Road works in Poland lead to dead end for Siac and Sisk

In December 2010, as a shocked Ireland digested its EU/IMF bailout, the mood among the Irish in Poland was one of quiet optimism.

In a Warsaw hotel, engineer Paul Sullivan explained to The Irish Times how, rather than sit on his hands in Ireland, he had moved east two years earlier to head up the Polish operation of Sisk.

The 150-year-old family business, the granddaddy of Irish construction, was making a daring leap, taking advantage of the European single market to go where the work was.

And what a lot of work there was in Poland: with two years to go to its joint European Championship with Ukraine, the central European country was racing to close the massive gaps in its investment-starved infrastructure.

As part of a seven-year, €37.6 billion investment programme, the country needed a national network of motorways – fast. Sisk and fellow Irish construction company Siac looked at Poland – and leapt. "We see the future here: there's enough work for 30 years," said Mr Sullivan in 2010.

Poland was experiencing a construction boom and, as I wrote in 2010, “it seemed the Polish capital had inherited all the cranes that [had] vanished from the Dublin skyline”.

This week, Mr Sullivan was in a dark mood. “I would definitely not recommend companies [to] bid on public contracts in Poland but avoid them like the plague. You’ll be screwed,” he said. “I sometimes think they actively try to bankrupt companies.”

On Wednesday, the Siac group secured interim examinership in the High Court. Directors said their difficulties stemmed from the Irish downturn and outstanding payments of about €113 million from its Polish activities.

As Siac secured examinership, Mr Sullivan was packing his bags and leaving Poland, where Sisk accounts list €90 million in outstanding payments. Rather than take a slice of the Polish construction pie as planned, Siac and Sisk have seen visits to lawyers replace visits to sites.

The story began in 2010 when Siac won a €400 million tender to build 35 km of motorway and bridges between the towns of Kruz and Debica. Work had started on the project when its lead partner PBG, a publicly-listed firm and Poland’s third-largest construction company, went bankrupt.

Siac cancelled the project last November after a dispute with the Polish directorate for national roads and motorways (GDDKiA) over what Siac viewed as failure by the Polish authority to fulfil the terms of the contract. The Irish company is seeking compensation and has referred the case to the European Commission – part-funder of the project.

The collapse of PBG also hit three contracts it had with Sisk and Limerick-based Roadbridge to build 92km of roads. One was completed, the other two were only partially completed.

Cronyism and corruption
After the PBG collapse, Sisk exited the project, citing difficulties working with the Polish road authority.

“In all our years, in all the countries where we’ve worked, we’ve never came across a client as awkward and unprofessional as the Polish roads authority,” said Mr Sullivan, director of Sisk’s Polish operations.

Sources familiar with public contracts in Poland say that, after post-communist years marked by cronyism and corruption in public life, the pendulum has swung the other way with an acute fear in public bodies of making decisions – particularly involving large infrastructure projects.

Mr Sullivan says this reflects his experience dealing with GDDKiA. Rather than seek an amicable solution, he said, officials preferred to let courts decide.

It was a culture shock from Ireland where, he says, the National Roads Authority (NRA) resolves disagreements quickly and behind closed doors.

“Here, they immediately go to the media and start an incredible campaign of vilification, leaving your suppliers and subcontractors wondering if they will get paid,” said Mr Sullivan.

Polish projects often fell behind because, in the view of Sisk and other companies, the GDDKiA had not fulfilled commitments to prepare the sites.

The resulting delays meant targets were not met and the roads authority called in performance bonds as a matter of course.

Sisk says this impinged on bond negotiations with insurance companies for projects in other countries.

Mr Sullivan says Sisk’s efforts to renegotiate with GDDKiA to complete outstanding projects were unsuccessful and the matter is now before the courts.

“The NRA in Ireland sees that what is good for the contractor and good for job is good for the NRA and the country,” he said.

“Here, they think that what is bad for you is good for them. They don’t seem to see the issue of reputational damage.”

Poland's international reputation was an issue raised in a June letter sent to Janusz Piechocinski, deputy prime minister and economics minister, by six ambassadors from Ireland, Austria, France, Germany, the Netherlands and Portugal.

Along with Siac and Sisk, other European companies stung in Poland include Bilfiger, Strabag and Alpine Holding – with the last of these entering bankruptcy proceedings in June.

Terms of agreement
In their June letter, the ambassadors suggested the level of claims against GDDKiA pending before the Polish courts "indicate some fundamental and systematic challenges connected with the execution of major infrastructure problems in Poland".

Polish prime minister Donald Tusk hit back that he was "not impressed" by the ambassadors' letter and saw "no reason for GDDKiA to make concessions in the face of political pressure".

The transport ministry said GDDKiA acted at all times within the terms of its agreements with contractors.

In a statement, the GDDKiA said complaints like those of Sisk and SIAC represented just a small percentage of the nearly 300 contracts that have been signed to date.“The image of Poland as a place where road investments cannot be accomplished has been based on false information,” it said, “on just a few cases of companies that lack the ability to rationally approach a so complicated matter as completing a road investment.”

Mr Piechocinski appears well-versed in the problems raised in the letter. In July 2012, before he became deputy prime minister, he wrote a report highlighting many of them. In it, he complained of an “unwillingness and inability” by Polish investors – in this case the state via GDDKiA – “to make quick decisions . . . in response to changing market conditions and situations unforeseen in the contract”.

The Polish practice of awarding contracts “on the lowest price criterion”, he wrote, “causes more damage . . . than it generates . . . savings” because of inflexible contracts.

“If . . . a necessity arises to execute additional works, there is no possibility to apply for additional payment,” wrote Mr Piechocinski. Though not perfect, he pointed to an “Anglo-Saxon approach” – and even named Ireland – as a possible models for urgent change in both the law and the official mentality in Poland towards big road projects.

“Problems solved amicably cost less than terminated contracts or long-term legal action,” wrote the Polish deputy prime minister.

“Even though . . . fighting with everyone gives a sense of security to [Polish] officials, it nonetheless complicates the execution, depreciates true engineering values and destroys the infrastructure sector.”

As Siac and Sisk wind down their Polish projects, the only work they leave behind is not for road builders but lawyers.

Mr Sullivan’s parting words on Poland? “It is a real swamp.”