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construction

Construction company linked to the former Fidesz deputy mayor in Érd reached 42% profit rate

The mayor of Érd has decided to sue the local construction company, which won a nearly 280 million HUF public procurement in 2017 under suspicious conditions. The company, named General-Invest Bau Kft. – which can be linked to the former Fidesz deputy mayor, István Bács – has won HUF 1.8 billion worth of public construction contracts in recent years.  Last year, the owner of the company managed to acquire revenues of 1.7 million HUF, with a 700 million HUF after-tax profit and 100 million HUF dividend. This is three times the profit rate of Duna Aszfalt, the flagship company for the government comissioned construction projects, and ten times that of ordinary construction companies.

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Last summer, the Ministry of Finance notified the city’s new mayor, László Csőzik, that the municipality of Érd would have to repay 70 million HUF in EU funding due to previous public procurement irregularities which occurred during the time of the previous mayor from Fidesz party.

The previous mayor from Fidesz, András Mészáros T. stated that there were no irregularities in the evaluation of the application. However, the Ministry of Finance examined the  300 million HUF construction tender for the kindergarten in Fácán Street and found that the municipality of Érd had seriously violated the public procurement law in 2017, so they made them to repay 25 percent of the total amount, i.e. 70 million HUF.

However after the municipal elections, this became the problem of the newly elected mayor from the opposition, as he also inherited these „debts”.

There was no real competition

The Act on Public Procurement states that contracting authorities should take all necessary measures to prevent conflicts of interest and avoid any distortion of competition, which can happen if there is a suspicion for collusion between the tenderers and/or between one competitor and the authority.

When the public procurement doesn’t reach 300 million, it is not necessary to announce the tender publicly, which means that the contracting authority is free to invite several companies to participate. In the case of the kindergarten construction, from the five invited participants finally two companies submissed a tender: Generál-Invest Bau Kft and RO&MI VILL Kft. The first company was much more promising, with a net sales of 650 million HUF and a profit of HUF 28 million in 2016.

Another reason for that is that its competitor (RO&MI VILL) has made an offer of 306 million HUF, which exceeded the value limit with 6 million HUF. What is more, the reports that the company made in 2016 aren’t very convincing: after a net sales of 5.5 million, they earned an after-tax profit of 440,000 HUF. In addition, it had only one employee that year.

Because of this, the Ministry of Finance expressed that “bid rigging may have arisen on the part of RO&MI VILL Kft.” This is a typical form of malpractice, in which in which competing parties collude to determine the winner of a bidding process. It is also common that the winner involves the other competitor to the work as a subcontractor.

Same subcontractors all over again

This is not the only strange thing in connection with the procedure. According to a document from the Ministry of Finance, the two companies (RO&MI VILL and General-Invest Bau) identified exactly the same subcontractors in their tender dossiers. Of course it doesn’t mean that it was an intentional violation of the law prohibiting conflicts of interest. However, it is also true that the former mayor and his team should have noticed the contradictory circumstances and should have stepped up against it.

However, the catastrophic legal collapse of the public procurement procedure on Fácán Street occurred on 15 February 2017, when the winning bidder, General-Invest Bau has announced its intention to involve its former “rival”, RO&MI Vill Kft., in the construction works as a subcontractor, which is clearly prohibited by the law.

Outstanding success

The background of General-Invest Bau is also interesting: the company has achieved impressive business success in recent years. The mayor from Fidesz, who led the city between 2006-2019 has treated this company (which can be linked to the former deputy mayor, István Bács through family ties) with special attention, this is why it managed to win public procurement procedures worth more than 1 billion HUF in 8 years.

The impressive success of the construction company can be seen when we look at its results from 2019: with a net sales of 1.7 billion, the company – with an average of 14 employees – has made 727 million HUF profit after tax. In the same year, the profit-to-sales ratio of General-Invest Bau Kft. was 42%, which is remarkably high.  According to surveys made by the organisation of construction contractors, the average profit rate of the entire sector was around 8 percent, and it also includes companies which are close to the government. This means that General-Invest Bau has achieved a tenfold increase in its profit rate in comparison with the ordinary firms which have no connections to the government.

The mayor is considering a lawsuit

The opposition leadership of Érd consider it unfair that they are the ones who has to pay for the mistakes of the the previous municipality. Mayor László Csőzik stated that they have started preparing lawsuits against General-Invest Bau and RO&MI VILL, and they are also considering filing a criminal complaint if they refuse to contribute to the 70 million HUF repayment. In the meantime, the two companies involved in the case didn’t bother to comment on the suspicious conditions of the public procurement.

Translated by Zita Szopkó. The original article was written by Zoltán Kis and can be found here.

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