ECB Headquarters: Skyrocketing Costs for Skyscraper Project

By Andreas Wassermann

Photo Gallery: The ECB's New Headquarters in Frankfurt Photos
DPA

Estimated costs for the European Central Bank's new headquarters in Frankfurt have more than doubled. As has been happening with so many major projects in Germany, its construction has been plagued by poor planning, oversight and execution -- and endless delays.

Rain was falling on Frankfurt's Ostend neighborhood as financial managers and local officials drove past dark corner bars, betting offices and the Amor sex shop to the site of the future headquarters of the European Central Bank (ECB).

It was May 19, 2010. Jean-Claude Trichet, the ECB's president at the time, had invited his guests to a dicey part of the city for the groundbreaking ceremony. They gathered in front of the building pit, from which a futuristic tower was to arise: an architecturally thrilling, 45-story skyscraper, a symbol of the power of Europe's shared currency.

A few euros were ceremoniously buried with the cornerstone. Trichet declared that his bank's policy of carefully managing its money would also apply to the construction of the new headquarters. "We must ensure that construction costs remain within the estimated budget," Trichet said.

Three-and-a-half years later, in the fall of 2013, there is a different reality in Frankfurt's Ostend district. Instead of the estimated cost of €850 million ($1.15 billion), the entire project will now cost at least €1.15 billion and could even eventually climb to €1.3 billion. Originally, the costs for the structure were not to exceed €500 million.

The ECB has also had to postpone its move. Originally scheduled for completion in 2011, the building is now not expected to be ready for occupancy until at least the end of 2014.

Luxury in an Age of Austerity

Once again, a major German construction project is spinning out of control -- like the new airport in Berlin and Hamburg's Elbphilharmonie concert hall. And, once again, the owner of the property, a public body, is trying to blame the delays and cost overruns on external factors. At last year's topping out ceremony, Jörg Asmussen, a German member of the ECB's executive board, said that general "price increases for building materials and services" were at fault.

In truth, the delays and cost overruns for the ambitious new headquarters building result from the fact that former ECB President Trichet and his staff set budgets that were far too low -- and therefore unrealistic -- and from their decision to oversee the project themselves rather than hiring a general contractor. In an audit performed before construction began, the European Court of Auditors concluded that there were cost-control problems and little transparency in the awarding of contracts.

The demands of the project's European managers were apparently as sky-high as the new tower. Vienna-based architect Wolf Prix and his firm, Coop Himmelb(l)au, had designed the building as two twisted towers connected by hanging gardens, made almost entirely of glass and steel. The skyscraper looks more like a giant sculpture than an office building.

With a number of euro countries groaning under their debt burdens, provoking angry protests from Greece to Portugal, the aesthetics and features of the ECB tower seem oddly inappropriate. Do the taxpayer-funded central bankers really need a headquarters building that is 30 meters (98 feet) taller and twice as expensive as the twin towers of Deutsche Bank, Germany's largest bank?

When the monetary watchdogs move into their new home, their offices are likely to be among the most expensive in the euro zone. As the complex will house about 2,000 employees and cost more than €1 billion to build, each workspace will be worth about €600,000, or as much as a very comfortable single-family home. In commercial real estate, €30,000 per desk space is usually considered "upscale."

A virtual tour of the future headquarters, which can be found on the bank's website, offers a look into the ECB's beautiful new world. A visitor approaching the building from the banks of the Main River enters a tall atrium made of steel, glass and pale stone surfaces. People shrink to the size of mice within the atrium. In the animation, the camera breezes past hanging gardens and giant steel beams that support the two halves of the building. There are substantial offices with floor-to-ceiling windows. The high point is the large ECB assembly hall for the ECB Council, under a glass dome on the 43rd floor, 150 meters above the ground. It's the kind of space that might accommodate a global government in a science fiction film.

This is where the animation ends, and the president's offices on the top floors are not depicted. Nor is the exquisite eatery on the 45th floor, which will be reserved for the ECB's top executives as well as the finance ministers and leaders of the euro-zone countries. An ECB spokeswoman describes the top floors as "functional premises where meetings and dinner discussions will be held."

Conceived in a Time of Change

Prix, the architect, was initially working under ideal conditions. When he began developing his designs, the Europeans were still proud of the euro and dreamed that it could one day supplant the US dollar as world's reserve currency of choice. There was still plenty of money and ambition to go around. Prix was thrilled that his client had not made any attempts to trim his plans. "This will be a symbol of the European Union," he raved in 2009. Four years later, the building has become a symbol of waste and inadequate control.

Europe's monetary watchdogs had long cherished the dream of having their own, prestigious headquarters. When the ECB was founded in 1998, they initially occupied a 40-story building on Willy-Brandt-Platz in downtown Frankfurt. But they never felt truly at home there. The building exuded the charm of the 1970s and had previously been occupied by the union-owned Bank für Gemeinwirtschaft -- not exactly befitting the social status of self-assured central bankers.

The first ECB president, the now-deceased Dutch politician Wim Duisenberg, backed the idea of building a new headquarters. In early 2002, just in time for the euro's introduction, the bank acquired a piece of land from the city, the site of the former Frankfurt fruit and vegetable market, for about €60 million.

