Cost overrun at Govt Campus Plaza

Customs & Excise Building

23.7. The C&E Building was subject to an initial delay from about March 2003 to January 2004 as a result of the procedural wrangles over the initial round of tender evaluations and the eventual decision to abort the process and re-tender the Project. As noted in Section 13 above, the Project was eventually let to NH International (Caribbean) Limited (NHIC) on March 5, 2004 under a JCT 80 Form of Contract in the VAT inclusive sum of $114,460,303 ($99,530,699 exclusive), with Turner Alpha (TAL) appointed as Project Managers. The contract start date was May 17, 2004 and the completion date March 16, 2006 i.e. a contract period of 22 months. There were substantial delays to the Works including a collapse of full-height scaffolding to the East elevation which occurred in July 2006 (during the contract over-run) and is understood to be the subject of on-going court proceedings involving both NHIC and TAL.

23.8. The delays resulted in an application by NHIC for extension of time and loss and expense which was ultimately compromised by a Settlement Agreement entered into, on the advice of TAL. The Settlement Agreement extended the time for completion and included granting a Partial Possession Certificate dated January 28, 2008 and the removal of certain elements of work from the scope of NHIC’s Contract. The work elements not included in the Partial Possession Certificate were: the roof, external cladding, external works, elevators and MEP Works. The approximate value of the works taken over was $63,113,426. By September 2008, the gross value of work certified as completed in accordance with the Contract was $101,461,073 (excluding VAT). TAL records the value of work still outstanding as amounting to $800,000 which valuation is disputed by NHIC. Udecott stated that NHIC has refused to carry out the remaining Works.

23.9. The revised Contract Price in accordance with the Settlement Agreement is $113,000,000 (excluding VAT) representing a net cost overrun of approximately 13 percent. The revised Contract price includes the following:

(I) Variations and instructions for additional works, the major components being additional aluminium cladding and use of Hydrostatic Voltex. Total of variations:*6,973,301

(II) Settlement Agreement which NHIC was awarded an extension of time of 716 days up to 14 May 2008. TAL had assessed extensions of time up to the end of September 2006 (124 days) which was then extended on the advice of TAL pursuant to the Settlement Agreement which effectively relieved NHIC of potential liability for delay up to May 2008. Within the Settlement

Agreement Udecott agreed to pay the following additional sums to NHIC:

(1) Settlement of claims for EOT/loss and expense:*$5,567,000

(2) Ex-gratia payment for increase in price of raw materials,

primarily steel:*$5,179,000

(3) Contractor’s claims for interest on late payment:*$250,000

Total*$10,996,000

23.10. At the heart of the Settlement Agreement is the inter-relationship between different

elements of the Government Campus Project, referred to as packages or PK 1 to 9, the C and E Building being PKI. On TAL’s advice, the Project was split up as follows:

PKl: Customs and Excise Building

PK2: Car Park

PK3: Board of Inland Revenue Tower

PK4: Mechanical Installation for all buildings

PK5: Electrical installation for all buildings

PK6: Ministry of Legal Affairs Tower

PK7: Curtain walling for the Towers

PK8: Elevators for all buildings

PK9: Ministry of Social Development Building

23.11. This division required a number of contractors to range across the entire site working

in buildings being constructed by other contractors. The division of responsibility called for a high degree of co-operation between the Contractors and placed responsibility on TAL, as Project Managers, effectively to monitor and enforce the co-operation required for the Project to succeed. PK9, the Ministry of Social Development Building, included many of the areas of external works and paving surrounding the other buildings. Thus, the Contractor who was awarded PK9 effectively controlled large areas of the site with regard to access and was in a position to impose serious impediment on other Contractors thus giving considerable commercial advantage to the PK9 Contractor. The successful tenderer for PK9 was NHIC which, according to Udecott, was able to use its commercial advantage to achieve a favourable settlement agreement. The agreement was to remove from the PK9 contract of the external works to PK3 and PK6, which then removed NHICs stranglehold over the GCP site.

23.12. Udecott thus explained the commercial settlement reached on PKI the following terms:

“(NHIC) held the potential to leave Udecott open to multi-package claims as a consequence of the degree of inter-relationship and reliance between the various packages consequent upon the TAL work package system employed on the GCP. This left Udecott in a position whereby the potential was for a massive influx of claims vastly out-sizing those of NHIC. Further, if NHIC was ultimately found to be culpable for such delay, it might have been that NHIC would not have the financial ability to meet those claims. This may have left Udecott holding financial liability for these further potential claims. In this situation Udecott would have no alternative but to either terminate the Contract with NHIC or to buy its way out of this situation, even if this was at a premium very much to the advantage of NHIC.”

23.13. The Commissioners appreciate that there is and will continue to be differences between Udecott, TAL and NHIC as to how the situation described above could have come about. It is not the task of the Commissioners to draw conclusions or make any observations as to actual or potential responsibility. The Commissioners would observe, however, that the inter-relationship between the GCP Packages, particularly PK9 with PK3 and PK6 (that is the three major components of the Campus, together with the CandE Building), once those packages were defined, was obvious. The consequences of such inter-relationship, coupled with the effect of the Contract Terms between Udecott and the respective Contractors, should have been entirely predictable and capable of relatively conventional contractual analysis. It is beyond the scope of the present Inquiry to examine what alternatives might have been available to avoid the situation which Udecott found itself in with NHIC.

It is likely, however, that the cost of “buying off” the rights of NHIC under PK9 greatly exceeded whatever additional costs would have been generated by an alternative contractual strategy which would not have given the PK9 Contractor the commercial advantage it was given. In short, this was a serious failure of project management.

23.14. Udecott responded to this by pointing out that it is “primarily a development company” and not responsible “for actively managing the projects at an operational level”. Consequently, it is said that the decision on how the GCP project should be split was taken by TAL and it would have been inappropriate for Udecott to second guess such advice. The problem is said to have arisen from the “outrageous behaviour of NHIC in imposing impediments to the progress of other contractors”.

The Commissioners observe in the first place that Udecott’s self-description as not being responsible for management at an operational level appears somewhat at odds with the Project Management role and indeed the high level of expertise which it also claims, inter alia in its Final Submissions. This adds weight to the view of the Commissioners that Udecott’s role needs to be re-defined. However, the Commissioners do not accept that such major decisions can be made “by” the professional Project Manager, whose task is to advise Udecott on major management decisions. Udecott possesses adequate expertise to make such important decisions itself. The third point is that it is not suggested that NHIC was acting outside its contractual entitlement. If it was doing so, it was the clear responsibility of Udecott to take appropriate steps to enforce the contractual rights of the employer. As it is, Udecott has simply allowed the additional cost and delay to be loaded onto the public purse.

Government Campus Plaza

23.15. The delay and cost overrun which occurred on the CandE Building is summarised above. As set out in Section 14, the CandE Building was the first of nine packages comprising the Government Campus Plaza (GCP) which included five major buildings, the Customs and Excise Building (PIG), the Board of Inland Revenue Tower (PK3), the Ministry of Legal Affairs Tower (PK6) and the Ministry of Social Development Building (PK9) and the multi-storey car park (PK2). The Project overall is described in Section 14.

23.16. As noted in Part II above, the tendering process for the CandE Building and subsequently the award of the MLA Tower to Sunway Construction Limited proved to be controversial. The award of the remaining sections of the GCP was not controversial as such, but has been the subject of much criticism by reason of the use of the design-tender procedure, with the suggested inference that the Project would have been executed more efficiently and more quickly had the design-build procedure been employed. This section therefore reviews the time and cost overruns which occurred, which are closely linked with events in relation to the C&E Building.