Uff: Udecott operated by its own tender rules

A scanned copy of Uff’s 512-page report, bearing Uff’s signature and the signatures of commissioner Desmond Thornhill and commission secretary Judith Gonzalez, was obtained by Newsday and published exclusively on Easter Sunday April 4, 2010.

The Report will be laid in the Senate today.

EXECUTIVE SUMMARY

1. The mandate of the Commission is to enquire into particular aspects of the Construction Sector in Trinidad and Tobago, including the practices and methods of Udecott, and to make recommendations and observations (in summary) to promote (a) value for money, (b) high standards of workmanship, (c) free and fair competition and (d) integrity and transparency. By successive additions, the mandate of the Commission has been expanded to include (e) contractual issues and (f) performance issues in relation to the Cleaver Heights Development Project. This Executive Summary addresses the principal issues dealt with in the Report.

Procurement practices

generally: Issue (I)

2. Procurement practices in the public construction sector concern the operation of a number of legal entities which undertake public construction projects on behalf of the Government of Trinidad and Tobago and which have been set up in different ways. These entities are variously referred to as “special purpose companies” or more simply “Government agencies”. They all have in common the objective of freeing them from the constraints which otherwise apply to the undertaking of works or services by the Government by virtue of the Central Tenders Board legislation, which is universally perceived as imposing unnecessary constraints and bureaucracy, leading to delay and inefficiency. While the Central Tenders Board remains in operation as a safety net, its provisions are now very largely circumvented by the Government agencies. The most prominent of these, dealing with urban development, is Udecott, whose practices and methods of operation are considered separately.

3. The common legal structure which has been adopted for most of the Government agencies is that of a private limited company whose shares are held by the corporation sole. Each agency thus operates in accordance with company legislation through a Board of Directors and Secretary. The activities of the companies are broadly defined and include a wide range of commercial activities. The principal function of each company is, however, to undertake projects on behalf of specific Government ministries pursuant to a contract or arrangement under which the company is paid a fee for what is typically described as “project management”. Through these means (and others) the companies acquire capital with which they operate commercially, employing appropriate staff for the commissions which they have undertaken.

4. Particular companies which have been the subject of the Inquiry include the National Insurance Property Development Company (NIPDEC), the Housing Development Corporation (HDC), Estate Management and Business Development Company (EMBD), the Education Facilities Company Ltd (the EFCL) and the Rural Development Company of Trinidad and Tobago (Rdecott). Most of these have been established only since 2002. NIPDEC, however, has a much longer history, going back to the 1970s; and HDC, while established as a statutory corporation in 2005, replaced the former National Housing Authority.

5. The Commission has examined the procurement practices of these and other Government agencies, particularly Udecott. One notable feature is that each of the agencies operates its own procurement practices and tender rules, which can be seen to differ, sometimes in important respects. No good reason has been advanced for such diversity. While there may be reasons for differences to exist, there ought to be a presumption that rules and procedures of all Government agency companies should follow the same pattern unless good cause exists for adopting different rules. Particular areas in which uniformity would be of advantage include:

(a) The circumstances in which either open tendering or selective and pre-qualified tendering should be adopted;

(b) The circumstances in which sole selective tendering is permissible;

(c) Procedures and criteria for assessment of tenders and making recommendations for award.

6. In 2005 the Ministry of Finance issued a standard procurement procedure for State enterprise bodies which was intended to apply to all State agencies. While steps were taken to promulgate this document with a view to its general adoption, the new procedure was adopted by some agencies and not others. There can be no doubt that a universally applicable standard procurement procedure would benefit the whole public construction industry, including its principal client, the Government. We recommend that the rules should be revised in the light of this report and further attempts made to secure its universal acceptance.

7. There is, in relation to Udecott and potentially in relation to other Government agencies as well, a problem of securing adequate transparency in terms of the applicable procurement rules, particularly dealing with the topics already mentioned. The adoption of a general and universal procedure would greatly aid the achievement of transparency.

