Port of Tallinn ignored Public Procurement Act and unreasonably compensated contractor for costs

Toomas Mattson | 9/17/2012 | 12:00 AM

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TALLINN, 17 September 2012 – The National Audit Office found in the course of its audit that state-owned company AS Tallinna Sadam (Port of Tallinn) repeatedly ignored the Public Procurement Act during the construction of Muuga Container Terminal and failed to exercise due diligence as expected, which resulted in the company incurring 2.42 million euros in unjustified and avoidable costs.

The National Audit Office is of the opinion that during the construction of the container terminal the Port of Tallinn violated the Public Procurement Act in the organisation of the procurement, in entering into the design and construction contract, and in making amendments to the contract.
The National Audit Office found that the terms and conditions of the procurement were ambiguous and the Port of Tallinn had changed them at a time when this is no longer permitted according to law. The date when the design and construction contract was entered into is also unclear, and it is difficult to tell whether the contract was valid and in compliance with the terms and conditions of the procurement.
A month and a half after the contract was signed, the Port of Tallinn demanded that the contractor increase the load capacity of the quay, which is not permitted under the Public Procurement Act. The contractor agreed, but asked for its fee to be increased by 1.85 million euros. The contractor justified the demand with the need to use bigger steel piles to increase load capacity and that more expensive equipment was required to install them.
The technical expert analysis commissioned by the National Audit Office, the analysis of project documents and the statements made by the persons involved indicated that the contractor’s claim for an additional fee was unjustified, because bigger steel piles were already used in the initial design, the contractor did not have to change the quay design due to the demands of the Port of Tallinn, and the contractor did not incur any additional costs. Had the Port of Tallinn exercised due diligence, it would have noticed that the claim for extra money was not justified.
The audit also revealed that the Port of Tallinn had failed to inform the persons who participated in the procurement that explosives may be found in the sand deposit in the sea near the island of Naissaar despite the fact that the participants had to obtain sand for the construction from that particular deposit. There were two explosions when sand was extracted from the deposit, which damaged ships and equipment. The port was therefore forced to pay the contractor an additional 575,000 euros as partial compensation for the damage caused by the explosions, and extend the deadline for completion of the works by six months.
The Management Board of the Port of Tallinn did not agree with any of the observations made by the National Audit Office about the omissions and breaches of law in the course of the procurement and the entry into and performance of the contract. The management of the port believe that the detailed and complete analysis of the facts, the systematic and substantive interpretation of law in confluence with the prevailing case-law in Estonia and the European Union show that the accusations made by the National Audit Office are not justified.
Considering the extent and nature of the breaches of the Public Procurement Act, the National Audit Office advised the Minister of Finance to decide whether or not to initiate proceedings in regard to the Port of Tallinn to assess whether the funds received from the EU Cohesion Fund were used according to rules during the construction of the container terminal. The Minister of Finance said that he has initiated an inspection and will make his decision on the basis of its results.
The National Audit Office advised the Supervisory Board of the Port of Tallinn to decide whether to demand that the Management Board compensate for the damages it caused in the opinion of the National Audit Office (total amount 2.42 million euros) and what the amount of such compensation should be. The Supervisory Board of the port said that it will make a decision after the discussion of the expert analyses, probably in September 2012.

Background

The Port of Tallinn initiated an international procurement for the extension of Muuga Container Terminal in 2007. It was deemed necessary to extend quay no. 16 (which was and is used by AS Transiidikeskus) by 102 metres and to build the new 377.5-metre quay no. 17. Approximately 27 hectares of suitable port territory had to be established for the container terminal behind the new quay lines by filling the sea and coast area. More than 1.3 million cubic metres of sand was to be extracted from the sea for this purpose. The estimated volume of the granite bank protections was 27,000 cubic metres and the volume of dredging 0.6 million cubic metres.
21 companies registered for the procurement and six tenders were received in December 2007. The winner was selected on the basis of the tender price, and the contract with KMG Inseneriehituse AS for 860.6 million kroons (55 million euros) was signed in July 2008. The works had to completed in 18 months.
The procurement contract was amended twice. The deadline for completion of the works was extended from 18 months to 24 months, and the final cost amounted to 54.1 million euros. The entire contingency fund of 2.5 million euros was spent on the additional fee requested by the contractor.
The EU Contingency Fund supported the establishment of land for the terminal (largely on the account of the sea) with 1.6 million euros.


Toomas Mattson
Head of Communication Service, National Audit Office
+372 640 0777
+372 51 34 900
toomas.mattson@riigikontroll.ee

  • Posted: 9/17/2012 12:00 AM
  • Last Update: 11/10/2015 5:33 PM
  • Last Review: 11/10/2015 5:33 PM

Muuga Container Terminal 17. quay

Tallinna Sadama andmekogu

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