Vol. XIX No.2
June 2015

HERZFELD & RUBIN, P.C. LAWYERS PROFESSIONAL CORPORATION
IN ASSOCIATION WITH
RUBIN MEYER DORU & TRANDAFIR

BUILDING HIGHWAYS IN ROMANIA:
CURRENT PROBLEMS AND POSSIBLE SOLUTIONS

Introduction
In Romania, the building of highways is quite a topical issue, being constantly and amply debated in the media. Unfortunately, the poor results in this field are mostly due to a lack of will and coherence on the part of the Government when elaborating the relevant public policies and also to a plump yet inconsistent legislation.

 
Public Policies in This Field

Besides being regulated by a significant number of leges generales of concern for public investments, the spending of public funds, public budgets and budgetary discipline (such as Law 500/2002 on the public finances, Law 69/2010 on the fiscal-budgetary accountability or the Methodological Norms of 26.03.2014 for the prioritization of public investments, etc.), the construction of highways is also regulated by several special laws outlining the public policies devised specifically for the transportation field[1].

In addition, beyond this ample national legal framework, the construction of highways must as well observe the European Union’s correlative rules and policies. In this regard, it is worth mentioning that Romania, as a Member State of the Union, is obliged and expected to connect to the European transport networks and pan-European corridors as devised through Decision No. 1692/96/EC of the European Parliament and of the Council of 23 July 1996 on Community guidelines for the development of the trans-European transport network, as further amended and completed, such interconnectivity requiring a strict optimization of both the relevant national routes and distances with the main purpose of reducing the costs entailed by the trans-European multi-modal freight consignment. According to Article 1 paragraph 2 from the mentioned Decision, “The guidelines referred to in paragraph 1 shall constitute a general reference framework intended to encourage the Member States and, where appropriate, the Community in carrying out projects of common interest, the purpose of which is to ensure the cohesion, interconnection and interoperability of the trans-European transport network, as well as access to that network. These projects shall form a common objective, the implementation of which depends on their degree of maturity and the availability of financial resources, without prejudging the financial commitment of a Member State or the Community.[…]” whereas according to Article 2 thereof “1. The trans-European transport network shall be established gradually by 2020 by integrating land, sea and air transport infrastructure networks throughout the Community in accordance with the outline plans indicated on the maps in Annex I and/or the specifications in Annex II. 2. The network must: (a) ensure the sustainable mobility of persons and goods within an area without internal frontiers under the best possible social and safety conditions, while helping to achieve the Community's objectives, particularly in regard to the environment and competition, and contribute to strengthening economic and social cohesion; (b) offer users high-quality infrastructure on acceptable economic terms; (c) include all modes of transport, taking account of their comparative advantages; (d) allow the optimal use of existing capacities; (e) be, insofar as possible, interoperable within modes of transport and encourage intermodality between the different modes of transport; (f) be, insofar as possible, economically viable; (g) cover the whole territory of the Member States of the Community so as to facilitate access in general, link island, landlocked and peripheral regions to the central regions and interlink without bottlenecks the major conurbations and regions of the Community; (h) be capable of being connected to the networks of the European Free Trade Association (EFTA) States, the countries of Central and Eastern Europe and the Mediterranean countries, while at the same time promoting interoperability and access to these networks, insofar as this proves to be in the Community's interest.” A failure to implement these measures by the mentioned deadline (i.e., 2020) could lead to harsh infringements.

Nevertheless, the Romanian authorities have shown an inexplicable lack of interest in creating and developing a vigorous, durable national strategy in this field, whence the actual havoc. Highway routes are drawn up hastily and without a consistent impact study, being changed by each Government based on unclear interests and in complete disregard of the EU’s guidelines and policies while their implementation, if eventually set out, is every so often halted or postponed with or rather without a concrete objective reason etc.. The latest master plan elaborated by the Romanian Ministry of Transport (available at http://www.mt.ro/web14/strategia-in-transporturi/master-plan-general-transport/documente-master-plan) which hasn’t been so far endorsed by the European Commission and pushed through into law and which, according to specialists, goes adrift from the national plans already consecrated by OG 16/1999 but also from Decision 1692/96/EC, is a good example in this regard. Another good example is the Comarnic-Brasov project which has been put out to tender several times so far and which, if it were to be implemented as negotiated with the consortium that was awarded the contract in the latest of the three procedures, would apparently have breached the mentioned master plan (which, ironically, was devised by the same authority that set the technical specifications for the Comarnic-Brasov works concession), so that it now needs to be re-drafted and re-tendered. Additionally, there are many important foreign investors who, invoking the fact that Romania is so short on highways, simply refuse to invest here while others, already doing business on the Romanian soil, threaten to put up the shutters and leave unless Romania builds highways at a fast pace at least on some key routes.  