8. Another aspect of transparency is the extent to which Government agencies are subject to control and direction of Government or individual ministers. This topic has been examined specifically in relation to Udecott but it applies universally. In regard to a statutory corporation, such as HDC, the statute itself empowers the minister to give instructions. In the interests of good management, as well as transparency, this relationship needs to be clarified and Ministers given an express power to give instructions.

9. Other issues, which concern procurement practices and performance within the public construction sector generally, include broader transparency issues, legal issues (contracts and dispute resolution), management issues, particularly problems of poor performance, and planning and other regulatory issues. These are dealt with later in this summary.

Provisional sums: issue (ii)

10. The use of prime cost sums, provisional sums, nominated suppliers and contractors has been inherited from UK practice, and understandably persists among more senior members of the local construction industry. However, it is also to be noted that current practice in Trinidad and Tobago is both widely varied and has not necessarily kept pace with developments in UK and other countries with major construction industries. Thus, the use of prime cost sums and “nominated” specialist subcontractors chosen by the employer has greatly diminished in the UK, in favour of other practices such as listing of approved companies. This is an advance which is recommended for adoption in Trinidad and Tobago, is the general acceptance by contractors of full responsibility for the performance of any sub-contractors, whether nominated or not. Provisional sums also continue to be used in Trinidad and Tobago where they are included in contracts to represent incomplete areas of design. This practice is to be depreciated and steps are recommended to create incentives against the use of this practice.

11. The debate on these issues extended to the continued use of Bills of Quantities. It should be recognised that these documents can be used in a variety of ways. Where used, they should not prevent the contract operating as a lump sum contract. Bills of Quantities are also traditionally used for drawing up interim valuations. The alternative use of agreed milestone payments can be simpler and cheaper to operate and should be introduced.

Incomplete designs and variations:

Issue (iii)

12. Incomplete designs, design changes, variations, poor supervision and poor management are closely linked to Issue (ii) above and the general subject of management. While some degree of variation to the original work scope can be regarded as inevitable under any substantial construction project, we firmly reject the suggestion (made by NIPDEC) that the letting of contracts with a design known to be incomplete provides any advantage to the employer. Variation should occur only in circumstances unforeseen at the date of entering into the contract: they should necessarily be rare and a designer who fails to take account of what was reasonably foreseeable at the date of the contract should be held to account for the additional cost of introducing later variation of the work. There should be penalties applying to both designers and contractors for incomplete designs and avoidable variations.

Local v foreign contractors and consultants: Issue (iv)

13. An examination of the comparative performance of local and foreign contractors and consultants gives rise to an initial question of what is meant by a “foreign” contractor or consultant. Does this include overseas contractors operating through local offices or subsidiaries? Is an otherwise local contractor with a registered office abroad to be regarded as local or foreign? The issue must therefore be addressed with caution. It was accepted that the capacity of the local industry, however defined, is limited and that foreign contractors and consultants may have resources and expertise not available locally.

14. If foreign contractors or consultants are to be engaged, it is important that this should not be to the exclusion or detriment of the local industry and that projects undertaken by foreign contractors should include opportunities for training and skill transfers to the local industry. Any comparison between the performance of local and foreign companies is distorted by the fact that foreign contractors have been primarily, if not exclusively, involved in design-build projects, which have generally achieved a much better track record on compliance with time and cost. The comparison also involves consideration of whether local firms should enjoy a protected sector of the local market, an issue which is considered below in relation to the Government White Paper.

Design-build v Design-tender: Issue (v)

15. The comparison of design-build and traditional design-tender methods similarly involves a comparison for which it is difficult to establish any common base. Some design-build projects in Trinidad and Tobago (notably the International Waterfront Project and the Prime Minister’s residence) have been completed on time and budget; while comparable projects carried out on a design-tender basis (the Government Campus Project and Belmont Police Station being two comparable projects) have been the subject of major delay and cost overrun. It is the case that design-build necessarily involves fewer interfaces and therefore potentially fewer disputes. It also seems that design-tender projects often end up with the client bearing the consequences of delay and additional cost, with none of the parties being held to account.

