The Prosecutor’s Office of Bosnia and Herzegovina (BiH) is looking into some of the business dealings of Integral Engineering, which has grown in 19 years from humble beginnings in Laktaši into a conglomerate the Republika Srpska (RS) Chamber of Commerce named the ‘most successful construction company’ of 2007.
Officials will not describe the nature of their investigation, but they are likely to be, at least in part, looking into the relationship between the government of Milorad Dodik, a Laktaši native, and the striking success of Integral. The office was closed for a summer break in August so that no immediate action is expected.
Since 2000, Integral has done more than 300 million KM worth of public works projects, including roads, bridges and buildings in BiH. In many contracts over the past eight years that the Center for Investigative Reporting in Sarajevo (CIN) has reviewed, RS and Banja Luka authorities have given the company special treatment while overlooking omissions in its work.
RS auditors repeatedly have pointed out irregularities in the awarding of contracts to Integral. In their most recent report, they chided Banja Luka officials for improperly barring firms with less than 15 million KM in annual income from bidding on the rehabilitation of an Olympic-sized pool and recreation complex that is to be completed this fall. This cleared the way for Integral, one of only four bidders, to win the 14.9 million KM contract. Integral should have been disqualified from consideration, auditors said, because it failed to submit some of the required paperwork. And the auditors criticized city officials for not seeking an explanation for what they saw as an unusually low bid from Integral. It was nearly 5 million KM less than the highest bid.
But controversy, investigations and bad auditor’s reports have not kept the company from getting new business.
In May, Putevi RS awarded Integral, the low bidder over two competitors, a 71.8 million KM contract to repair and restructure the landslide-prone Gacko-Foča Road at Čemerno. The project, expected to take until 2011 to complete, entails building a new roadbed plus two tunnels, five bridges and a viaduct, 74 culverts and 20 retaining walls. The road, a potential tourists’ gateway to the Sutjeska National Park, has been a problem for 11 years and the Dodik government has made its upgrade a priority.
In March, Integral was the sole bidder for another Putevi RS contract worth more than 73,000 KM to repair a bridge over the railway in Novi Grad. Putevi RS has thus given two of its three contracts of the year so far to Integral. The third was for winter road maintenance, work Integral doesn’t do. In 2007, all Putevi RS contracts for a half million KM or more went to Integral.
Also in May, Integral broke ground in east Sarajevo for a new building for the State Agency for Investigation and Protection (SIPA) that will cost 18.6 million KM.
Integral director general and co-owner Slobodan Stanković, acknowledging that he has been contacted about an inquiry, said that SIPA still could not refuse Integral’s offer.
‘They can’t act like that, to refuse me if I am the cheapest’ he said. ‘Somebody would go to prison, if he would award it to somebody else and I have the best bid.’
Oddly, SIPA itself, under prosecutors’ orders, is investigating construction of the new RS administrative headquarters, an Integral project. ‘We got a letter of request, in order for them to check if there is any basis for indictment’ Stanković said in an interview earlier this year. He showed CIN the pile of folders his staff had prepared for the prosecutors.
The RS Administrative Headquarters
The controversial deal over the RS headquarters began as a 34 million KM contract Integral signed in 2005 to put up a building for Telecom RS. In working out the privatization of Telecom RS, RS government officials did not include the building. Instead, officials took it over in exchange for dividends owed it the government as a shareholder in the utility and added it to its headquarters plans. Telecom RS, according to Stanković, had already paid off about 10 million KM in building costs.
In 2006, Dodik made the contract and all details about the headquarters secret. The prime minister may bypass state public procurement law that requires transparency in the case of certain projects vital to the interest of the public. What is known about the headquarters is that the project went from one building to two, plus interior and exterior detailing and other financial arrangements that swelled the price nearly six times to 202.4 million KM.
Stanković and an old classmate, Fatima Fetibegović, now the RS Minister for Planning, Construction and Ecology, signed a multi-part annex to the Telecom RS contract last year that provided Integral another nearly 50 million KM in furnishings and interior design, 14 million KM for a fountain and exterior details and 11 million KM in other extras, all without new bidding.
