Money advanced as loans to HKL

16.13. The right to receive accelerated payments as set out in the proposal dated September 14 was in the following terms:

“vi) Accelerated pre-payment for all substantive material and additional preliminaries and mobilisation costs.

vii) Accelerated approval and payment on valuations submitted for completed works or material”.

16.14. These somewhat sparse terms are to be contrasted with the detailed wording of Clause 14.2 of the FIDIC Conditions of Contract for Construction, 1999 Edition, providing for an advance payment for mobilisation. The full text of clause 14.2 contains 37 printed lines of text of which the following is indicative:

“The employer shall make an advance payment, as an interest free loan for mobilisation, when the contractor submits a guarantee in accordance with this sub-clause. The total advance payment, the number and timing of instalments (if more than one) and the applicable currencies and proportions, shall be as stated in the Appendix to Tender.

The advance payment shall be repaid through percentage deductions in payment certificates. Unless other percentages are stated in the Appendix to Tender:

(a) Deductions shall commence in the payment certificate in which the total of all certified interim payments (excluding the advance payment and deductions and repayments of retention) exceeds ten percent (ten percent) of the accepted contract amount less provisional sums; and (b) Deductions shall be made at the amortisation rate of 1), (25 percent) of the amount of each payment certificate (excluding the advance payment and deductions and repayments of retention) in the currencies and proportions of the advance payment, until such time as the advance payment has been repaid’.

16.15. In contrast to the single payment governed by Clause 14.2, the concept of advance payment in respect of “substantive material and additional preliminaries” gives rise to many detailed and important questions such as: (a) what is meant by “substantive”? (b) what is meant by “accelerated” and “pre-payment”? and thus: (c) at what stage is the pre-payment to be made? (d) is it sufficient that the Contractor should merely receive an invoice from the supplier? and how is the invoice to be verified? (e) must the material exist or be in the custody of the supplier at the time of advance payment? (f) what are “additional” preliminaries and how do they differ from ordinary preliminaries? and most vital, (g) when and on what conditions is the advance to be repaid?

16.16. It seems obvious that the terms of the proposal letter governing further advanced payments should have been drafted out in detail and agreed, to set out the precise conditions to be complied with by HKL in order to qualify for advance payment, together with provisions as to security of the goods or materials which the payments were to represent and provisions for repayment. No such drafting was carried out.

No explanation was offered, nor were we told whether this was even considered by those responsible for drawing up the contract. As a result money was advanced in circumstances which do not appear to have been governed by any ascertainable rules and amounted effectively to very substantial loans to HKL. Such a procedure is quite unique in the experience of the Commissioners. It calls for explanation but none has been offered. Udecott responded to the above criticism in its Final Submissions which, however, still failed to offer any credible explanation for the seemingly uncontrolled advanced payments made to HKL.

16.17. Even accepting the uncertain and ambiguous conditions governing the right to advanced payments, it is a matter of great surprise that Udecott was unable to produce an accurate, vouched, list of such payments and re-payments through deductions, so as to show the amounts currently outstanding. evidence as to the sums advanced and repaid was collected by Mr McCaffrey during his visit to Trinidad. His examination of the Udecott payment files commenced on Saturday January 17, 2009 in company with Mr Thornhill. Mr McCaffrey was presented with four files of payment certificates and back-up information which he took away for detailed analysis. His conclusion, as presented in his initial report, was that the Udecott administration and recording of the payment process was “appalling” and required a great deal of detective work to get to the bottom.

16.18. The information in tile files provided to Mr McCaffrey also revealed that payments had been made to HKL on account of claims which TAL did not agree with, and that Udecott and HKL appeared to have on going dialogue in relation to payments to which TAL, as the appointed engineer, was not privy. It was accepted by Udecott that HKL had been overpaid for the work carried out. An approximate calculation suggested that the value of work still to be completed greatly exceeded the amount left in the budget to pay HKL. Only if substantial claims (which TAL disputed) were included in the account would any net sum be due to HKL at completion. A detailed analysis of the advance payments made, and re-payments by deduction, revealed a difference between the Udecott analysis and the Acutus analysis of either $10million or $19million depending on assumptions to be made. The report also exhibited a run of 20 emails exchanged between Mr McCaffrey and Safiya Noel and Neelanda Rampaul between February 7 and 13 which had been required to elicit the answer to one question, which had been prompted by a suspicion that back-fitting of data was occurring. The exchange, which is referred to further below, also revealed more detail of the payment process.