16. Upon examination, however, it is clear that the design-build projects which have found favour in Trinidad to date have involved a particular model of the design-build method which has proved successful when coupled with the undoubted expertise of the foreign contractors involved. What cannot be concluded from the material placed before the Commission is that design-build can be adopted overnight as a means of escaping from the problems of the design-tender method. Thus, while the Commission accepts that the local construction industry should be encouraged to participate in design-build projects, there are many reforms which need to be introduced within the design-tender procedure.

Only when these reforms have been implemented can a proper informed comparison take place. At present it can be said that design-build and design-tender can each have advantages in particular situations.

White Paper on procurement

17. The Government of Trinidad and Tobago introduced a White Paper on proposed legislative reform in the public construction sector in 2005. There is a lively and continuing debate between proponents of the reforms and those, including now the Government, who consider that other and preferable means are available to achieve the laudable objectives of the White Paper, particularly in the achievement of greater transparency. The concerns over the proposed Regulator System embodied in the White Paper are understandable. However, if it is the decision of the Government not to implement these proposals, there should be established some equally effective form of review through the Courts, to be available in appropriate cases. Indeed it is somewhat ironic, in the context of this Inquiry and the Court actions that it has engendered, that Udecott should continue to stand behind their own immunity from judicial review. A relevant question is whether, in regard to Udecott in particular, the degree of oversight which presently exists provides adequate accountability and transparency.

Belmont Police Station

18. In addition to the general inquiry into cost over- runs, delays and defects which is dealt with below, the Commission was invited to examine the Belmont Police Station. This was put forward as a prime example of a relatively simple building, undertaken by NIPDEC with local designers and contractors and using the design-tender method, in which the delay and cost overrun was such as to call into question the continued use of design-tender or even the competence of the local industry. The Commission was able to undertake its examination with contributions from the designers, the contractor and NIPDEC as the project manager.

19. The project overran in both time and cost to an extent that was unusual for a building involving relatively basic construction and finishes. In the course of the investigation, the Contractor, the Designer and NIPDEC all sought to blame others, including the Client. The root cause of the delay and cost overrun was a design error which should have been detected at an early stage, but was not notified until the job was well under way. There was a series of variations requested by the Client, including the very late addition of air conditioning, and a plethora of management errors in which NIDPEC itself had a part. At the end of the day, no party was held responsible for the poor outcome of the project. The overall conclusion is that such projects can be performed efficiently only if all parties comply with their contractual obligations and additionally show a degree of professionalism that was conspicuously lacking at Belmont.

Cost overruns, delays and defects:

Issue (vi)

20. Many parties contributed material to the inquiry on the reasons for and effect of cost overruns, delays and defective workmanship. Material was provided by the Education Facilities Company Ltd (EFCL), by the Estate Management and Business Development Co (EMBD), by bodies concerned with housing projects in Trinidad and Tobago, by NIPDEC and by Udecott. For the most part the Commission received information only from the project promoter. In the case of NIPDEC, however, the Scarborough Hospital Project was addressed also on behalf of the original Contractor, NHIC; and in the case of Udecott their projects were the subject of a number of contributions.

21. EFCL provided information on 20 school projects. Overall cost increases have not exceeded ten percent, while delays have amounted on average to 25 percent of the Contract Period indicating delay to be the greater problem. Among the reasons put forward are design changes and under-measurement in Bills of Quantity, for which the professional designers should take responsibility; and non-performance by contractors, both local and foreign, which was partly attributed to non-availability of labour.

22. Data provided by EMBD related first to residential development. Of recent contracts which have been completed by the original contractor (14 of 19), the average delay amounted to over 30 percent of the original contract period, the predominant cause of delay being given as “inclement weather”. EMBD also provided information about agricultural development projects which, whilst strictly outside the terms of reference of the Inquiry, showed the same pattern of delays and causes, to which can be added shortages of material, equipment and labour and variations and access problems. There are said to be no cost overruns.

