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Regional Development Minister Karadjov: In-house Contracts State’s Gravest Problem in Construction, Resolution Imperative

In-house contracts are the gravest inherited problem of the State as a whole and if this hurdle is not overcome, then the people will lose patience, Deputy Prime Minister and Regional Development and Public Works Minister Grozdan Karadjov said. Speaking at Tuesday’s hearing before the relevant parliamentary committee, he warned that the incumbents could quickly lose the public’s affections.
Karadjov explained that in-house contracts have been concluded contrary to the requirement for at least 80% of the activity to be carried out by a company controlled by the commissioning authority, as well as because of occasional cases of illegal construction along Hemus motorway, for example. The Public Procurement Act does not apply to in-house contracts, which are not subject to competitive bidding procedures and are entered as an exception, he recalled.
Karadjov listed a number of risks stemming from the termination of contracts for equipment delivery and rental, as well as specific works. A case in point is the item related to advance payments in the contract, according to which 35% of those payments are withheld by the suppliers or lessor companies in case the State terminates the contracts, with or without reason. These 35% make up BGN 1.5 billion and, considering the possibility of litigation and of even the slightest risk of losing this sum to someone is too much, the Minister argued, adding that he would not terminate the contracts. Another risk at unilateral termination of contracts on the part of the State would be associated with counter-litigation for 15% in damages, or another BGN 500-600 million. A report with a risk analysis and the possible solution of the problem is about to be submitted, Karadjov said.
The option in which the contracts will be transformed into contracts for construction and mounting works, coupled with full guarantees in time and guarantees for the received advance payments, would best serve the interests of the State. The State would benefit most for the prices are exceedingly lucrative in view of the inflation and there would be no delay, Karadjov argued. Should the option of termination of contracts be chosen, then there would be a procedural delay of at least two years, he added.
In late April, Parliament adopted a decision allowing the Road Infrastructure Agency to pay half of the money that is owed for road repair and maintenance, leaving the other half to be paid out after an inter-agency committee audits and approves the work done, and its report is approved by Parliament. The vote sealed a crack in the coalition over the payment to road construction companies and ended an impasse where the authorities were unable to pay for past road work due to a 2021 decision by a caretaker government and construction companies refused to do any work before they are paid.
Construction companies are owed over BGN 1.1 billion.