Daly: Ministers, Government have ‘informal’ control of State boards

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

The report was laid in Senate on Tuesday.

Education Facilities Company Ltd. (EFCL)

3.12. The EFCL Rules and Procedures were forwarded to the Ministry of Finance on November 21 2005, and have been operated, with a number of amendments, since that date. The EFCL state that in keeping with the principle of transparency, bids are opened publicly and a record of bids and decisions kept. Furthermore, EFCL generally communicates in writing to all unsuccessful bidders offering an oral debriefing.

3.13. EFCL provides details in the submission of the tender process and procurement arrangements for each of the 40 primary schools and 74 secondary schools for which contracts have been placed to date.

EFCL’s procurement procedures for both contractors and consultants include a mixture of local competitive bidding and international competitive bidding with post-qualification. Subsequently, pre-qualification exercises were conducted and separate registers of contractors established for primary and for secondary schools with invitations to tender being sent to firms which satisfied the criteria and were placed on the relevant registers.

EFCL state that professional services are generally outsourced, typically to architects, service engineers, civil and structural engineers, project managers and quantity surveyors, in addition to contractors. In keeping with Cabinet directives EFCL outsources some of its maintenance work to other executing agencies, that is to Nipdec, National Maintenance, Training & Security Company (MTS) and Solid Waste Management Company Ltd (Swmcol).

3.14. Rural Development Company (Rdecott) operates under internally developed rules having, in 2005, decided to adopt the rules and procedures of the National Gas Company as its tender rules. Rdecott provided a written submission to the Commission which states that later in 2005 it was provided with standard procurement rules published by the Ministry of Finance, in common with EFCL and Udecott. Relevant to the issues considered later in relation to Udecott, Rdecott stated that (unlike EFCL) they understood the new procurement rules to be guidelines, not intended to replace the company’s existing rules. Subsequently in September 2008 the Rdecott Board approved revision to the procurement rules and procedures to reflect the organisational structure of Rdecott and to set new authority limited for managers, the Chief Executive Officer and Tenders Committee.

3.15. Udecott on April 23, 2009 submitted formal questions to Bernard Sylvester regarding tendering practices and procedures used by other special purpose companies. The response, filed on May 19, 2009, revealed that of eight such companies only Udecott had received written approval from the Ministry of Finance in respect of its own tender procurement rules. It was confirmed that MOF had not, prior to the promulgation of its 2005 standard procedures, issued any other standard procedures to special purpose companies. Further, the MOF was unable to confirm that the 2005 standard procedures had received Cabinet approval.

3.16. The general topic of special purpose companies requires reference to the evidence presented by Mr Martin Daly, a distinguished lawyer, Senior Counsel, former Judge, former Senator and member of various boards: in particular former Chairman of Trinidad and Tobago Television, a State Enterprise Company. Mr Daly contacted the Commission on January 19, 2009, and subsequently gave evidence on February 4, 2009 as a private individual and commentator on current events. Mr Daly was particularly motivated by the assertion in submissions on behalf of Udecott, that the company was not accountable to Ministers of Government. This aspect of Mr Daly’s evidence is referred to later in relation specifically to Udecott. Mr Daly, however, gave evidence touching on the wider topic of the position of State Enterprise Companies in relation to Ministers and the Government generally.

3.17. Mr Daly referred to an article published in the Trinidad Express, August 11, 2002, commenting on the relationship between Ministers and “State Enterprise” bodies, including a number of such bodies not concerned with construction issues. In his view Ministers in fact controlled events by conveying informal messages to the Chairman or other Board Members or Manager which would usually be followed. This arrangement allowed Ministers and the Government to claim that they were not running the organisation and, in the event something went wrong, the Company or its Chairman would take responsibility not the Minister. The Companies provided employment for substantial numbers of people and placed contracts and provided other benefits which could be seen as political favours to be withheld or threatened to be withheld as a means of exerting control. In his oral evidence Mr Daly stated that matters had not changed. In his view, since 2002. He also enlarged on what was meant by “manipulation” which he described as giving directions or strong messages or hints, usually through the chairman, as to what the Line Minister, or indeed some other minister, may want done. Thus, while there may be legal arguments to the effect that a State Enterprise Company was not bound to comply with directions of the Line Minister, on fundamental matters or matters of policy the State Enterprise and its management would obey the Line Minister, in Mr Daly’s view. His article also questioned whether various businesses should be under the control of State Enterprise bodies or whether they should be under the direct control of Government. That question, however, falls beyond our Terms of Reference.