As a matter of principle, while the national routes which follow the European corridors itemized by Decision 1692/96/EC are financed with priority by the European Union (through its various financial mechanisms) other routes, which are not part of this strategy, must (in case Romania wants EU to support their implementation) be subjected to thorough negotiations with the European officials and usually enjoy a less favourable financing regime. This means that such other routes must, in bulk, be financed mainly (if not solely) from the national budget, which usually leads to frequent stalemates in their implementation due to frequent budgetary restraints. A wise strategy in this field would hence imply giving outright priority to the projects destined to connect Romania with the EU through the corridors approved by Decision No. 1692/96/EC (which, with the financial support from the European Union, are supposed to be quickly implemented) and leaving the alternate projects for the later stages.

All in all, planning, preparing and securing the financing for an investment of this kind are very important steps and the competent authorities in charge with probing their legality (in particular the Romanian Court of Auditors and the National Anticorruption Directorate) have lately revealed, in a number of important projects, many abuses in this area. A good example in this regard is the Transalpina project which, although it was part of neither the priority Program released through GO 16/1999 nor the transport networks comprised in Law 363/2006, obtained full financing and was set into operation through fraudulent means, which led to its staying and the conviction of the main contractor. Therefore, it is advisable that investors interested to participate in a procedure for the award of a public contract for the construction of a highway (or a portion thereof) run a proper due diligence with regard to the conditions in which the project at stake was elaborated and approved in the first place, in order to avoid any unpleasant consequences.

Finally, the implementation of such projects proves to be, in many cases, hindered by the anomalous procrastination of the relevant preparatory formalities (in particular the expropriation of the land on which the highway is to be built — which takes place as per Law No. 255/2010, since many landowners challenge in court the meagre value of the compensation granted to them in exchange for the expropriated land and this takes months and even years to resolve). To this extent, investors must always check whether such preparatory formalities are required and, if so, depending on their nature and complexity, ask for thorough clarifications and allow for a longer period of implementation and higher costs when elaborating their bids.


[1] Among these, of interest are Government Ordinance No.16/1999 for the approval of the priority Program for the construction of highways and national roads with four lanes as approved with amendments by Law No. 1/2002), Law No. 363/2006 regarding the approval of the National Spatial Plan – Section I “Transport Networks”, Government Decision No. 1048/2007 for the approval of the Norms on the analysing of the transport network of national and European interest, and Law No. 203/2003 concerning the realization, development and modernization of the transport network of national and European interest together with Government Decision No.84/2004 regarding the organization and the functioning of the inter-ministerial committee for the transport network of national and European interest.

 
Project Implementation

As a matter of principle (stemming from the case-law of the Court of Justice of the European Union — CJEU), in performing their public-interest tasks, public authorities enjoy a full liberty to choose between (i) employing their own administrative technical or other resources (solely or in cooperation with other authorities) or (ii) devolving these tasks upon authorized economic operators.

In Romania, the construction of highways is explicitly reserved for the Ministry of Transport through the National Company for Highways and National Roads – CNADNR, a public entity set up, by the reorganization of the former “National Roads Administration”[2].

To this extent, when deciding to invest public money in the construction of a highway CNADNR may, based on a germane feasibility study, either proceed to the construction thereof with its own resources or purchase such works from third parties. In the latter case, it must  organize an appropriate procedure for the award of the relevant contracts for the design and the execution of the desired thoroughfare. Of course, once the highway is built, it must be properly maintained, preferably throughout its lifetime. This is likewise to be done by the procuring entity itself or through a specialized entity hired by a separate public services contract. Alternatively, in case it does not have enough resources to purchase the required works and services entailed by the building and/or the maintenance of the prospected highway, CNADNR may seek for a private partner with which to implement the envisaged project in a public-private partnership.

