Central Financing and Contracting Agency may cut EU financing to 12 projects involved in construction cartel activities

In the scandalous construction cartel case Latvia’s Central Financing and Contracting Agency (CFLA) may cut payments of EU financing to 12 projects, said the director of CFLA director Anita Krūmiņa at a meeting of Saeima’s Public Expenditures and Audit Committee on Tuesday, 31 August.
According to available estimates, financial corrections may reach at least EUR 18.6 million for 25 projects that were previously worked on by members of the cartel.
Krūmiņa said that of the 77 projects mentioned in the decision by the Competition Council in regards to the construction cartel, EU financing was attracted in 47 projects. For 22 of those projects procurement procedures were either terminated without a contract or the winner was a company not associated with the cartel. This means no financial corrections will be applied there.
Of the 25 projects that will receive corrections 13 are already completed and commissioned. On top of that, CFLA has already paid out EU financing for them. For these projects financial corrections of EUR 10.6 million may be requested in the form of enforcement from contractors.
12 other projects are close to completion and CFLA has yet to process EU financing payments for them. Financial corrections of EUR 8 million may be applied by not providing EU financing.
Considering that it is not possible to make any unambiguous conclusions regarding clients’ involvement in violations from the decision published by the Competition Council, CFLA has requested additional information from the council. If evidence of the clients’ involvement in violations is received, financial corrections may increase further, said Krūmiņa.
She added that initially CFLA will make decisions in regards to any violations qualified as «suspicion of fraud», apply financial corrections, halt payment of financing for specific projects. At the same time, recovery of expenses will not be used.
CFLA will make its final decision regarding violations classified as «prohibited agreement between contenders» and apply financial corrections and recovery of inappropriate expenses once the term for appealing Competition Council’s decision has run out or it has come to force, stresses Krūmiņa.
Once CFLA has made its decision, contractors in charge of EU fund projects will have the right to submit a regress request towards companies that have committed specific violations.
If a violation of competition regulations is found, CFLA has a duty to apply financial corrections – cut or reduce the amount of financing provided.
In accordance with financial correction guidelines there are multiple types of corrections. 10% correction is used if there were multiple different (not just cartel members) companies participating in procurement procedures but the contract went to one of the cartel members. 25% correction is used if only members of a cartel participated in procurement procedures and competition was therefore severely limited. 100% correction is used if the client provided assistance to contenders part of a secret agreement and if one of the contenders had landed a contract as a member of a prohibited agreement.
As previously reported, among the projects for which CFLA may apply financial corrections are the Latvian National Museum of Art restoration project implemented by SIA Re&Re and VEF Culture Palace by SIA Velve.
As previously reported by the director of Competition Council’s Office for Prevention of Secret Agreements Ieva Šmite, members of the so-called construction cartel were involved in at least 70 different procurement projects worth a total of EUR 686 989 991.
According to the full list of projects on which members of the recently uncovered construction cartel have worked on, there were projects like Riga Castle, the University of Latvia Academic Centre in Torņakalns, the headquarters of the Corruption Prevention and Combating Bureau (KNAB), Liepaja Prison and others, Competition Council reports.
Generally the 77 construction projects mentioned in transcripts of secret meetings among members of the cartel are multiple projects in Riga, including a number of education and culture institutions. Additionally, several projects are located in other Latvian cities – Liepāja, Jelgava, Skrunda, Ogre, Ikšķile, Jēkabpils, Valmiera, Kuldīga, Saldus, Rēzekne, Salaspils, Daugavpils and Cēsis.
Among those project were education institutions, sports centres, hospitals, factories, parks, apartment homes, shopping malls and other buildings.
Based on transcripts of audio recordings from the Corruption Prevention and Combating Bureau (KNAB), Competition Council concluded that representatives of the biggest construction companies part of the cartel met a total of 12 times between 2015 and 2018. They would meet at least three times a year to discuss procurement projects, participation rights and other related topics. Recordings detail nearly 90 procurement projects and at least 70 of them are identified, said Šmite.
These meetings were held at Taureņi bathhouse and Jūraslīcis sanatorium.
KP has punished members of the construction cartel with a fine for a total amount of EUR 16 652 927.4.
Among the ten penalized construction companies are SIA Skonto būve, SIA Latvijas energoceltnieks, SIA Velve, SIA Arčers, SIA Rere būve, SIA Re & Re, SIA RBSSKALS būvvadība, SIA Abora, AS LNK Industries and SIA Merks. RBSSKALS būvvadība is already liquidated, however, so no fine was applied.