23. With regard to housing projects in Trinidad, two projects with particular problems were examined. Beverley Hills was a Udecott project which was handed over to HDC when already in substantial delay and cost overrun. The project was unusual in being located in an area of high crime which had a major effect on the contractor’s ability to make progress. The original contractor withdrew from the site by consent in 2008. Work is ongoing by the replacement contractor. Current indications are that delay will extend to four times the original contract period and cost will overrun by 100 percent. While the project is atypical, it raises questions as to the value of undertaking public housing projects under such conditions. The second project was at Real Spring, Valsayn, where the land in question had been sold by the Government at a discounted price to the National Union of Government and Federated Workers (to build subsidised housing for its members). The Union then decided to re-sell the land to Udecott for a housing development at a higher, but still discounted, price. Dr Rowley had, unsuccessfully, attempted to obtain information as to who the land came to be re-sold in this manner. Udecott subsequently developed a housing estate which was subject to very substantial delays which were attributed to manpower shortages, delays by utilities and shortage of materials.

24. The Commissioners visited and received submissions on two housing projects in Tobago. The project at Blenheim was for 114 houses of which it had been possible to construct only 61 as a result, apparently, of the failure of planners to consider the steep topography of the site.

Nevertheless, the cost of the houses actually built had escalated to the point that the total cost was close to the original quoted cost of 114 houses. The site at Roxborough had no such problems but nevertheless the project experienced cost increases of some 40 percent and delay which more than doubled the construction period. Both projects had in common serious delays by utility providers (WASA and TTEC) which, even after the substantial construction delay, left the houses still uninhabitable. Another common feature of the Tobago projects was that building work in Tobago is said to attract a premium of 30 percent due to difficulties of securing material and labour. It is noted that, contrary to what might be expected, there is no organised system for storage and distribution of construction materials in Tobago.

25. In addition to these housing projects, the attention of the Commission was drawn to a Report commissioned by Udecott in 2005 on six housing projects then under construction. The Report, by CH2M HILL Lockwood Greene, is dated May 2006 and presents a comprehensive professional appraisal of the projects. The report is critical of the performance of all parties involved, including Udecott. In addition, the Commission has made a more detailed appraisal of the housing project at Cleaver Heights. The Commission’s findings are summarised below with conclusions as to cost overruns, delays and defective workmanship.

26. For the Scarborough Hospital Project, NIPDEC was appointed Project Manager but with overall control being taken by a Steering Committee and team of officials. The Project was terminated after some two years and then remained dormant for the next three years until a design-build completion contract was let in June 2008 to a Chinese contractor. The original termination was the result of serious disputes between the management team, including NIPDEC, and the contractor. This remains an issue as a result of ongoing arbitration proceedings. The eventual outcome, however, will be a very substantial cost overrun, in excess of 100 percent, and more than four years delay for which the Project Management team must bear a major share of responsibility.

27. NIPDEC provided a summary of grounds of delay and cost overrun in respect of a large number of their other projects. These amounted generally to failure by contractors to perform and by consultants to provide adequate and timely design and information. There has been no challenge to this information, but it is to be noted that NIPDEC’s account of delays and cost overruns on both the Belmont Police Station and Scarborough Hospital have been seriously challenged by other parties involved, leading to the conclusion that there had been failures of management to which NIPDEC itself had contributed. Issues of management are considered further below.

Practices and methods of Udecott:

Issue (vi)

28. Turning specifically to Udecott, this company was set up following a report issued in 1993. The report recommended the formation of a statutory corporation, but it was decided, instead, to form a private limited company wholly owned by the Minister of Finance as Corporation Sole. Mr Calder Hart was a Director from the start, became Chairman in 2002 and Executive Chairman (combining of the role of Chief Executive Officer) in September 2006. The Commission has seen a number of “project management” contracts entered into between Udecott and various ministries under which, in return for management services, Udecott is paid a fee of between 2.5 percent and 4.5 percent of the project cost. In addition to project management Udecott undertakes development projects such as the International Waterfront Project. Udecott now has substantial assets and is able to raise finance on a commercial basis to fund the projects which it undertakes on behalf of the Government.