And in another twist, Dodik signed an additional contract with Integral in 2006 to take over a building Integral was constructing for itself near Telecom RS. The plan was to make this an office-apartment complex for RS ministers. The government agreed to assume the 50 million KM loan Integral had on the structure through NLB Development Bank of Banja Luka.
Stanković told CIN and auditors confirm that the government further agreed to take over a second Integral loan with Hypo Alpe Adria Bank. He calculates the government’s total investment in its administrative complex at 170 million KM, but that does not include the cost of interest on these assumed loans.
Had the government refused to take over its bank debts, Integral could have faced a severe cash crunch. Integral was beholden under threat of penalty to pay Siemens and other suppliers for subcontractor work on the complex.
Chief RS auditor Boško Čeko is suspicious of the government deals with Integral.
‘It seems to me that he’s got work lined up for him for the next five, six years. That’s the point. And no one else can get a contract.’ Čeko worries about whether a company stretched so thin has the resources to finish all the jobs it has in progress.
Stanković said the firm is at ‘the end of the rope’ but has the capacity.
Čeko said the contracts Integral signs look at first glance like losers, but after several years they turn out to be excellent business moves.
‘Say, when the land contract was negotiated, there was no zoning permission, no partition of the land. When someone was thinking of giving away contracts, they already had certain connections in their heads and nexuses that can affect someone who will be partitioning, who will be giving zoning sites etc’ the auditor said. To get a construction permit anywhere in BiH can take as much as a year.
‘If I had been a prosecutor, I would have connected the dots’ Čeko said.
But Dodik is a champion of Integral and defends his government’s deals with it.
After hearing from the government, the RS Assembly concluded last fall that, ‘The building of the government seat was a wise move from a political standpoint and it was justified from an economic standpoint’ he told the RS Assembly last fall. Consolidating government agencies would save 4.5 million KM a year in rent, he predicted.
Ignore the Rules
Integral seems not to have to play by the rules of state law.
It was one of 10 bidders out of 17 on a tender in 2002 to construct a Banja Luka sewage collection system who failed to submit licenses required by city administrators. By law it should have been disqualified, but an Integral representative asked that his bid be allowed, saying he would submit proof from the RS Ministry of Planning, Construction and Ecology that it had alternate licensing. The city allowed Integral and one of the other 10 bidders to remain in the contest and it eventually awarded the 825,000 KM contract to Integral.
In another example, state public procurement law forbids the signing of annexes that raise the value of a contract by more than 50 percent. When revisions of project plans that extensive are needed, whole new tenders are supposed to be drawn up and publicized.
In 2001 Integral won a contract to do 264,000 KM worth of work to the exterior of the RS Railways station in Banja Luka. An annex for additional work, however, raised that price by almost 869, 000 KM.
In 2002, the company submitted the lowest bid and won a contract to construct a section of the Gradiška-Banja Luka highway for 43.4 million KM. But in 2006 it submitted an annex for 21.7 million and in 2007 it submitted another annex for 44.8 million. The total cost of the section rose to nearly 110 million KM.
RS Minister of Traffic and Communication Nedeljko Čubrilović signed the additional work orders with Integral and Dodik’s government approved payment. Čubrilović says that the fact that two tunnels and four bridges are contained in the price must be taken into account.
But auditors complained that the original contract listed all those structures, so that there was no justification for such a huge increase in price.
Stanković said his firm submitted annexes when workers encountered unexpected work. In the case of the road, he said, his employees found out after the contract was signed that RS officials wanted the stretch of highway to conform to high European standards.
‘That means that there have to be sidewalks on the curb, asphalt construction has to be changed, to make certain ecological protections, to introduce 5.7 additional kilometers of sewers with special waste water separators, in order to prevent pollution of the field, and so on, and so forth’ he explained in a interview at his office across the road from the new RS government complex.
Stanković should not have been surprised by the higher standard.
