Sisk to sue Poland over road project

The construction firm Sisk is taking legal action against the Polish state in an effort to recoup the €50m-€60m losses it will incur in its 2011 annual accounts on the back of a failed road-building project in the country.

In 2010, Sisk signed a contract with the Polish state to build three motorways. The total value of the contract was €525m, with Sisk having invested a total of €90m.

"We have absorbed these 2011 losses out of our own resources, we have not had to borrow to cover these amounts. The company will end 2012 in profit, with just €3m in debt and there will be €70m in cash sitting on the balance sheet and shareholder funds in excess of €100m," said Sisk Group chief executive Liam Nagle.

In 2010, Sisk — through its 50:50 joint venture with Roadbridge, called SRB — tendered for and won three contracts from the Polish roads authority, the GDDKiA. Of these three projects, SRB completed one motorway last week, but it has abandoned the other two motorways, which are partially completed.

Sisk’s legal move comes amid ongoing difficulties in Polish infrastructure projects. The country received €10bn from the EU in 2009 for the upgrade of its road infrastructure. But several Polish companies, including SRB’s joint venture partners, have gone into bankruptcy over the past two years on the back of cost overruns.

One person with knowledge of the situation blamed the inexperience and the overly bureaucratic approach of the GDDKiA.

In 2010, the GDDKiA awarded SRB three separate motorway projects, each about 30km, which included 88 bridges and 4 toll plazas. SRB signed a build-only contract, which meant the Irish firm was responsible solely for the motorway construction. The design and planning functions were all the remit of the GDDKiA, so, if there were delays or cost overruns because of design flaws or planning issues, the costs would be borne by the GDDKiA.

However, SRB encountered significant problems on its first motorway, known as Project 46, which was completed last week. At the start of the operation, the GDDKiA told SRB and its Polish partner, Budbaum, there would be no issues related to archaeology or flooding that would delay the project. In the event, several archeological finds and flooding problems delayed construction for nine months.

Under the terms of the original contract, the GDDKiA was supposed to underwrite the cost overruns, which came to €50m on Project 49.

SRB had spent the latter part of 2011 and the first half of 2012 in negotiations with GDDKiA in an effort to cover 100% of the cost overruns. But the Polish body instead offered to reimburse SRB only 5% of the overspend, which amounts to €2.5m.

Budbaum this year declared bankruptcy on the back of these cost overruns. Moreover, SRB’s partners in the other two motorways — Project 13 and Project 14 — Poldim, PGB and its two subsidiaries, Aprivia and Hydrobodowa, have also filed for bankruptcy.

Mr Nagle said that the company plans to initiate legal proceedings against GDDKiA either before Christmas or early in 2013. He expects that the case could take many years and might end up in the EU Courts of Justice.

The GDDKiA had not replied to queries from the Irish Examiner by the time of going to print.