Public-private partnerships (PPPs) are forms of cooperation between public authorities and private undertakings aimed in principal at carrying out complex infrastructure projects. These arrangements have been developed in key areas of the public sector and are widely used across the EU in particular in transport, public health, public safety, waste management and water distribution.

There are two known types of PPPs: contractual PPPs (i.e., the standard concession agreements) and institutionalised PPPs (or IPPPs), the latter involving the establishment of a mixed capital entity which shall be commissioned to further deliver public contracts or concessions.

Romania has formally consecrated both categories of PPP. Contractual PPPs are regulated, at a general level, by Government Emergency Ordinance No. 34/2006 ("GEO 34/2006") for the award of public procurement contracts, of public works concession contracts and of services concession contracts, as subsequently amended, by Government Decision No. 925/2006 ("GD 925/2006") approving the Norms for the application of the provisions concerning the award of public procurement contracts as contained in [GEO 34/2006], as subsequently amended and by Government Decision No.71/2007 ("GD 71/2007") approving the Norms for the application of the provisions concerning the award of concession contracts as contained in [GEO 34/2006], as subsequently amended.

In turn, IPPPs are specifically regulated by Law No. 178/2010 on the public-private partnership ("Law 178/2010"), as subsequently amended, and Government Decision No.1239/2010 ("GD 1239/2010") approving the Methodological Norms for the application of [Law 178/2010] and for the approval of certain measures concerning the reorganization of the Central Unit for the Coordination of Public-Private Partnership [UCVAP] from the Ministry of Public Finances, as subsequently amended.

Due to obvious advantages, the Romanian authorities prefer to build highways through PPP arrangements, usually contractual PPPs, as IPPPs are, given an ill-devised legislation, rather hard to implement. In this context it should be pointed out that Law 178/2010 contains a series of provisions which appear to be unconstitutional, whereas others are simply impossible to apply due to an elusive, expletory wording. Last but not least, Law 178/2010 fails to fully clarify its scope ratione materiae which, due to a bizarre approach, overlaps with that of GEO 34/2006, while some of its provisions are actually in striking dissonance with the relevant EU public procurement norms.

According to article 3 paragraphs g) and h) from GEO 34/2006 as complemented by article 3 (1) from GD 71/2007, “works concessions” are contracts with features similar to those of a standard public works contract, except for the fact that the economic operators involved in the delivery of the contracted works receive not an actual price but, rather, a consideration which consists either solely in the right to exploit the outcome of those works or in that right together with a pre-set payment. Along the same lines, “services concessions” are contracts with characteristics similar to those of a standard public service contract, except for the fact that the economic operators involved in the delivery of the contracted services receive, instead of a fixed price, a consideration consisting either solely in the right to exploit those services or in that right together with a pre-set payment.

This general framework is complemented by a number of secondary norms applicable explicitly and solely to public works contracts and works concessions involving the construction (and eventual exploitation) of highways and national roads[3]. These norms are accompanied by several Regulations issued by CNADNR for the award of public works contracts in this field and also for the monitoring and the implementation of the relevant technical assistance contracts, consultancy services contracts and works contracts as per the FIDIC rules. All these rules and regulations impose some strict margins and give practically no leeway for CNADNR with regard to the elaboration of tender documents and the drafting of relevant contracts.

Of course that, should the works contract or concession be financed from funds made available by the EU, World Bank, EBRD or similar institutions, other specific rules shall apply as well.

However, the norms dealing with the award of public works contracts and concessions (in particular GEO 34/2006 and the accompanying Norms), beyond offering a number of useful instruments, guarantees and opportunities for bidders, open the door to a number of sore problems of which corruption, the unlawful direct award and the illegal modification of contracts during their lifetime are of greatest concern.

Another problematic issue susceptible of marring the procurement process is stemming from a number of equivocal legal provisions making possible either a subjective (and thus susceptible of being biased) approach by the contracting authorities or a perilous interference of the political factor with the public procurement process. The poor coordination of the laws concerning public procurement — between them and with other laws to do with correlative domains (especially with those regulating the formation of public budgets and the disbursement of public funds) — is another sensitive issue. This lack of coordination impedes the completion of many projects due to a feeble (if not unlawful) financial and/or procurement planning which is often amended afterwards, i.e., during their implementation.