3.18. Opinions on the problems with current procurement practices in the Public Construction Sector are put forward by the Joint Consultative Council (JCC) in the second statement of the President, Mr Winston Riley; and further views are put forward by the Trinidad and Tobago Contractors Association in the statement of its President, Mr Mikey Joseph. Mr Riley offers comments on procurement practices generally by reference to the following:

(1) The 2005 White Paper – this is dealt with separately below.

(2) A paper authored by Mr Riley entitled “Politics of Procurement Part II”.

(3) A further paper authored by Mr Riley on Government-to-Government Arrangements.

(4) The Ballah report on Government-to-Government Arrangements.

(5) A paper entitled “Governance Issues in State Controlled Enterprises” by Senator the Hon Mariano Browne.

(6) The Commission of Inquiry Report on the Piarco Airport Inquiry.

With regard to the Piarco report, this is an unpublished document and, while Mr Riley invites the Commissioners to request a copy from the President the Commissioners take the view that it is not for them to take into account unpublished material.

3.19. Mr Riley’s paper “The Politics of Procurement Part II” reviews the recent history of urban development in TT and its effect on the construction industry and its institution within the country. After reviewing the 2005 White Paper (part of which was based on Mr Riley’s earlier work) it is suggested that the reluctance of the government to bring forward legislation is based on the misguided notion that the proposals will slow the pace of infrastructure development. Mr Riley’s review continues by warning of the dangers of handing over projects to foreign contractors, which is said to bring few benefits and much detriment to the local industry.

3.20. The Ballah Report, dated March 1982, reviewed the programme of government-to- government arrangements and made recommendations effectively to curtail the use of such arrangements, making them subject to various safeguards to ensure effective competition and the securing of benefits for local consultants and contractors. Various recommendations are made in respect of topics which remain on the agenda of the present Inquiry, from which it can be concluded that little, if any, progress was in fact achieved. The report also recommends urgent review of the operations of the Central Tenders Board which has already been the subject of the 1979 amendment to the CTB Act. The main focus of the report, however, is on the operation of government-to-government arrangement, where it is concluded that direct involvement of foreign governments does not produce the benefits expected. It is to be noted that the present operation of government-to-government arrangements (for example involving the National Academy of Performing Arts) is structured in a materially different way from that reviewed in the Ballah Report.

3.21. The final paper cited by Mr Riley was delivered by Minister Browne at the Caribbean Public Procurement Law and Practice Conference in March 2008. The paper emphasises the central importance of the procurement regime which has been the subject of piecemeal attempts at reform leading to a proliferation of parallel procuring agencies. Deficiencies in the present procurement framework dictate the need for reform based on best procurement practices. It is to be noted that at this time the White Paper still enjoyed government support which, however, is no longer the case.

3.22. Mr Riley in his second witness statement draws attention to various initiatives supportive of small and medium enterprises including initiatives in the US and European communities. In these terms almost all consulting firms in Trinidad and Tobago are small businesses and most construction firms are in the small and medium category and ought to benefit from setting aside of quotas of available funding.

3.23. Mr Riley emphasises that the concept of sustainability, as generally accepted, includes the issues of value for money, entire life cycle, environmental aspects and social aspects expressed as social return on investment. Mr Riley also expresses concerns about planning issues on behalf of the TT Society of Planners (TTSP) as members of JCC. They express concern that insufficient attention is paid to particular issues at pre-planning stage and that mega-projects being undertaken in Port-of-Spain have major effects which have been given insufficient attention. Further projects being implemented on behalf of the state are said to contravene Town and Country Planning legislation in failing to secure prior permission of the relevant minister. The issues which receive insufficient attention include:

(i) Identify community/stakeholder needs and priorities.

