting authority - the Regional Court in Brno. In personal discussions, the Chamber urged the contracting authority to halt the proceedings and prepare the entire project thoroughly, offering its assistance. The Chamber also requested a working meeting with the Minister of Justice: "Our Chamber understands its activities primarily as a public service, and in this spirit, we would like to personally discuss with you the issue of a significant architectural undertaking, specifically the announcement regarding the public procurement for the Justice Palace in Brno." The letter was also sent to the Ministry of Finance, the Supreme Audit Office, and the Office for Protection of Competition. The Regional Court in Brno convinced the Chamber in a letter that the construction was necessary, that there was allegedly no violation of the law, and that "the process for awarding the public procurement in question is correct and economically and time-saving." The Chamber raised concerns about the situation again in 2006 and 2010.
ABSENCE OF ADEQUATE PREPARATION FOR INVESTMENT PROJECT
For any project, especially for such a large public procurement, thorough preparation is essential. Construction must be seen as a sum of all phases. Ideally, these steps include: preparing the terms of the contract, an idea architectural competition, elaboration and refinement of the construction program, project architectural competition, negotiation procedure without publication, project drafting, procurement documents, and contractor selection, construction implementation, operation after completion, post-completion assessment. The outcome of each construction project depends on the quality of all phases. Like many other contracting authorities, the investor tried to "save" money and time at the beginning. "Without proper preparation, we cannot expect success. It is irresponsible to save during the project phase and its preceding preparation, which constitutes less than one-tenth of total investment costs, when it can cause waste of money in subsequent phases," says Jan Sapák, Vice-Chairman of the ČKA. "The goal is to achieve the best possible relationship between the costs incurred and the quality. Otherwise, we do not respect the public interest," he adds.
Not only was the preparation for the Justice Palace lacking, but the construction program, a very important part of the assignment, was too vague. It was based only on budgets and the operation of court buildings in Hodonín and Jihlava, which cannot be compared in size and complexity with the Brno building. The resulting construction, in this case, was indeed not less time-consuming, and financial savings were certainly not achieved.
THE COMPANY LOST 600 MILLION
The judicial expert considered a realistic budget for the Justice Palace to be 1.2 billion CZK. However, the implementation climbed up to 1.84 billion. The amount proposed by the Regional Office in Brno was originally set at just under 800 million CZK. The initial estimate of investment costs was undervalued, which happens. "It was not possible to realize a project of such scale for the originally unrealistically low estimated amount of 768 million CZK. The initial amount was conceived to get the intention to build the judicial complex moving. The various courts are in competition with each other - in this case, it was a competition between Ústí nad Labem and Brno. It was a question of which of these judicial complexes would come to the forefront regarding the budget of the Czech Republic.", explains Jan Sapák. Due to the effort to save money on the preparation and design (where perhaps 30 million CZK was saved), 600 million CZK was wasted on the construction itself. "Part of the money was probably mismanaged, and part embezzled," states Sapák.
MISSING ARCHITECTURAL COMPETITION
For a construction of such significance and scale as the Justice Palace in Brno, the public authority should have utilized the principle of a public architectural competition. First an idea competition, then a project competition. If at least an idea architectural competition had been announced, it would have been possible to timely determine and responsibly assess the conditions for the construction, including financial requirements. In the next phase, during the project architectural competition, setting a limit on the total investment costs that the competitors would have to respect would have been part of a quality assignment. The Regional Court in Brno did not choose the legally available option to organize a design competition (architectural competition) in order to find the most suitable solution for the construction, but resorted to the often, but unfortunately often inappropriately used public trading competition for the project's contractor. This type of tender does not bring diverse architectural solutions for the construction. The National Audit Office (NKÚ) also believes that "the investment intention was not developed based on the evaluation of solution variants aimed at choosing the optimal solution."