On a wider scale, many deplore the lack of any viable legal tools which to bolster sustainable public procurement, or the lack of rules destined to support innovation and a better access of innovative SMEs to public procurement or, finally, the lack of a legal framework which to enhance the use of e-procurement, etc..

A special concern is raised by the recent implementation, by the Romanian legislator [4], of a number of controversial new measures allegedly aimed at “streamlining the public procurement process and protecting contracting authorities from the submission of abusive complaints which may ultimately skew the genuine purpose for which the remedies have been instituted [in the Romanian public procurement system] in the first place”. The most important change brought by these new rules is that requiring any complaining party to constitute a so called “good conduct guarantee” (of 1% of the total estimated value of the contract but no more than €100,000) prior to filing a complaint before the first-tier review body – i.e., the National Council for Solving Complaints (CNSC) or bringing an action before the judicial court. The failure to do so shall trigger a forthright rejection of the claim/action by CNSC or the court, as the case may be. This guarantee joins and adjoins the other two guarantees provided by law (i.e. the participation guarantee and the good performance guarantee) which, all in all, make the participation in a procurement procedure quite expensive. However, the Constitutional Court has recently rendered that the automatic enforcement (but not also the mandatory setup!) of this guarantee infringes the presumption of innocence guaranteed by the Romanian Constitution.

Many agree that the current remedies system needs a serious revamping. But, as said before, corruption, bid-rigging, conflict of interests and incompatibilities are some of the most serious  problems in the Romanian public procurement field (and especially in the construction of highways, as the recent public scandals have shown). Romania has indeed created a multifarious legal framework for fighting these issues. However, instead of having so many provisions scattered throughout several laws and most times inconsistent with each other, it would be more productive to have just one comprehensive and easily applicable law. And, if anything, a reform in this field must necessarily provide for a new and viable set of tools allowing bidders as well as any interested party (and not just authorities such as ANRMAP, UCVAP or the National Integrity Agency - ANI) to easily check, find out and report any such situations and to intervene, directly and without delay, in the process in order to prompt an immediate control / sanction / remedy etc. Moreover, the procedures provided for the investigation and the redress of such infringements etc. must necessarily be correlated with the contract award procedures in terms of periods, cases of suspension, standstill etc.). Finally, since there are several institutions with similar powers (ANRMAP, UCVAP, ANI, etc.), the relevant legislation must necessarily be streamlined so to eliminate redundancies (which in many cases have led to a stalemate). To this extent, a betterment of the whistleblowing process is highly recommendable (not only with regard to the reporting stage - e.g. reporting suspicions of malfeasance or misconduct should become mandatory etc., but mainly as concerns the protection of the whistleblowers and their right to remain anonymous, inasmuch as their reports are true and accurate etc.).

Anyway, as explained above, if, after elaborating the necessary investment plans, performing the proper feasibility studies and obtaining the green light for the project, the procuring entity lacks the necessary technical resources to implement the project by itself, it has the opportunity to procure the relevant works from third parties — especially economic operators authorized to perform such works. Otherwise, in case the authority has no access to the necessary funds in order to hire a specialized contractor through a public works contract, it may put out to tender a works concession and let the winning operator finance the project, perform and exploit the works and assume the relevant risks.

According to the norms regulating the award of public works contracts and concessions, contracting authorities (CNADNR included) are required to award public works contracts by either an open or a restricted procedure. All the other procedures itemized under article 18 (1) from GEO 34/2006 may be applied only in the specific circumstances expressly and limitedly provided for by GEO 34/2006. Works concessions in turn may be awarded, as a rule, by either an open or a restricted procedure or, as the case may be, by competitive dialogue or via a negotiated procedure with prior publication of a contract notice. However, since most of the projects involving the construction of roads, especially those of national importance such as the highways, are particularly complex and imply some intricate financial and/or legal arrangements, it is a great opportunity for the authorities procuring such works to make use of the competitive dialogue, which is a dedicated procedure, being devised especially for this kind of situations, as opposed to the open procedure - which is far stricter and allows of no deviations from the technical specifications of the tender book.