(ii) Population dynamics.

(iii) Special patterns of development and movement.

(iv) Environmental social and natural hazard impact assessments.

(v) Site analysis and selection including carrying capacity.

3.24. The further comments on general procurement practices in the public construction industry are offered by Mikey Joseph, President of the TT Contractor’s Association (TTCA). He states in his witness statement that the TTCA promotes professionalism, responsible industry growth, transparency, fair business practices, training, efficient dispute resolution and ethical codes of practice. In respect of procurement practices in the public construction sector generally, the TTCA adopts the position taken by the JCC and raises further issues.

In particular, TTCA complains of projects being sent out to tender with inadequate documentation and insufficient time to submit proper bids. In the case of PK2 (superstructure) for the Brian Lara Academy, TTCA wrote to Udecott on January 26, 2006, with such a complaint. Mr Joseph concludes from the lack of response from Udecott that the project was “designed to fail as from the start.”

3.25. TTCA criticises Udecott for failing to accept responsibility for the development of skills and training of nationals in construction and the absence of transfer of technology from the use of foreign contractors. This includes Shanghai Construction Group (SCG) which was awarded the Ministry of Social Development Tower Project after tendering, then followed by the National Academy of Performing Arts without tender and after local architects and consultants had previously been engaged. These issues are dealt with further under issue (iv) of the Terms of Reference (Foreign Contractors).

3.26. TTCA also criticises the Education Facilities Management Company Ltd (EFCL) over their practices in regard to the construction of early childhood care and education (ECCE) centres over the past three years. Mr Joseph contends that their procurement practices are inconsistent, involving different procurement strategies and many of the centres being re-tendered as design- build projects in packages without providing information or explanation to contractors who have previously bid. Some of the projects are said to have been offered to foreign contractors in circumstances suggestive of collusion. These matters concern several of the issue dealt with later in this report. It is appropriate to deal with the contentions regarding ECCE centres here.

3.27. The assertions of TTCA with regard to early childhood centres are responded to in a statement of Paul Taylor, Chief Executive Officer of EFCL which challenges all of the assertions. Specially, it is said that EFCL, which is mandated by the Ministry of Education, initially undertook construction of ten ECCE Centres in 2006 using the “two envelope” post- qualification system.

Subsequently, a pre-qualification system was put into operation for the next ECCE Centres including designated “small contractors”. Subsequent batches of ECCE Centres were awarded using both post and pre-qualification systems and the pre-qualification criteria were changed in an attempt to improve performance levels. EFCL accept that a number of projects tendered by local contractors have not been awarded and provide reasons for this, including tenderers failing to satisfy pre-qualification criteria or prices being too high. EFCL further accept that approximately one third of these contracts have been re-tendered and awarded to foreign (Chinese) contractors. EFCL deny that unsuccessful tenderers have not received appropriate feedback and explain that their procurement strategy for constructing approximately 150 Centres per year to 2012 includes the use of the design-build method, targeting medium and large contractors and encouraging the formation of joint ventures. EFCL say that their procurement practices are transparent and state that their major challenges have been the performance of contractors and land acquisition issues.

3.28. The issue of ECCE Centres was also debated during the round table session on local v foreign contractors where Mikey Joseph again referred to 50 Centres being awarded to foreign firms with a reported sawing of over $100 million. He questioned what was the social benefit of such a saving. Minister Imbert responded by confirming that a tender had been received from a Korean contractor in the sum of $150 million against the second lowest tenderer, a well-known local contractor, whose bid was $281 million., Earlier centres, based on a standardised design, had been constructed at a cost of around $2 million each but in 2008 the costs had begun to increase to over $4 million and in 2009, $6 million, all tendered by local contractors and for the same basic building. The Government had no alternative but to proceed with the Korean contractor’s bid. Mr Joseph responded, contending that between 2006 and 2008 there had been 100 percent inflation in material costs and that the bid of $150 million had been given by a contractor who knew nothing of Trinidad, based on the employer’s own estimate of costs of $3 million each.