29. With regard to procurement practices, Udecott adopted a set of rules in 1995 which were revised in 1998. When the Ministry of Finance procedures were issued in June 2005 it was the intention of the Ministry that these would apply to Udecott and all other Government agency companies. However, whilst some companies adopted the 2005 procedures, others (including Udecott) did not and Udecott continued, to the knowledge of the Government, to use its 1998 rules. There remained doubt as to whether the Government’s intention was that the 2005 rules should replace rules which had already been approved. In these circumstances the Commission is unable to conclude, in the absence of a specific directive from the Government, that Udecott was wrong to continue using its existing rules.

30. A particular issue arose as to whether and to what extent Udecott was accountable to Ministers. The Commission has concluded that, while Ministers had the right to give instructions with regard to Udecott’s performance under any particular project agreement, instructions as to the manner in which Udecott implemented its procurement rules raise more complex issues and the Commission is not persuaded that, without specific authority, Ministers are entitled so to instruct Udecott. This is in contrast to the position of the Housing Development Corporation where the statute expressly empowered Ministers to give instruction. Introduction of a similar provision should be considered in the case of Udecott and other Government agency companies.

31. It is evident that Mr Calder Hart, from 2002 onwards and before acquiring executive authority, exercised considerable influence over the affairs of Udecott. From September 2006 Mr Calder Hart has exercised a dominant role in the company. This has included personal involvement in the appointment of all senior staff, which has engendered a considerable degree of personal loyalty and an almost complete absence of dissent on any issue. This may be contrasted with evidence as to disagreement amongst Board members in 2003. From 2005 onwards there has been no evidence of any disagreement with or dissent from any action proposed or taken by Mr Calder Hart. From this point at the latest Mr Calder Hart became the alter ego of Udecott and was so regarded by the general public of Trinidad and Tobago, notwithstanding that he became Executive Chairman only in late 2006.

32. Udecott through Mr Calder Hart adopted a confrontational attitude to those who have taken issue with its methods and practices, particularly the JCC by its current President Mr Winston Riley. Mr Calder Hart had a similar fraught relationship with Dr Keith Rowley, former Minister with responsibility for Udecott, with whom he had particular dealings in 2003 up to Dr Rowley’s removal from office in 2008. There were, from these and other sources, numerous complaints about Udecott’s methods and practices the most significant being:

(i) Excessive and unfair uses of sole selective tendering powers contrary to free and fair competition and transparency.

(ii) Misuse or manipulation of tender and tender review procedures leading to the inappropriate and potentially corrupt award of contracts.

33. With regard to Udecott’s performance as Project Manager on behalf of Government, two sources of investigation have been made available to the Commission. First, in the report by Lockwood Green, a detailed review of the performance by Udecott (as well as other participants) in six housing projects in 2005- 2006 has revealed a degree of poor organisation and administration. While this report was over two years old, indications are that most of the criticisms remain valid.

34. The second source of investigation is in two reports prepared by the Commission’s appointed expert Mr Gerry McCaffrey who has raised serious issues concerning financial administration of the Brian Lara Project which are nothing short of scandalous. No proper explanation has been given as to the unwarranted treatment of the contractor, HKL or for the patent lack of proper control and accounting on this project. Furthermore, such events could not have occurred without the knowledge of senior professional staff and members of the Board all of whom should have been aware of the level of irregularity which has been permitted.

35. In the reference above to the debate on the White Paper the question is raised whether the existing procedures involving the Public Accounts Committee, the Central Audit Unit, Ministers and the Cabinet as well as Parliament itself represent sufficient oversight. The events just recounted demonstrate clearly to the Commission that such oversight has been seriously inadequate.