In practice, when defining the relevant characteristics of a project put out to tender, contracting authorities have the liberty to define their needs by making use of either technical specifications, award criteria or contract performance clauses.

According to GEO 34/2006, the award criteria may only be (i) the most economically advantageous tender (the so-called “MEAT” criterion) or (ii) the lowest price (not cost!). As a matter of principle, award criteria must be chosen so to ensure that the tenders are assessed in an impartial, objective manner so that a fair, genuine competition is secured (by equal treatment, transparency, non-discrimination and proportionality). The Romanian legislation provides also for the necessity of observing the principle of the efficient use of public funds. On the other hand, the public procurement legislation guarantees the freedom of any contracting authority to choose the award criteria as well as their weighting. Given this liberty, in practice it is almost impossible to control and censure – where necessary - the way contracting authorities organize their procurements (since the law provides only how but not what to buy).

Regrettably though, the same practice shows that the Romanian contracting authorities prefer in most of the cases to define their needs through complex technical specifications and award the contract based on the “lowest price” criterion, instead of using more wide-ranging and flexible specifications doubled by some detailed factors that would, in the procurer’s opinion, make a tender the most economically advantageous one. This habit however stifles innovation and fetters the bidders from offering more flexible, modern and possibly cheaper solutions. In fact, it is a common practice for CNADNR to elaborate tender books in such an intricate and unsustainable way (by defining some thorough technical specifications which in many cases are unrealistic, ignore the most important horizontal considerations and shun innovation) that it eventually constrains the tenderers to offer highly expensive and hardly feasible solutions. The result of this is that Romania now has the most expensive motorways in Europe (with a just two-year warranty term) – as opposed, for example, to Germany where they allegedly cost even five times less and are guaranteed to remain functional for up to 30 years.


[2] Through Government Emergency Ordinance No. 84/2003, as subsequently amended.

[3] The most important such secondary norms are Government Decision No.1405/2010 approving the use of certain contractual conditions issued by the International Federation of Consulting Engineers (FIDIC) for investment projects pertaining to the national transport infrastructure financed from public funds, Order No. 138/2012 of the National Authority for Regulating and Monitoring Public Procurement (ANRMAP) approving the standard tender documentations for the award of public works contracts for investment projects pertaining to road transport which use the contractual conditions issued by the International Federation of Consulting Engineers through respectively FIDIC RED and FIDIC YELLOW, and Order No.146/2011 of the former Ministry of Transport and Infrastructure approving the special contractual conditions for the contracts concerning equipment and buildings, including design, and for the contracts concerning the construction of buildings and engineering works performed by the beneficiary, as issued by International Federation of Consulting Engineers (FIDIC), awarded for investments pertaining to the national road transport infrastructure financed from public funds.

[4] Through Government Emergency Ordinance No. 51/2014  for the amending and the completion of GEO 34/2006)

 
Conclusions

Against the apparently catastrophic backdrop envisaged above, which make investors think twice before deciding to invest in Romania, some important steps have nevertheless been, or are soon to be, taken in the right direction.

Thus, at least some of the problems described above (especially those to do with public procurement and the award of public contracts) are supposed to be solved sooner rather than later, as Romania is about to transpose and implement (i.e., by April 18, 2016) the new European Directives on public procurement[5] which come with numerous innovative solutions.

This will give the Romanian contracting authorities the chance to exploit a series of remarkably efficient and flexible instruments such as the preliminary market consultations, the new “toolbox” approach which cuts through the red tape and comes with a reformed competitive dialogue and two novel procedures, i.e., the competitive procedure with negotiation and the innovation partnership, or the means devised to spur innovation and ensure a strategic use of the horizontal considerations and the life cycle costing, etc.. All  these should improve the procurement process, enhance lawfulness and lead to a more transparent environment, which may ultimately convince investors to participate on a far wider scale in public procedures and the implementation of some important public projects in Romania.

As for corruption, incompatibilities and the conflicts of interests, it is worth mentioning that Romania has adopted in the last couple of years a series of amendments to the primary legislation concerning public procurement, with the aim of ensuring a substantially better transparency and celerity at the award of public contracts, such amendments being the upshot of a long series of negotiations between the Romanian authorities and the European Commission.

