Business Czech tender trauma continues ahead of rules change

14-01-2014 14:10 | Chris Johnstone

For some a cash cow, for others an administrative and legal minefield, public tenders Czech style are a massive but problematic slice of the economy. A fundamental rules change since the start of the year plus a dose of economic growth could help turnaround the struggling sector.

Photo: Miroslav ZimmerPhoto: Miroslav Zimmer Public tenders are a fraught topic in the Czech Republic with some pretty depressing recent statistics being served up as a side dish.

Latest figures for the first 11 months of 2013 show an 11.9 percent drop to 218.5 billion crowns in the value of public tenders compared with the same period in 2012. December is usually a pretty bleak month for the sector, so the Chamber of Public Tender Administrators (KAVZ) is already prepared to write off 2013 as the leanest year ever for those competing for public contract to build or provide services.

Another figure from the chamber suggests stiff competition for the diminished number of tenders still out in the public arena. Tender organizers reported that final prices for contracts are coming in around a quarter below their expectations. This compares to the 2012 statistic which showed contracts being fixed at an average 15% discount on the expected price. Whether contractors are really getting a better deal or whether the quality of the building, infrastructure, or services has suffered as well is another, unanswered, question, says the chamber.

There has been some improvement in the phenomenon of chasing eventually non-existent tenders. The proportion of tenders launched but cancelled for whatever reason by organizers dropped to 14% for the first 11 months of 2013, although that percentage is expected to climb by the end of the year. What might be described as ‘imploding tenders’ accounted for 22 percent of the cash volume of tenders launched in 2012.

Those involved in the depressed sector, with previous tenders often subject to criminal investigations and many current ones still being challenged by the low competition office, see little prospect of a quick return to the boom years leading up to 2010, when the business probably peaked. ‘Public tenders are still a very problematic area,’ commented KAVZ this week.

There is a bit of good news from the start of this year with the return to the previous, higher, thresholds which make tenders a must for public institutions. These are now set at 6 million crowns, excluding Value Added Tax, for construction work and 2 million crowns, excluding VAT, for other goods and services.

The introduction of lower thresholds of 3 million crowns and 1 million crowns in April 2012 was one factor blamed for a dramatic slowdown in tenders as administrations struggled to cope with the administrative paperwork and complicated rules. Hopes that the lower thresholds would deliver more, but better quality, tenders quickly evaporated. One study suggested a more than 28 percent slump in declared tenders in the nine months following the introduction of the new thresholds and rules. The onset of the recession and sharp cutbacks in public spending made matters worse.

While welcoming the higher thresholds, companies dependent on public tenders for their turnover are still waiting for new rules demanded by EU legislation to simplify and improve the local situation. They say everything depends on the stance of an incoming government if and when these improvements are delivered.

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