Friday 2 December 2022

What can MOPT do with its key works if Meco and H Solís go into insolvency?

The construction companies Meco and H Solís, investigated in the ‘Cochinilla’ case, have in their portfolio several of the main projects of the State

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2 December 2022 - At The Banks - BCCR

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QCOSTARICA – The ‘Cochinilla’ case, as the judicial investigation into alleged bribes by construction companies to public officials to benefit primarily from public infrastructure works, could cause pauses, suspensions or deterioration in strategic State works managed by companies that are currently being investigated, like the giants Meco and H Solís.

Barranca-Limonal section of the Ruta 1, as US$182 million dollar project is under development by the H. Solis company

Reputational blows from ongoing investigations could weaken companies financially and make it difficult for them to meet their contractual obligations; To which is added that the Minister of Public Works (MOPT), Rodolfo Méndez Mata, has already assured that they will not be assigned new contracts, nor will the road maintenance contracts be extended.

Lawyers specialized in Administrative Law assured El Financiero (EF) that the abandonment of works due to insolvency is a practice that already occurs in public management, either because companies make their financial problems public (in a minority of cases) or because they begin to default contracts and the state must then take them away.

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While EF did not get a prompt reply from the MOPT minister, asked on measures taken by the MOPT to guarantee the continuity of the works in process since June 28, the companies Meco and H Solís responded to this medium that they work “normally”. For the moment.

The works

Meco and H Solís develop – alone or in consortium with other companies – a large number of the major works currently being built in the country. They are two giants in the construction of road works in Costa Rica and they even manage works outside of the country.

Meco has been awarded the rehabilitation and expansion of the old bridge over the Virilla river, parallel to the new structure of the ‘Saprissa’ bridge, inaugurated in September of the previous year, although the works have not yet begun.

It was also recently awarded the design and construction of a vehicular overpass in Hatillo 4.

H. Solís, for his part, is in charge of the construction of the Circunvalacion Norte (North Ring Road) from Calle Blancos to La Uruca, the expansion works in Barranca-Limonal  (Ruta 1) and La Angostura (the road that lead into Puntarenas city); two phases of the Obras Impostergables (OBIS) project on the route that connects San José with San Ramón, and the overpasses in Taras and La Lima, at the entrance to Cartago.

Most of these works are financed with resources from international entities and together are around US$800 million.

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They all in different levels of advancement.

Pause risks

So far the judicial process itself has not implied the pause of any business operation for precautionary measures, but this is not the only scenario in which companies could, specialists in Administrative Law agree on the feasibility of company declarations that fall into Problems of economic solvency are separated from works that were awarded to them.

“This is not new, it happens that the contractor says that for ‘x’ reasons he does not have the possibility or in others he does not express it, but there are non-compliance and the administration can react,” said lawyer Esteban Alfaro.

This reaction of the State could imply taking charge of the works, carrying out an emergency contracting to finish the unfinished parts of the contract or that, in the case of consortia, could supplant the company that does not comply with another that can assume its tasks.

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Consortia are widely used in Costa Rica. The contracts of H Solís for Circunvalación Norte and for the overpasses in Cartago are carried out together with the Dominican firm La Estrella; while the OBIS are developed in conjunction with the Spanish TPF Gentisa Euroestudios.

Meco, on the other hand, is working on the rehabilitation of the ‘Saprissa’ bridge in conjunction with the Spanish company Puentes y Calzadas.

The solution that is taken in each case, Alfaro assured, will always depend to a great extent on the levels of progress of the works, since the State does not usually have the resources to undertake large works on its own.

A formal declaration of bankruptcy or insolvency by a contractor company, Grant Thornton legal manager Ivan Vicenti added, will always lead to a contractual resolution. This is established in article 75 of the Administrative Contracting Law (7494).

In those cases, Vicenti recalled, compliance guarantees that are part of the contracts with the companies can also be executed. However, in practical terms, this does not guarantee the continuity of the work.

The State must also claim and request compensation for damages, but the payment of these will ultimately depend on whether the damages actually occurred due to the fault of the company and the ability of the company to cancel the claims, Alfaro recalled.

Claims for compensation for contractual breaches have a statute of limitations of 10 years in cases of public works, for possible hidden defects in construction.

Companies that breach contracts can be disqualified for up to ten years if serious breaches are detected, through a recent legal amendment.

Both lawyers spoke about general public procurement cases. They did not make direct allusions to the hiring of Meco and H Solís, whose judicial investigation is ongoing.


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