A few months later, the ECB announced an architecture competition for its new headquarters. The jury of top experts liked Prix's avant-garde designs the most. Two years later, when Trichet had already assumed the presidency, Prix was awarded the project after making several revisions to his original design. The plan also called for the bank tower to be built with a general contractor, as is usually the case with such major projects.

But the call for bids was suspended in 2008, after it became clear that no European construction company was willing to realize the project for the official budget of €500 million. The targeted opening date in 2011 no longer applied. And according to industry sources, only one company, Züblin AG, part of the Austrian Strabag group, had submitted a concrete bid. Züblin had allegedly estimated the total cost at €1.3 billion, or exactly the amount that the project could end up costing today, a few years later. The bank declined to comment.

Mistakes and Suspicions

Just as politicians in Berlin and the surrounding state of Brandenburg had believed in the case of the new Berlin Brandenburg Airport, Trichet and his fellow central bankers were convinced that they could bring down the cost of the project if they managed it themselves. The contracts for structural work, building technology and interior fittings, for example, were divided up and put out for tender separately. Drees & Sommer, an engineering firm, was to manage the bidding process for the bank and then, as project manager, supervise the planning and construction work. Engineers performed a similar function in the development of the Berlin Brandenburg Airport.

One of the project managers' key responsibilities was to find an architecture firm to handle construction management, since Prix and his partners were only in charge of the creative design. The contract was awarded to the construction management firm Gassmann + Grossmann. There was only one problem: Drees & Sommer held a 39-percent stake in the Stuttgart holding company that owns Gassmann + Grossmann.

The questionable arrangement soon attracted the attention of the courts. A company that had participated in the bid and lost had submitted a complaint to the European Court of Justice, in Luxembourg, in November 2009 and had filed for damages against the ECB. The bank, the company argued, should have excluded Gassmann + Grossmann from the bidding process on account of "a possible conflict of interest."

This was not implausible given that project managers are supposed to supervise the work of the architects and ensure that costs remain within the established framework. And, or course, this becomes difficult when the two sides have common economic interests that do not necessarily coincide with those of the client.

Nevertheless, this didn't trouble the monetary watchdogs, who had no experience in building skyscrapers. In court, they admitted that they had been aware of the special relationship between their project managers and the architects, and that after reviewing it carefully, they had not felt that it was a problem. According to legal documents filed by their lawyers, the bank's independent construction experts had examined the Gassmann + Grossmann bid and concluded that it was the most convincing one. Drees & Sommer was supposedly not involved in the decision.

However, the ECB lawyers' argument did not seem very credible to the judges in Luxembourg because the bid submitted by the defeated competitor was significantly cheaper. Had the bankers allowed themselves to be bamboozled? The court recommended that they settle with the claimant to avoid an embarrassing trial.

This prompted the ECB to pay about €300,000 to the claimant at the beginning of this year. Officially, the payment was for lost earnings; but, in reality, it was more like hush money. The settlement included a non-disclosure clause.

"At the request of the claimant, and in the interest of both parties, the legal dispute was settled by mutual agreement," says an ECB spokeswoman.

Muffled and Costly Disputes

Meanwhile, work progressed in Frankfurt. Baresel, a mid-sized construction company from Württemberg, in southwestern Germany, had assumed responsibility for the structural work. The foundation was poured, and a two-level underground garage was built. But it wasn't long before the first technical problems surfaced. For instance, the ventilation shafts were apparently too small or had been forgotten altogether.

Were the problems the result of Baresel's sloppy work? Or had the construction management firm, Gassmann + Grossmann, supplied it with faulty plans?

But then another dispute erupted. First the ECB fired Baresel, and then it reached a settlement with the company that included a non-disclosure agreement. Neither Baresel nor the management of Gassmann + Grossmann is willing to comment on the matter.

The dispute centered on an increase in the civil engineering costs, from €20 million to €30 million. It was a relatively minor spat, but it had major consequences. After the engineering portion was complete, Baresel's involvement came to an end. To avoid losing even more time, the ECB opted not to call for new bids. Instead, it awarded the construction contract to Züblin AG, the company that had originally offered a turnkey price for the entire new ECB headquarters building of €1.3 billion.

At the topping out ceremony last year, the bank, now headed by Mario Draghi, confirmed that costs for the project had risen by €350 million. The building's skeleton was said to have cost €70 alone.

The costs have probably grown even higher since then. So far, the monetary watchdogs have failed to convincingly explain to the public why their estimates were wrong. Likewise, the ECB, which likes to insist on its independence, has not presented any prognosis of expected future costs. The annual reports it sends to the European Parliament contain only cryptic information, in small print, on the new building.

At any rate, the part of the building that will open to the public became significantly more expensive than originally estimated. A visitors' center with an exhibition hall and restaurant is being built in the old market hall at the base of the tower. The reinforced concrete structure from the 1920s is popularly known as the "Kappeskathedrale," which translates as "Rubbish Cathedral" or "Nonsense Cathedral."

Translated from the German by Christopher Sultan

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