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NewsPossible arbitration in Zurich due to breaking deadlines for highway construction

Possible arbitration in Zurich due to breaking deadlines for highway construction

Negotiations between the Ministry of Capital Investments and the Chinese company China Road and Bridge Corporation (CRBC) regarding additional payments and deadlines for the completion of the priority section of the highway are still ongoing, and if there is no agreement, arbitration will be held in Zurich, the government department told the News. 

The official supervision of the works determined that the delays due to the coronavirus pandemic should not have been longer than 48 days. The delays due to that situation, according to the changes in the deadlines, lasted for about a year and a half. According to the contract, the state has the right to collect penalties for any delay by the contractor.

In the event of a delay in the completion of works, FIDIC rules apply, according to which compensation for damages due to delay is calculated in the amount of 0.01% of the contract amount per day for delays of up to 90 days, and after that period the compensation amounts to 0.02% of the contracted period.

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The agreed price is EUR 809 million, so 0.01% would amount to EUR 80.9 thousand per day.

For example, if the contractor’s unjustified delay of one year were proven, the penalties would amount to EUR 51 million. However, the contractor also has the right to compensation if the delays were caused by the error of the investor, that is, the state, as well as if he had increased costs due to errors in the technical documentation, which he received from the investor.

– The contractor’s requests for additional payments and an additional period of implementation to which he was entitled according to the contract on design and construction, are treated in the agreed procedures, the details of which cannot be discussed until they are completed, which the public will be informed about. In the end, if the disputes were to be conducted in arbitration proceedings, it would be before the Arbitration Court of the Chamber of Commerce in Zurich, in accordance with the contract – said the Ministry.

They added that, according to the evaluations of the Supervisory Authority, all the claims of the contractor for additional funds and an additional period of implementation are considered unjustified, except for the request for an additional period of implementation, namely 48 days, due to work in the globally expressed consequences of the pandemic.

The project was started while the Ministry of Transport was headed by Ivan Brajović. CRBC for that period, as they previously announced, has objections to the preparation of the project, geological maps and other parts of technical documentation and projects, which is why the main construction works started only a year after the introduction of the work.

The work was then continued to be monitored by the ministry headed by Osman Nurković. He signed an annex on the extension of the deadline for the completion of the works. Then there was a dispute regarding whether the basic contract included the construction of the first phase of the Smokovac loop.

Nurković and then Prime Minister Duško Marković claimed at the beginning that the loop was contracted, but in the end they agreed to pay an additional 30 million for the work, which was done as a subcontractor by the company Bemax.

According to the basic contract, the deadline for the completion of the works was four years, i.e. May 11, 2019, and Nurković signed an annex extending it until September 30, 2020, without determining the culprit for the delay and the obligation to pay penalties.

Even then, the works were not finished, and the new government was elected only in December 2020, the new relevant minister, Mladen Bojanić, signed the second annex at the beginning of last year, extending the deadline until November 30 of that year, with the obligation to pay penalties for delays and compensation is calculated after the completion of construction.

The highway was not opened even after that deadline. Although there was a change of government, the old board of directors of Monteputo was replaced only in September of last year, because they changed the company’s statutes themselves and tried to prevent their removal.

Although the deadline of November 30 was approaching, the previous board of directors and management of Monteputo did not complete the procurement of the necessary equipment and installations for the operation and maintenance of the highway.

The public procurement procedure was initiated only by the new administration. According to the law, the highway cannot be opened without equipment for supervision, security and maintenance, so the last delay of about six months could be the responsibility of the state, that is, the former administration of Monteput.

The priority section of the highway was opened only on July 13, i.e. three years and two months late.

According to the Ministry, the CRBC company has been paid 855 million EUR so far – 797.52 million EUR for the main construction works, 8.6 million for the temporary supply of electricity to the construction site, 30.2 million for the first phase of the Smokovac loop, 13 million for the water supply system, 48 million and 4.8 million for the installation of cable sewers on the open route and the Moračica bridge.

Thus, the basic price was exceeded by EUR 46 million for the works performed by CRBC and its subcontractors. However, there were also works carried out by others, so Monteput paid EUR 39 million for the construction of the electrical network on the highway. That company also financed the installation and purchase of maintenance equipment, local media writes.

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