16.19. The conclusion was that Udecott, surprisingly, had been unable to demonstrate in any clear and verifiable manner, either the amount of advance payments made or the total of re-payments. In response, for the second hearing, Udecott produced a statement from their Chief Financial Officer, Safiya Noel who was asked to address a number of specific questions, including how Udecott treated application for advance payments. In her statement Miss Noel described the vouching process employed by Udecott and addressed specific questions raised in the Acutus Report. She accepted that errors had been made, being errors which had been discovered by Mr McCaffrey and not by Udecott. Miss Noel subsequently gave oral evidence on March 27, 2009 and was asked further questions arising out of the Acutus Report.

In the course of her evidence she was referred to Mr McCaffrey’s email No. 12 dated February 12, 2009 (10: 14) which stated:

“Dear Safiya

Document Ref 000838 has been back-fitted to make the payment process look as if it had been complied with. How frequently did this happen? Also look at the dates of the signatures of the signatories on the attached — around the same time as 000838 should have been signed (ie they were available at that time). Any comment?”

The answer by email of the same date (at 12:43) was as follows:

“Hi Gerry

I don’t think that it is entirely correct to say that the Document Ref 000838 was back-fitted to make the process look as if it was complied with. The fact is that none of the QS technicians were in office at that time. I was in the office at that time and I can confirm that they were not there. It was late an evening, when some of the staff had already left for the day. However, we had to make a payment to the contractor at that evening so once we got comfort on the amount available for payment, the formal payment certificate was prepared later. The situation was not common at all. Payment certificates are usually prepared before payment is processed ...”

16.20. In oral examination by the Chairman, Miss Noel gave the following evidence:

“Q. What was the hurry?

A. Well, the thing is, when a payment certificate came up to Finance and we find — you have this challenge, I mean, across the board. When a payment certificate comes up into Finance, many times whatever transpired before, all the different activities, it going to what project manager, whoever having to do their review and whatever, they take up all the time that is available for payment. When it comes to us, we are hurrying. We are hurrying. I mean, that has happened, I mean, on numerous occasions.

Q. Sorry, my question was why?

A. Why? Because we had to pay the contractor that day. I mean, that’s what I know. Why we had to pay him that day I cannot say with certainty, but certainly there was a rush and there was a need for us to pay him on that evening.

16.21. While the above evidence provides answers to the questions raised, it does not by any means explain why Udecott staff had gone to such extraordinary lengths to ensure that HKL was paid as soon as the money became available; why Udecott was seemingly so anxious to make payments substantially beyond the value of work carried out (and in circumstances where the contractor was aheady in default such that TAL had long since recommended termination); and why Udecott chose to disregard the opinions of the appointed engineer (TAL). In addition, although Miss Noel purported to answer all the outstanding questions raised by Mr MacCaffrey and indeed sought to justify the seemingly anomalous procedures surrounding payment to HKL, the Commissioners were not convinced that a full explanation had been provided.

16.22. Mr MacCaffrey was requested and subsequently produced a supplemental report dealing with advance payments to HKL and re-payment which concluded, on the basis of extensive further investigation of Udecott’ s records, that there remained a major uncertainty as to the amount of re-payments which had been made to the extent of some $10million. In the course of the report, Mr Mac Caffrey detected a large number of errors in the Advanced Payment Celiificates produced. He identified that back-fitting of data had gone on and that back-fitted certificates had been endorsed by at least two signatories. Udecott was invited during the hearing to respond to the figures presented but has chosen to respond only by way of general comment in its Final Submissions.

16.23. Udecott’s response, apart from questioning the standing of Mr. McCaffrey’s report, seeks to suggest that records of advanced payments on certificates were for information only and did not form part of the monthly calculation of payments due.

The re-issued certificates are said to relate to the decision to separate payments in respect of PK2 and PK3 and 5-8; and it is suggested that Mr MacCaffrey had not considered at all the separate payment records which formed part of Udecott’s accounting system. It is also said that since January 2010 Udecott is operating an automated accounting system. In the opinion of the Commissioners, these responses provide no answer to the serious anomalies which remain after the painstaking analysis carried out by Mr McCaffrey. However, Udecott on a number of occasions, has sought to challenge the status of Mr MacCaffrey’s reports and contends in its final submissions that neither of his replies constitutes “evidence” in the Inquiry. We deal first with Udecott’s general challenge to the standing of the MacCaffrey Reports.

16.24. As noted elsewhere, Mr MacCaffrey was appointed by the Govemment to assist the Commissioners in investigating cost over-runs and delays on a number of projects.