CIRCUMVENTION AND VIOLATION OF THE LAW
In the case of the Justice Palace in Brno, the main criteria for evaluating offers in the public trading competition for the project processor were only a template price and the shortest execution time of the public contract. The tender process was non-transparent and included discriminatory requirements (which is contrary to the public procurement law, just as failing to conclude the correct contract for work). Among the requirements was, for example, proving an insurance amount exceeding 25 million CZK or experience with a construction whose investment costs exceeded 700 million CZK. Such requirements naturally excluded most designers from the game. At the same time, they violated the original purpose of the competition (which was based on a large number of competitors vying against each other). Conversely, no qualitative indicators were requested from the project processor. "At that time, the contracting authority could not even imagine what quality it should require, which is wrong," says Jan Sapák. From the findings of the NKÚ, which investigated the matter, we learn: "The designer was not contractually constrained by technical and economic standards and parameters; he proposed solutions for structures that were demanding in architectural, technical, and material use terms, thus overlooking the economy of the construction. The costs for the realization of the construction were cited at 2.2 billion CZK, while the offer in the tender was 805 million CZK." The Ministry of Justice then quietly approved costs 170% higher than had been planned in its budget.
ONE FINE AFTER ANOTHER
Deficiencies in the award of the project delivery contracts also led to a private legal dispute over copyright, which had a sequel in court¹. The project documentation processors were ultimately sentenced to pay 14.3 million CZK.
In August 2010, the Chairman of the Office for Protection of Competition confirmed a 200,000 CZK fine for the construction cost overruns. The antimonopoly office was then bothered that the scope of additional work had increased by more than 100 percent.
Everything culminated on January 10, 2012, when the tax office imposed a fine of 1.936 billion CZK on the project investor for incorrect invoicing of state funds (thus a formal error by the Regional Court in Brno, which, however, is also often presented as improper management of public finances). This is the highest fine imposed on a state authority. The verdict is not yet final.
From the information provided, it follows that an unlawfully and improperly initiated process generates and chains further illegalities, unnecessary disputes, and costs.
COMPLAINTS AND COURTS
Problems and complaints about the investment process were not only addressed by the Office for Protection of Competition and the NKÚ, but there were also various court disputes, and the case was also investigated by the police. After investigating the case, the NKÚ published this conclusion: "The errors and deficiencies of the Regional Court in Brno during the project management, the non-conceptual and inconsistent control activities of the Ministry of Justice caused overall imprudence in the investment project. The inadequate actions of the KS and MS during the project documentation elaboration were difficult to rectify during the actual construction. The ministry demanded efficiency measures from the investor only when it was no longer capable of securing financing for the project."
WHAT NEXT
Insufficient preparation did not pay off this time either (just like, for example, with the Justice Palace in Michle in Prague and many others). The Regional Court in Brno failed to secure either a quality building or achieve the economic and financial savings it spoke of at the beginning. The media are asking whether the two-billion fine will be waived or whether the budget of the Ministry of Justice will be increased by this amount so that the fine can be paid. Increased by public money. By taxpayers' money. Let us hope that the fine of one state institution to another will be forgiven. The wasted at least 600 million CZK from public sources will probably no longer be repaid to the common property. Just as it does not seem realistic that specific individuals who are undoubtedly responsible for this alarming state will be prosecuted.
Isn't it time to ask whether irresponsible decision-making about state contracts can be prevented? Whether a systemic change should occur and whether the approval of such significant investments should be clearly coordinated?
Markéta Pražanová
spokeswoman for the Czech Chamber of Architects
In Prague, January 18, 2012
Notes:
1) This was decided by the Regional Court in Brno as the court of first instance in January 2010. The defendants appealed against the obligation to pay the overdue amount. After the appeal, the High Court in Olomouc annulled the verdict, but only for procedural reasons (it concluded that the lawsuit was filed late). The first-instance decision on the violation of copyrights remained valid. Moreover, the High Court noted the unlawful procedure of the Regional Court in Brno during the contract awarding (this time, however, the judicial administration in organizing the palace's construction). The final verdict was issued in the fall of 2011 (see judgment - 1 Co 107/2010-535 - High Court in Olomouc; valid after delivery; the clause of legal validity marked). If the matter were to be discussed before the Supreme Court, this issue cannot be addressed, as the Regional Court cannot be a participant in the proceedings. The facts are thus irrefutable. The Regional Court in Brno (regional court administration) acted non-transparently as the contracting authority and was a violator of the law.
For more information on the progress of the project, see Bulletin ČKA 2/2005 p. 33, 3/2005 p. 39, 1/2010 p. 48, 3/2010 p. 46, and www.cka.cc - ČKA - press releases.
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