How Bulgarian mega-projects can remain on budget and on time

How Employers and Contractors involved in mega-projects should develop their contracts, FIDIC or Non-FIDIC

2016 was very lively in terms of mega-projects in Bulgaria.

In February 2016 the Bulgarian government cancelled public procurement procedures worth more than BGN 600 M. Later, in July 2016 the Bulgarian Government reopened two new procedures:

The first one was for BGN 178 M for the extension of the Metro in Sofia which was awarded to two consortiums:

1) “Metro-build West” including the local companies “GP Group”, “Stanilov”, “Interprom”, “Bias-M” and

2) "Trace Group", "Euro Alliance Tunnels", "Integral Building Systems", "Marmet."

The second one was the 9.3 km extension of the highway “Hemus” for the area between Iablanica to Boaza worth BGN 80 M which was awarded to the consortium “HPV Iablanica” including the companies “Hidrostroy”, “Vodostroy” and “Patstroy.”

Those State projects are FIDIC based

In June 2016 the Turkish investor, "Garanti Koza" received a construction permit for the mega-project “City within the City - Koza Square” where the latter will invest EUR 1 Billion. This is a continuation of Garanti Koza’s interest in Bulgaria because the previous year started “the Grand Kanyon – Sofia”(photo to the right) project for BGN 120 M. 

Meanwhile the Bulgarian investor, "Holding Varna" works on its First Alley Project in Varna for USD 210 M. 

This article highlights upon ways in which employers and the contractors might use their contracts (FIDIC or non-FIDIC) in order to successfully complete their projects.

OVER BUDGET - COLLABORATION

It is inevitable that mega-project would contain elements that would remain incomplete and there could be physical and logistical conditions which could not be controlled.

Therefore, the parties should be heavily involved in collaboration in order to:

-fill the gaps in the package’s design, and to what criteria;

-agree on details on which the contract specification is silent, not clear;

-regulate the risk to the relevant party in case of unforeseen geological conditions and/or delays in obtaining permits and licenses.

-be consistent on who is to pay the costs for all of the above.

OVER TIME - TRANSPARENCY

State and Private mega-projects have multi-layer commercial funding and interactions of various commercial entities. In other words, there are interactions between various companies within consortiums, their subcontractors, funding institutions etc. Hence, those interactions must be completely transparent.

In this respect FIDIC has been considered as the best tool in dealing with complex projects, mega projects because it has long had the stated objective of providing model forms of contract wherein the risk is allocated between the Parties in a fair and transparent manner. For instance, the newest 2017 Yellow book places the same time bars for the Contractor and the Employer for making a Claim in order to allow issues to be resolved as and when they arise and avoid claims rolling up into more significant disputes.

In view of the above the key words for completing mega-projects on time and to budget would be COLLABORATION and TRANSPARENCY.

FIDIC forms are not yet widely accepted in Bulgaria because there are not well known in the private sector and the Contractors perceive them as an unnecessary burden with more administration leading to an increased budget.

However, FIDIC does not cripple the overriding objective of progressing the works because it aims transparency. Hence, the cost for the additional administration or hiring FIDIC experts is much smaller than the cost in staying in the gray market. It is well known fact that lack of transparency prevents Foreign Direct Investment.

Therefore, one could conclude that the increased use of FIDIC would lead to more successful projects, hopefully mega-projects such as the ones engaged by "Holding Varna" and "Garanti Koza."