3.29. The general question of sole selection of contractors by State Enterprise companies was addressed in Udecott’s Final Submissions where it is pointed out that the Rules of other State Enterprise Companies in fat provide an even wider range of circumstances for the use of sole selection than would be permissible under Udecott’s rules. The other State Enterprise Companies are the National Gas Company, the National Quarries Company, the National Maintenance Training and Security Company Ltd and the Rural Development Corporation. The Commission accepts that these and other State Enterprise Companies have been set up with such wide discretion in the selection of Contractors. They should, however, be careful not to abuse such powers, which should be exercised having regard to the principles of free and fair competition, as well as transparency.

3.30. TTCA criticises the East Port-of-Spain Development Co Limited (EPSDCL) whose conditions of contract, after award, have obliged contractors to undertake local services of a questionable and possibly criminal nature. These complaints are echoed in the statement of Inch by Inch Construction and Manufacturing Ltd which, in the context of design changes, relates incidents giving rise to serious threats to life and security, with a catalogue of undertakings not fulfilled and lack of support to the contractor. The incidence of criminal activities on construction projects was also reflected in statements concerning the Beverley Hills Housing Project where there was reported to be a number of fatalities among the contractor’s workforce.

3.31. TTCA criticises contractual dispute procedures which oblige the contractor to go to Court to get paid, as well as other unreasonable contract conditions. They complain that local contractors are further disadvantaged by being required to provide bonds and other securities as well as suffering retention on work carried out of up to ten per cent, all of which cause disadvantage to and place additional burdens on local contractors. Both bonds and retention are said to be retained for up to two years after the maintenance period without proper grounds. TTCA suggests these amounts to unfair practices.

3.32. TTCA, as well as individual contractors, complain of late payment to contractors being a common practice with delay extending beyond one calendar year. Payments are delayed even after contractors have provided advance payment bonds. In other cases architects and quantity surveyors have failed to value and certify work done with no proper explanation. Contractors complain of being penalised for seeking to enforce payments through not being granted extensions of time and being threatened with deduction of liquidated damages.

3.33. TTCA supports licensing or registration of contractors to work in particular areas of construction – a practice which is applied to some degree in North America but, significantly, not in the UK (with the exception of some very limited areas of work).

3.34. The special purpose companies which carry out construction projects, including Nipdec and Udecott, undertake not only the arrangement and placement of contracts for the work, but also an overseeing function during the course of the project which is generally labelled “project management”.

The role is variously described and is in some cases to be found reduced to contract terms, whether in the form of a Memorandum of Understanding or formal agreement. Such documents usually make express reference to “Project Management” and similar expressions, but invariably without any or any full description of what is assumed to be embraced by this ubiquitous expression. An analysis of Project Management sources will quickly reveal that management can embrace many different activities concerned with a construction project, other than the physical supply of work or materials.

3.35. Further questions arise as to the project management role of special purpose companies when it is noted that independent firms are often appointed in addition, to act as “Project Managers”.

Whilst we accept that special purpose companies do undertake, in particular cases, a positive role in setting up projects and overseeing the tendering and award of the contract, the continuing management role in relation to the performance of the work requires more examination. There may be an underlying assumption that special purpose companies, including Udecott, are undertaking the management of major projects, when a closer examination will reveal that this role is not in fact being undertaken by them. This issue is examined further in Part V of this Report.

3.36. There is clearly a need for a forum in which dialogue between the Government and promoters of construction work and those who perform the work can take place. It is to be expected that such dialogue would deal with many of the matters which are the subject of this Inquiry. Such a forum can be seen in other jurisdictions, for example, the Joint Contracts Tribunal in the UK, which produces the JCT Standard Building contract. In Trinidad and Tobago the natural forum might be seen as the JCC. However, in contrast to the JCT, the JCC has no Government or employer representatives. Nor is there any equivalent in Trinidad and Tobago to the Construction Industry Council and its constituent bodies, set up after the Latham Report, which includes prominent representation of employers and promoters of construction.