The shape of the highway through the RS was influenced by the Council for Initiation, Monitoring and Coordination, of which Stanković was a member.
The government started the group in 2002 at the suggestion of then RS Minister of Traffic Branko Dokić. It was composed of officials from the traffic ministry, the Geodesic Institute, the Institute of Urban Planning, and Stanković, the lone potential bidder among them. Dokić said he saw no conflict of interest with Stanković serving on the council while his company won contracts the council had influence over.
Čubrilović, his successor in the minister’s post, called it ‘a classic conflict of interest’ but said he didn’t know Stanković had been a council member.
After Integral got the contract, Stanković resigned and the council itself soon stopped functioning. ‘My role was fulfilled’ Stanković said.
In addition to not abiding by rules, Integral and affiliated companies have not been faulted or penalized for failing to complete work within deadlines.
For example, the contracts for construction of the first section of the Gradiška-Banja Luka highway and the construction of the RS Radio and TV building were signed in 2002 and both were unfinished months after their original deadlines.
Always Put in the Low Bid
As Stanković acknowledges, Integral’s winning strategy for getting contacts has been to always be the low bidder. That does not mean it always collects low fees.
Integral won 13 contracts from Banja Luka between 2001 and 2007.
In all but five, which themselves were worth nearly 28 million KM, the firm later submitted annexes that raised its low base prices. In four projects it submitted two annexes. In all, the firm collected some extra 1.2 million KM through annexes from the city.
In another example, Integral submitted two different bids for a second phase of the Banja Luka sewage collection system. The government awarded it the contract — at its higher bid price of 4.5 million KM. In 2006, the Department of Utility and Housing for the city asked the city Finance Department for an additional 350,000 KM worth of work on the project for Integral. Approval was granted the same day the request went in. A formal annex was only filed later.
In 2002 an Integral subsidiary won a 4.4 million KM tender to construct a building for Radio and TV RS (RTRS). Auditors found multiple problems with how this came about, but in the end Integral, actually the highest bidder in this instance, wound up with a highly advantageous deal that the government didn’t let the other bidders in on. In exchange for putting up a new building plus repairing two others, the government agreed to give Integral central city land. Five years later, the terms of the deal changed and Integral then was offered even more land, plus the right to construct its own building next door to an RTRS building that has yet to be erected.
In one case that RS auditors have raised questions about, Integral offered 1.4 million KM in 2002 to build a customs terminal in Gradiška. It then signed a contact that stipulated the price as 1.8 million KM. Integral sprung a second surprise on the government as well, demanding an advance payment before it would begin working. This was a condition Integral had not mentioned in its bid, the auditors noted.
The SIPA Building
In May, when ground was broken for the SIPA building, BiH auditors came out with a report faulting the awarding of the SIPA contract to Integral.
Six bids came in for the project, but one was late and disqualified. Two bids, including one from the only international company to compete, were disqualified for not meeting engineering or technical requirements. And only two firms, Krajina of Banja Luka and Integral, were evaluated as meeting the financial requirements.
Integral’s winning bid was nearly 8 million KM less than Krajina’s.
The auditors also found that international competitors may have been unfairly held to requirements that really only fit local companies. For example, they were required to submit proof of payment for their workers into BiH health and pension funds.
Strabag AG of Austria protested its disqualification, but in vain.
‘All we know for sure’ said Strabag board member Herbert Krutina, ‘is our bid has been disqualified by the commission because of reasons we do not know. We felt this decision was unjustified, we appealed against it and failed.’
Integral Engineering has done work since 2000 for the following:
- RS Government
- European Commission
- World Bank
- PID- transport Banja Luka
- World Vision
- Putevi RS
- Electrification RS
- City of Banja Luka
- European Agency for Reconstruction
- RS Airports
- P.E. Railway Communications of RS
- Ministry of Defense of RS
- Montenegro Ministry of Maritime Affairs and Transport
- BiH Railways Public Corporation
- RS Ministry of Internal Affairs
- RS Ministry of Transport and Communications of RS
- Parsons Delaware