Five Udecott projects

36. In order to examine further the practices and methods of Udecott, the Commission examined five significant and current Udecott Projects undertaken between 2003 and 2009: the C&E building and the LA Tower (both part of the Government Campus Project), the Academy of Performing Arts, the International Waterfront Project and the Brian Lara Stadium Project. The C&E building was effectively the first major project undertaken by Udecott commencing in October 2002. The first round of tendering, which concluded in August 2003 was, by general consent, flawed in a number of respects. In the course of the first round of tenders a number of factual disputes arose particularly one between Mr Calder Hart and Dr Rowley who was then the Line Minister. Dr Rowley confirmed in evidence that no actual corruption was alleged and we accept Mr Hart’s explanation that mistakes had occurred in an “attempt to correct the system on the run”. It appears the second round of tendering in 2004 was much more closely controlled and went off without apparent controversy. Ironically, however, Dr Rowley became embroiled with a secret investigation conducted by the Integrity Commission between 2004 and 2006, apparently after a tip off concerning his role in the tender process. This resulted in the subsequent striking down of the investigation which has rebounded on the Integrity Commission itself.

37. The Ministry of Legal Affairs Tower is the third major building within the Government Campus Plaza. The tendering process commenced in late 2004. The six tenderers included a company called CH Development and Construction Limited (CH) which was a recently formed subsidiary of a substantial Malaysian construction company Sunway Construction BhD (SunCon). Initially, the Udecott Board approved the pre-qualification of SunCon but resolved that in the case of a subsidiary company, a Parent Company Guarantee must be provided. CH not SunCon tendered for and, although only the third lowest tenderer, was selected for the contract. A letter of award was sent by Udecott addressed both to SunCon and CH, requesting signature and return. The letter sent by Udecott was received on a fax machine which has been identified as belonging to Mr Calder Hart, and was passed on to SunCon from the same machine.

38. Subsequently Udecott re-issued the letter of award to CH alone, which had now changed its name to Sunway Construction Caribbean Limited. The Parent Company, SunCon, wrote a letter at the request of Udecott which clearly did not constitute any proper guarantee of the performance of the renamed subsidiary company. Various breaches of Udecott’s tender rules have been identified on behalf of JCC. However, the primary matters of concern arising from the award of the MLA Contract to the renamed CH company are that (i) no explanation has been given as to why Udecott failed to require a proper Parent Company Guarantee, in disregard of its own earlier resolution; and (ii) no proper explanation has been given for the initial letter of award being received on and being sent from the fax machine of Mr Calder Hart.

39. Evidence was subsequently given to the effect that two of the directors of CH and SunCon were related to the Malaysian-born wife of Mr Calder Hart. This evidence is denied on behalf of Mr Calder Hart who has previously given sworn testimony to the contrary. The Commission, not being a court of law, and not having the procedures available to a court of law in relation to such a serious matter, has declined to seek to resolve this issue or to make a finding, but records the evidence which has been presented.

40. The Academy of Performing Arts comprises two iconic buildings, the Southern Academy being in San Fernando and the Northern Academy now forming a striking feature on the southern side of Queen’s Park Savannah, Port-of-Spain. The project is controversial in being funded by an inter-Governmental loan with the Government of China in the sum of US$100million, both buildings being constructed pursuant to a single design-build contract with the Shanghai Construction Group. Genivar was appointed Project Manager. Both buildings have been subject to some delays; and claims for additional payment are anticipated but have not yet materialised. The Northern Academy was opened in November 2009, in time for the Commonwealth Heads of Government Meeting.

41.The International Waterfront Project, which was also project managed by Genivar, was let after a limited design completion to the French company Bouygues International. The project was initially for one office block and a hotel for which the appointed operator is Hyatt. The project was enlarged to include a second identical tower block and the fit-out and furnishing of the office blocks. The project overall has been completed substantially to time and budget and is generally seen as reflecting credit on all parties involved and on the design-build procedure adopted.

42. The Brian Lara Academy Project, by contrast, has been commissioned as a series of separate packages with design work proceeding in parallel with construction, the packages being let on a different basis. The project was initiated in 2004 with the objective of achieving completion by early 2007 in time for the ICC Cricket World Cup Tournament. Udecott appointed Turner Construction International through their local subsidiary TAL as Project Managers. TAL employed international architects and engineers as sub-consultants for the design of the Stadium, which was intended to be of world-class status.