Local councils face bankruptcy on IT contract small print

At least two dozen local councils face the threat of bankruptcy because mayors rushed to sign a contract with a “ghost” IT company registered in Hargita/Harghita County. The mayor of Maroskece/Chețani, Maros/Mures County, had signed a contract with the company in 2008 for IT services, Web design and other software services for a monthly fee of EUR 99 (via Székelyhon).

The mayor apparently failed to read the agreement in full, as it contained two major caveats that have pushed the local authority to the brink of bankruptcy: (1) interest for late payment is 1.19 percent per day, and (2) while the contract was originally signed for five years, it included an automatic extension for another five years if the local authority did not notify the company in time.

The company, which allegedly operates under the name of Impact Com SRL, filed a lawsuit against the local Maroskece Council to obtain the originally billed amount of RON 70,000 plus interest of RON 2 million. Since the mayor’s office wasn’t able to fulfill its obligation to pay the outstanding balance, the IT company is forcing it to do so via the commercial court, managing to even block the council’s bank accounts for a few months.

Romanian newspaper Adevarul looked into the matter and found that at least 25 local councils are at risk of bankruptcy, just as in Maroskece. Their situation is similar, as the IT company has turned to the courts in each municipality to claim the billed sums plus interest.

Now, the Maroskece Mayor’s only chance of keeping the cash flowing is in the hands of the commercial court, which may delay the forced execution. If not, the local council won’t have enough cash to pay for the heating of schools and kindergartens or for tap water and street lights.

Author: István Fekete