71% complete — and terminated. Infrastructure is no longer ‘too big to fail’

PKP PLK’s decision to terminate the contract for the Łódź cross-city tunnel is an unprecedented event in the recent history of Polish infrastructure. Breaking a contract at such an advanced stage (over 70% physical progress) is, in contract engineering terms, a boundary situation — a point at which standard risk-management procedures stop being sufficient.

For 15 years, working within the structures of leading infrastructure companies, I have repeatedly managed crisis situations. I know what the Legal Directors and Management Boards of the companies involved are facing right now. This is not a time for theorising. This is a time for “Legal Crisis Management”.

At Hoogells, we analysed this case through the lens of litigation strategy. Where are the real turning points in this dispute?

A shift in the risk vector: Finance vs. Safety

Terminating a contract at 71% completion is, in project management theory, the most difficult decision. Usually, thinking is dominated by “sunk costs” and the conviction: “we’re too far in to turn back.” PKP PLK has broken that pattern.

The tenement-house disaster at al. 1 Maja changed the risk vector from purely financial to reputational-and-criminal. For the marketor the market, this is a powerful signal: safety (and PR) are starting to outweigh the schedule. If your construction site poses a real risk of a structural disaster, no deadline extensions by addendum will save you.

A geotechnical risk audit must be a continuous process, carried out throughout the entire duration of the contract, not merely an element of the tendering stage. A lawyer must work closely with an engineer here — clauses will not hold up sinking ground.

Inventory-taking in the shadow of the TBM: A race for “State Zero”

From the Investor’s perspective, termination is a “surgical cut.” From the Contractor’s perspective, it is the beginning of evidentiary chaos. In an underground project executed using the TBM method, the greatest challenge is not stepping off the site, but precisely separating what has been completed from what requires repair.

We are entering a zone of enormous risk, which I call the “successor trap.” A TBM is an underground factory. Once the machine is stopped and the contract is terminated, the Contractor loses control over ground and lining parameters. If, in six months’ time — during the standstill — ground settlement or segment (tubing) leakage occurs, the Investor will automatically attribute it to workmanship defects of the original Contractor. The new company that comes in to complete the works will adopt a logical strategy: maximise the scope of “remedial” works and minimise the scope of “completion” works.

In such a situation, a paper protocol is fiction. The only way to protect the margin is immediate evidence preservation with the participation of an independent expert, and creating a digital twin of the as-built condition (drones, 3D laser scanning). We must “freeze” reality before it is overwritten by the successor.

Direct payments: The Investor’s “generosity” with your money

PKP PLK is boasting in the media about paying PLN 250 million directly to subcontractors. In news services, this sounds like a success. But for the General Contractor (GC), that message sounds like a grenade being unpinned.

The mechanism of joint and several liability, in the context of contract termination, turns into an uncontrolled drain on the Contractor’s wallet. Why?

• The Investor wants to avoid protests, so it pays fast and with a broad gesture. But it pays out of your remuneration pool.
• At the same time, the site team is being demobilised. There is no one to verify thousands of invoices. A competence gap emerges.
• In the chaos, Investors accept disputed claims, inflated measurements, or pay for defective works. Then they set those amounts off against sums due. The Contractor wakes up with a cleaned-out balance and a pile of recourse claims that are hard to recover.

At the termination stage, the in-house legal department cannot be left alone. The key is to bring in an external team of “claim auditors” (Claim Auditors) to create a tight verification sieve. Every zloty paid by the Investor without the Contractor’s hard verification is a loss the Contractor will likely never recover.

Guarantees — a standard tool that requires a new tactic

Finally, an issue that for all of us managing contracts is daily bread: performance guarantees. We know the Investor will reach for them. The question is: how do you prepare to recover them? In the Łódź case, the crucial element will be the causal nexus. To what extent were the problems with the tenement houses a Contractor risk, and to what extent an Investor risk? The fight to recover funds under the guarantee will require proving that the termination lacked substantive grounds in the context of unforeseeable ground conditions.

Summary

The Łódź tunnel case is redefining the concept of risk in public contracts. At Hoogells, we believe the role of external counsel is evolving. We are not here to teach you procedures you have known for years. We are here to bring a fresh perspective, processing capacity, and a “cool head” that is often missing at the centre of the cyclone.

I invite discussion. In your view, will prioritising safety over the schedule become a new standard in case law in construction disputes?