Estonia could face losing €8 million in EU subsidies after the Transport Administration based a public tender on a failed technological estimate.
The Võõbu-Mäo section of the Tallinn-Tartu highway passes through a stretch of peatbog. Usually, when building roads in such places, the peat is removed from under the road and replaced with gravel. But the Estonian Transport Administration decided to go another way this time by pumping cement and shale ash into the peat to end up with a firm surface.
Viktor Kisseljov, head of the agency's northern department, said that the technology is hardly new and has been tested on smaller roads, even though it has not gone beyond testing yet in Estonia.
"But we know that the technology has been used in Finland," Kisseljov said, adding that the Transport Administration wanted to make use of existing material as much as possible and estimated it could save over €2 million that way.
The Võõbu-Mäo public procurement was declared in late 2019. While lab testing suggested the plan might work, the agency decided to try out the technology on a test stretch of the road being built. The first attempt failed, and required stability was not achieved even after doubling the quantity of cement and using sand in place of ash.
Finance ministry: New plan would have required a new tender
Main contractor GRK Infra AS and the Transport Administration then agreed to amend the procurement contract and return to the simpler solution of removing the peat and replacing it with gravel.
While this prevented €2.2 million worth of work, it created €4.5 million worth of new work. The section of highway was completed on time but the subsidy recipient's actions have since been found to have been unlawful by Ministry of Finance auditors.
The ministry concludes that the procurement does not mention the possibility of peat removal and that such a major change would have required a new procurement.
"The European Commission also provides that such an extensive change of contract constitutes an infringement as a result of which the compensation sum should be lowered by 25 percent," said Kaur Siruli, head of the ministry's financial control department.
Should the Finance Ministry's assessment come out on top, the EU will hold back €7,971,460 of its part of funding for the project.
Transport Administration: We reacted to an unexpected outcome
Viktor Kisseljov said that a new procurement would have caused the project to miss its deadline and likely turn out more expensive as a whole. He also said that it would have been unclear which contractor would be responsible should there be problems with the road surface.
The Transport Administration maintains that a new procurement was not necessary because the circumstances were unexpected, while the auditors doubt the agency could have been as sure of the technology as it claims to have been.
Siruli pointed out that initial test results echoed the conclusion that the peat-cement mix could behave differently in nature than in laboratory conditions. He also said that the novel technology was dropped for the whole road section and referred to an interview by a Transport Administration employee in which they admitted plans might have to be changed.
"These are the reasons why we cannot believe the outcome of cement and peat failing to yield a strong mixture to have been all that unexpected," the ministry official said.
The agency claims there is little it could have done to mitigate risks as constructing a separate test site before the project started would have required new access roads and cost up to €2 million.
But Kaur Siruli said this was all the more reason to have a plan B instead of betting on a single solution to which there are no alternatives [in the procurement].
While the State Shared Service Center now has 90 days to decide whether to launch proceedings against the Transport Administration to reclaim EU funding, the outcome might be inconsequential as the Finance Ministry's audit will also be read at the European Commission, which might decide to withhold a part of the sum once payments start.
While this would not end up harming Estonia under normal circumstances as the country could simply use these funds elsewhere, the EU funding period is about to end, meaning that Estonia only has until the end of December to redirect that part of funding.
Finance ministry spots another mistake
The Ministry of Finance also found that the conditions did not ensure equal treatment of local and foreign companies. While the former could secure a guarantee letter from the Bank of Estonia, the latter would need one from EEA or EU Member State bank with at least an A3 rating from Moody's.
"Estonian bidders were free to show up with guarantee letters from banks with no such rating," Siruli said, adding that conditions need to be ensured to the letter to avoid companies challenging them in court.
While unfair treatment of entrepreneurs fetches a penalty of a 5-percent subsidy reduction, meaning that this infraction alone could cost Estonia €1.6 million, Siruli said that if a single project has two shortcomings, the sums to be reclaimed are not merged and Estonia still risks losing the aforementioned almost €8 million.
Editor: Mirjam Mäekivi, Marcus Turovski