3.37. The only body in Trinidad and Tobago containing broad representation across the construction industry appears to be the Construction Sector Oversight Committee, set up by the Cabinet to consider appropriate forms of contract. This committee includes representation from all the professional bodies, including the JCC, contractors and manufacturers, the Chamber of Industry and Commerce, the State Enterprise Companies and Cabinet Ministers with construction portfolios. As part of its business, the committee was tasked to consider which of the existing contract forms was appropriate for general use in Trinidad and Tobago.

The committee has recommended that the FIDIC 1999 suite of contracts should be used for infrastructure work and the JCT 2005 suite for building work. Mr Riley pointed out that some time earlier the Attorney General had given instructions for development of a Standard Form of Contract for the whole industry. This was to be based on the FIDIC Form with additional conditions. The Quantity Surveyors, however, proposed use of the JCT Form so that the Construction Sector Oversight Committee recommended both forms.

Although the Inquiry was not provided with minutes of any committee meetings, Minister Imbert confirmed that the Cabinet had approved the use of these two suites of contracts.

3.38. Finally, in this general review of procurement issues, the procurement practices as applied in practice in Trinidad and Tobago will be examined in detail through one of the projects which the Commissioners have been requested to review: Belmont Police Station. This was dealt with on February 5, 2009, as a round table presentation. The documentation and exchanges are summarised in Section 10 of this Report.

Initial Conclusions

3.39. This section has examined a range of issue which have risen from the documents and submissions received. It has been noted that procurement in the Public Construction Sector is currently dominated by a number of special purpose companies or government agencies which have grown up as a consequence of perceived problems created by the Central Tenders Board laws. What needs to be borne in mind is that most of the companies now operating are new to the field. Only Nipdec has any material track record from earlier than 2002. While other countries may have their own models, Trinidad and Tobago must find its own feet in this new field. In particular, it should not be assumed that the right formula can be found without trial and, necessarily, error. Most importantly, staff must be trained and must acquire expertise and confidence in their new roles.

3.40. With this background in mind, it can be seen that the material presented to the Inquiry has revealed many matters deserving of further consideration. First, there are a number of issues concerning applicable tender rules. The Commissioners entertain no doubt that the principles of transparency require that it should be clear beyond doubt what rules are applicable in any tender situation and further that those rules should be readily available, clear and seen to be applied in a fair and proper manner. The existence of several different sets of rules and uncertainties over the extent of their application has created an unfortunate situation which needs urgently to be addressed. The particular position regarding the tender rules applicable to Udecott will be considered later in this Report.

3.41. Issues have been raised as to the extent to which Udecott and other State Enterprise Companies are subject to control by Government, either formally or informally. The issue is not new and is reflected in other countries through the different ways in which the State utilises the expertise of the private sector to deliver its essential services.

For example in the UK many service traditionally delivered by central or local government are now delivered through privatised companies subject to Regulation, which effectively dictates the extent to which government can intervene and direct activities of the company. It would be misplaced to view the relationship between GOTT and its various Agency companies as any less complex or as being susceptible to any simple answer. The issue is raised in particular in relation to Udecott and will be dealt with more fully in a later section of this Report.

3.42. Having briefly reviewed the activities of a number of Government Agencies concerned with construction, it is evident that material differences exist in their rules and practices. There is no apparent reason which such differences should exist in organisations which have little or no history or tradition. There is no merit in different bodies having different rules without good reason to justify the differences. The standardisation of procurement regimes for both State Enterprise and other Government construction projects was supported by Minister Imbert in the context of alternatives to the White paper proposals. While the Ministry of Finance procurement rules may be seen as an attempt to impose such uniformity, it is equally clear that this initiative was either not pursued with enough vigour or lacked the support necessary to achieve uniformity. While it is not the remit of this Commission to make general recommendations for all Government Agencies, the general lack of uniformity is bound to reflect on the position of Udecott which, as will be seen, adheres to its own rules and procedures.

3.43. A number of issues are identified in relation to the engagement of foreign contractors. The issues include their relative levels of performance as against local contractors, the question of developing skill and technology transfer to the local industry and the question whether local contractors and consultants require protection through some form of quota. Each of these issues will be considered further under Terms of Reference Issue (iv) and (vi) below. Likewise, issues in regard to the adequacy of tender documentation are considered under Terms of Reference Issue (iii).

