Mihkel Mäger, director of real estate development at RKAS, explained that both parties have reached the conclusion that work cannot continue under the initial contract.

"The contractor has notified us that it's no longer possible for them to fulfill the current contract, as the outbreak of the war in Ukraine, the increase in construction and energy prices as well as the ongoing COVID-19 crisis have more broadly impacted construction," Mäger said. "We have analyzed opportunities to move forward with the [existing] contract even in a modified form, as well as conducted negotiations on the matter, but [we] have reached the understanding that under the current contract, Viljandi Haigla and Health Center will not be completed on time."

The two parties have since confirmed the termination of the initial contract.

According to Fund Ehitus representative Eiki Rump, most of the framing of the healthcare complex is already complete, and it would be possible for the next contractor to immediately continue construction.

"We've actively sought a solution together with the customer for how to complete construction of [the Viljandi healthcare complex] by the end of 2023, but the conditions of the existing contract unfortunately won't allow for it either timewise or financially," Rump said. "The situation has changed drastically compared with when the contract was concluded."

RKAS is currently drawing up a new public procurement to find a contractor to complete the construction of the Viljandi Hospital and Health Center, and will be announcing it as soon as possible. The real estate manager intends to sign a new contract by the end of the year, which would allow construction to pick up where it was left off at the beginning of 2023.

One significant change to be added to the procurement conditions this time is the indexation of the cost of the construction contract in line with changes to the construction price index (CPI), which will mitigate the risk of price fluctuations as well as resulting delays or disruptions to construction works.

Viljandi Hospital board chairman Priit Tampere added that the vital next step is to quickly find a new construction partner.

"We are still planning on completing Viljandi Hospital and Health Center by the end of 2024," Tampere said. "It's important to continue the work that has already been started, all the moreso as the government has confirmed the importance of the construction of [the complex] and decided to initiate negotiations with the European Commission for the funding of the hospital from the Recovery and Resilience Facility (RRF)."

Viljandi Hospital, RKAS and Fund Ehitus signed an agreement for the construction of the new hospital in May 2021. Construction of the new healthcare complex is being funded from EU funds, the state budget as well as Viljandi Hospital Foundation funds.

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