The secondary as well as the tertiary public procurement legislation have been thoroughly reformed, mainly with respect to the ex-ante verifications performed by ANRMAP or UCVAP, etc., whereas the cases involving fraud in public procurement actually top the list of priorities and are part of the local anti-corruption strategy of any prosecutor’s office.

Another measure meriting attention is that recently propounded for public debate by ANI, concerning the implementation of a mechanism for the prevention of conflicts of interest in public procurement (the so-called “PREVENT”). PREVENT (an electronic program to be built with the substantial technical and financial support of the European Union) entails the obligation of each contracting authorities to upload thereon (in connection with any contract financed through - at a first stage - EU funds) relevant information and personal data of all individuals involved in the procurement process (heads of the procuring entity, consultants and experts, members of the bid evaluation committees or representatives of the bidders). PREVENT, which is also a comprehensive database, will run a thorough check-up and will automatically prompt “integrity warnings” if it detects a potential conflict of interests. Upon receiving such warning, ANI’s functionaries shall investigate the case and, should they find the warning true, shall promptly notify both the person in breach and the head of the procuring entity which must take all the necessary measures to eliminate the conflict of interest (including by eliminating that person from the procedure and/or disqualifying the bidder etc.). Once adopted, this ex-ante check would join the verification process already in place under the current legal framework (which involves ANRMAP and UCVAP).

Last but not least, the convictions that made the rounds and generated breaking-news alerts in the media are a good proof that the Romanian judiciary is now functioning at full capacity.

At a wider level, with regard to the elaboration of public policies in this field, the good news is that the master plan cited above is on its way to be finally approved by the European Commission (it is supposed to happen later this month), which will entail an important financial support from the European Union and which may also raise the interest of some important international financial institutions.

It is true that, at this stage, reforms are still frail in Romania. But, provided that contracting authorities will eventually succeed in taking advantage of the afore-cited implements and with a proper guidance from a proficient legal advisor, investors have now good reasons to forgo their reticence and involve more decisively in the implementation of the public projects put out to tender by the Romanian authorities.


[5] Directive 2014/23/EU of the European Parliament and of the Council of 26 February 2014 on the award of concession contracts, Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC and Directive 2014/25/EC of the European Parliament and of the Council of 26 February 2014 on procurement by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC

 
Editors Note: It is our policy not to mention our clients by name in The Romanian Digest™ or discuss their business unless it is a matter of public record and our clients approve. The information herein is correct to the best of our knowledge and belief at press time. Specific advice should be sought from us, however, before investment or other decisions are made.

Copyright 2015 Rubin Meyer Doru & Trandafir, societate civila de avocati. All rights reserved. No part of The Romanian Digest™ may be reproduced, reused or redistributed in any form without prior written permission from the publisher.

 
RUBIN MEYER DORU & TRANDAFIR
societate civila de avocati
Str. Putul cu Plopi, Nr.7, Sector 1
Bucharest, Romania
Tel: (40) (21) 311 14 60
Fax: (40) (21) 311 14 65
E-Mail: office@hr.ro




VISIT OUR WEB SITE:
http://www.hr.ro
The Romanian Digest Archive
 

 

AFFILIATED WITH:

Herzfeld & Rubin, P.C.
125 Broad Street
New York, New York 10004
Tel: (212) 471-8500
Fax: (212) 344-3333
http://www.herzfeld-rubin.com

Long Island Office
Herzfeld & Rubin, P.C.
1225 Franklin Avenue, Suite 315
Garden City, New York 11530
Tel: (212) 471-3231

Herzfeld & Rubin LLP
1925 Century Park East
Los Angeles, California 90067
Tel: (310) 553-0451
Fax: (310) 553-0648

 
Chase Kurshan Herzfeld & Rubin
354 Eisenhower Parkway, Suite1100
Livingston, New Jersey 07039-1022
Tel: (973) 535-8840
Fax: (973) 535-8841

Israeli Affiliated Law Firm
Balter Guth Aloni & Co.
96 Yigal Alon Street,
Tel Aviv, 67891, Israel
Tel: +972-3-511-1111
Fax: +972-3-624-6000
 

 

New York — California — New Jersey — Romania
If you no longer wish to receive emails from us, please send an e-mail with UNSUBSCRIBE in the subject line to Romanian.Digest@hr.ro.