3.44. This section has reviewed a number of contributions concerning Early Childhood Care and Education (ECCE) centres where submissions were received from contractors, from the Education Facilities Management Company and from Minister Imbert. The topic involves Terms of Reference Issue (iv) and (v) which are dealt with further below. This topic also raises in a direct form the balance which needs to be drawn between the requirements of economy and seeking to provide facilities for the community within the Government’s budget, while at the same time providing a fair deal for local contractors and consultants. It is the task of EFCL to make the decisions necessary to resolve these dilemmas. In doing so, EFCL must seek to apply fair and appropriate procedures, and also act with openness and transparency. This includes giving proper reasons to tenderers why their tenders are rejected, particularly when this results in an award to a foreign contractor. Such decisions are bound to cause dissatisfaction to some parties, but the giving of proper reasons will enable unsuccessful tenderers to improve their bids for other projects. Transparency operates to the advantage of all parties.

3.45. The complaints noted from a number of sources concerning criminal activity and serious threats to life and security are to be taken with utmost seriousness. Contractors who are prepared to undertake work in such arduous conditions are, without doubt, entitled to the fullest levels of support from all available quarters.

3.46. Complaints of late payment and other unreasonable financial conditions faced by local contractors appear to be endemic. This can be seen as part of a culture of non-adherence to the agreed contract terms. The Commissioners believe this issue merits separate consideration in a later section of this report.

3.47. With regard to licensing or registration of contractors, the Commissioners note that there is no uniform pattern and that different countries apply different rules with notable inconsistencies. The Commissioners note that licensing of contractors is relatively rare in the UK and in practice limited to activities involving potentially serious physical risk. The Commissioners believe this to be an issue which requires wide consultation and is ultimately a matter for Government action through legislation.

3.48. The role of Project Manager appears to be one of the common factors running through the activities of State Enterprise Companies. It will be seen later that the Project Management role of certain companies, notably Udecott and Nipdec needs to be critically reviewed. The Commissioners believe this is an important topic which requires separate consideration in a later section of this Report.

3.49. Finally, the lack of an appropriate forum for consideration of issues of mutual interest between opposed parties within the Trinidad and Tobago construction industry is noted. Some of the issues which have arisen during the Inquiry, for example the proliferation of different forms of contract, can be seen to result from such lack of dialogue. In the Commissioners’ view, the range of different procedures and documentation seen in the construction industry indicates that such dialogue should take place on a regular and sustained basis with the objective of finding common solutions acceptable to all sides of the industry. While the Government has played its part through setting up the Construction Sector Oversight Committee, the Commissioners believe that a body organised by the construction industry itself and on which the Government and all the relevant Government agency companies (including Udecott and Nipdec) are represented should be the way forward.

4. Issue (ii) Use of provisional sums, prime cost sums, nominated suppliers and nominated contractors.

4.1. The Commission issued a discussion paper on this issue which is included as Annex 9. Written submissions were received from NIPDEC and from the Institute of Surveyors of Trinidad and Tobago (ISTT). NIPDEC recommended that the use of provisional sums should be limited and recommended other contingency measures where such sums are included. With respect to prime costs sums, these are commonly employed where specialist (nominated) sub- contractors are to be engaged by the main contractor covering items such as plumbing, electrical and air conditioning (AC) installations. NIPDEC recommended replacement of PC sums by provisional sums designated for use in respect of specialist sub-contractors, and for main contractors to be encouraged to price such items. NIPDEC also recommended the inclusion of a list of proposed sub-contractors, similar to that currently used in UK under the JCT Forms of Contract. It was noted, however, that use of design and build would also eliminate the delay and additional costs involved in nomination.

4.2. The ISTT noted that requests for additional funding from Government Departments can result in delays, which can be avoided by the use of provisional sums to cover the unexpected. The prime costs sums intended for nominated sub-contractors allow the use of specialists selected by the employer: the use of a list of approved sub-contractors will limit the extent of control by the employer/architect. The ISTT expressed the view that it was logical that the contractor should take full responsibility for nominated sub-contractors.

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