At the same time, these governments are strapped for funds that must be divided among the full range of social and economic needs, and limited by the Mastricht treaty in how much debt burden they can incur. So when the Israeli Housing and Construction (H & C) company approached key figures in the Czech administration proposing a consortium that would get the D47 project going and fast it was tempting. So tempting, in fact, that the government passed a special law (Article 50) that would allow such a project to go to a single provider, rather than be tendered out to a range of competing bidders, a process that would take some years.
Indeed, the lack of other bidders was key to the contract’s ultimate downfall. Since most Czech projects and services have to be given out to tender even a $1000 contract to supply a ministry with pencils, for example the fact that this billion dollar contract went to a single company invited unceasing charges that the incentives offered by H & C to decision-makers extended beyond a plan for serving the nation’s transport needs.
The very Czech companies that might have bid for such a project raised legal questions about it. Since the project was likely tied to the graces of a particular administration, when this changed, the project didn’t stand on its own merits.
While sheer cost is not everything in a complex project whose finance spans decades, it was hard to justify a per kilometer price tag that was three times equivalent projects, including one that H & C was working on in Israel (see ST E-Update 4).
Several bidders in authentic competition would have given some basis for trusting the number H & C gave. At a recent Adam Smith Institute conference in Prague on “financing and delivering transport infrastructure projects in Europe,” there was a piece of recurring advice given to governments by some of Europe’s most savvy PPP professionals: “competition is your friend.” The D47 saga shows the dangers of ignoring this.