The bulk of his time and effort were spent considering the Brian Lara Project. In respect of delays, no programming material was made available, and his report concerning delays was limited to recording opinions which had been conveyed to him. In that regard, the Commission accepted that what Mr McCaffrey was told did not constitute evidence and therefore (as suggested by counsel for Mr Calder Hart) sought to verify the infonnation given to Mr MacCaffrey with wituesses who gave evidence before the Inquiry. With regard to cost over-runs and other matters of accounting, conversely, the process was entirely based on Udecott’s own records and in this respect Mr McCaffrey’s opinion is plainly admissible as expert evidence.

Mr McCaffrey was unable to appear at the Enquiry for reasons noted elsewhere. However, the Commissioners afforded Udecott every opportunity to respond to both reports of Mr MacCaffrey and are satisfied that his reports should stand as material which the Commissions are entitled to take fully into account.

16.25. Udecott further sought to question the quality of Mr MacCaffrey’s reports. After receipt of the initial Acutus Report, Udecott submitted that “the quality of the report strikes us as exceptionally low. It came as a great disappointment to us that it really doesn’t get into the issues at all. Having considered the reports, the Commissioners reject any suggestion that either of the MacCaffrey Reports in any respect failed to meet the high standard to be expected from a skilled and experienced professional expert. The Commissioners consider Udecott’s un-particularised criticism to be self-serving and not based on any reasoning or proper analysis. The report on payments and repayments on the Brian Lara Project demonstrated serious flaws in Udecott’s accounting system which would not have come to light without expert and painstaking research. Had Udecott wished to challenge Mr MacCaffrey’s expertise the proper course would have been to instruct their own expert, rather than seeking to rely on factual testimony from the very persons whose actions were the subject of criticism.

16.26. It is not the function of the Commission to draw conclusions as to the amount of any sums that may not be properly accounted for. It is the function of the Commission, in examining Udecott’s procurement practices and methods of operation, to draw conclusions as to whether their accounting and recording systems are adequate and fit for purpose. It is also the function of the Commission to consider whether proper explanations had been put forward for seemingly anomalous procedures, particularly in terms of the treatment of HKL on the Brian Lara Project. Having examined the financial records, there appears to be no doubt that HKL was treated in a manner materially different from other contractors on this or any other project. It can also be concluded that, if the anomalous treatment of HKL was agreed to in the expectation of receiving an exceptional level of performance on the project, any such expectation must have quicldy dissipated from early 2007 onwards.

16.27. The Brian Lara project was also analysed in an expert report served by Udecott and prepared by Arun Buch. Mr. Buch described the project as a “fiasco” and identified what he regarded as major shortcomings in the management and organisation of the project, for which he attributed primary blame to Turner Alpha Ltd (TAL). In particular, Mr Buch commented that the Project Budget prepared by TAL was wholly inadequate and did not correspond to the design as prepared by February 2005. It failed to take adequate account of the cost of steelwork or piling. TAL’s initial Project Implementation Schedule was similarly un-realistic in that critical packages started between three and 14 months later than programmed, which made the March 2007 deadline impossible to achieve from the outset.

16.28. Aside from such individual shortcomings, Mr Buch considered the primary cause of time and cost over-runs to be conceptual and detailed failures of design, particularly in the Stadium structure, and a general failure to provide information to contractors, both of which were the responsibility of TAL. In part, Udecott’s strategy was at fault in using TAL as the construction manager who then sub-contracted the design, thereby leading to critical problems of management and responsibility. Mr Buch’s Report sets out extensive detail of what are considered to be the major design shortcomings for which TAL is said to be responsible, and of the main drivers of delay and cost over-runs.

16.29. Turner Alpha Ltd itself presented a substantial analysis of the whole Brian Lara project through the evidence of Mark Cytrinowycz, who was project manager for both the Brian Lara project and the Government Campus project from 2006. Mr Cytrinowycz stated that TAL repeatedly sought to protect Udecott from spurious claims by the principal contractor, HKL and from making over-payments to HKL and sought to ensure that the Project was undertaken according to the terms of the FIDIC Contract. He challenged the Report of Arun Buch, which was said to be based only on information supplied by Udecott, since Mr Buch had no direct involvement in the project. Mr. Buch had not reviewed the Contractor’s Payment Certificates or variations or claims, and had not analysed the Contractor’s schedule or performance.

The contracting strategy involving appointment of TAL as project manager had been developed through numerous meetings and was directed and approved by Udecottt.

16.30. The major causes of time and cost over-runs, in the view of Mr. Cytrinowycz, were incomplete designs, poor performance by HKL and inaction by Udecott. TAL had recommended termination of the HKL Contract for default at the end of 2007, which advice was rejected by Udecott. The steel structure and canopy roofs are constructed to the design of HKL, and not the original design provided by HOK/Buro Happold. As well as being delayed, the steelwork was seriously defective in that over 70 percent of welds failed when tested independently.