Cost Overruns: Is the Opposition Without Sin? - May 1, 2006

Cost Overruns: Is the Opposition Without Sin?

INTRODUCTION

The House of Assembly has concluded its debate on the 2006/07 Budget Estimates. Most of you were asleep by the time the debate concluded at about 12:15 a.m on Saturday. Inevitably, one of the subjects which came up for discussion was the cost-overrun incurred in respect of the Soufriére to Vieux Fort Highway. This was anticipated. After all, it is a favourite subject of the Opposition, for reasons which I shall reflect on later. I had promised that the final cost of the highway would have been disclosed during the Budget Debate and this was done by Hon. Felix Finisterre, Minister for Communications, Works, Transport and Public Utilities.

INVENTING COST OVERRUNS
 

One would think that the Saint Lucia Labour Party invented “cost overruns”. Of course, the term, “cost overrun” now occupy prominence in our political vocabulary because of the Rochamel Development.
 

Let’s clarify the term. “Cost Overrun” simply means the amount by which the actual cost of a project or activity exceeds the budgeted, estimated, original or targeted cost. So, if you plan to build a house for $100,000.00 and you actually spend $120,000.00, then there is a cost overrun of $20,000.00.

Amazingly, the Opposition behaves as if it is without sin, that no cost overruns ever occurred during its tenure. The fact is, cost overruns were rife during the UWP administration, particularly when Sir John Compton was Prime Minister. Here are two recent examples:

1. In his 1995 Budget Address, Sir John announced the construction of the Tunnel Road at a cost of $53 million dollars. This Government completed this project after it assumed office in 1997. The total bill was over $80 million. This Government paid it. It did not squirm. It did not accuse Sir John of corruption. I well remember the then Minister of Communications, Works, Transport and Public Utilities, Hon. Senator Calixte George, commenting that the cost of the Tunnel Road per mile was the highest ever in Saint Lucia. It is still the case!.

2. Then there was the infamous Darling Road Housing Project. Sir John’s U.W.P. administration borrowed a total of $32.7 million from the N.I.C. in two tranches.

Interestingly, it was this Government, in order to protect the NIC, which went to Parliament on November 22 1997 to guarantee this loan, so adding to the island’s Public Debt.

One who criticises must never ignore his own sins. To this day, one cannot reconcile the total cost of the Darling Road Housing Project and the value of the buildings. And the sins of the U.W.P. administration are plenty. Here is a list of Projects which incurred cost overruns without explanation during their tenure.

1. Castries Harbour Redevelopment by Concreto (Venezuelan Firm);

2. East Coast Road Improvement and Alignments (1972 – 1979);

3. Hewannora Airport Renovation and Expansion;

4. Vigie airport Extension (storm damage during period of construction);

5. Castries/Gros Islet Highway Project;

6. Pigeon Island Causeway Development (Expensive sea coral back fill material utilised);

7. Castries Waterfront Office Building Development;

8. West Coast Road Development (Phase I, II, III – 1983-1990);

9. RIM Road Projects – (1990 – 1995);

10. Cul De Sac Flood Protection Works; and the

11. Cul De Sac Industrial and Commercial Development.

WHY THE FUSS?

Why then all, all the insinuations?

Every Saint Lucian has a right to be concerned about how public money is spent. Indeed, this is a good thing. Citizens need to be satisfied that if additional expenditure is incurred, that such expenditure is fully justified. And, a Government has an obligation to explain once all the facts are available. When all the facts are not disclosed, it becomes easier for mischief makers to sow seeds of doubt, suspicion and distrust.

And the Opposition has successfully done this. They have led many to believe, that because the cost overrun for the Soufriére to Vieux Fort was substantial, that someone must have been corrupt. And, since they are unable to prove corruption, they have shifted to describing it as “wastage”.

HOW WAS THE CONTRACT AWARDED?

It is interesting to reflect on how the contract for the construction of the Soufriere to Vieux Fort highway was awarded.

When the project was first advertised and the bids opened, B & D, a local company, took the Government to court and claimed that the process was unfair. It was alleged too that the consulting firm, DIWI, favoured CCI over other firms, including Lagan Holdings and C.O. Williams and Company, a Barbadian firm resident in Saint Lucia.

Sir John Compton waded in. He wrote to CDB and suggested that the process was tainted.

In order to avoid court proceedings the project was re-advertised. Government advised CDB to select another Consulting Firm to assess the bids. A Canadian firm was selected and recommended that the contract be awarded to Lagan Holdings, an Irish Company which had submitted the lowest bid. The Caribbean Development Bank issued its “no objections” to the recommendation and the Tenders Board duly approved the recommendation. So, the machinations worked in favour of Lagan Holdings, the same company that is now attacked by those who initially campaigned in their favour.. That is life!

THE ROLE OF CARIBBEAN DEVELOPMENT BANK (CDB)

The real question that must be answered is this: Are the cost overruns on the Soufriére to Vieux Fort highway justified?

Before I answer this question, I must remind each and everyone of you that it is the Caribbean Development Bank which provided the loan for the construction of the highway. Consequently, the CDB had an interest in the project, and its implementation.
 

WHY COST OVERRUNS?

On two occasions, I requested the Caribbean Development Bank to evaluate the progress of the project. On the second occasion, the Caribbean Development Bank confirmed that there would be substantial cost overruns. The Bank advised that the cost overruns were due, primarily, to the following reasons:

1. Drawings of the location of Cable & Wireless cables were not available. According to the CDB Report “The overall scope of the telecommunications works also vastly increased, from 8,000 meters of ducting to 22,000 meters.”

2. Likewise, during the design stage little was known about the location and state of WASCO’s pipes. There was “considerable scope changes after tendering was concluded.” A substantial amount of the older pipelines had to be removed and replaced.

3. There was inadequate identification of periodic soft spots within the road sub-grade. There was an overall lack of adequate fill material.” The contractor experienced difficulty in identifying and sourcing material. In some instances, the source material was a considerable distance from where the material was required.” This added to the cost.

Crucially, CDB also identified a major weakness in the bid process as a direct result of the earlier court action. According to the CDB evaluation,

“The first tender exposed the intended bid price of all tenderers. During the corresponding re-tender the tenderers attempted to under bid each other with the result being a contract price substantially less than the consultant’s original estimate. This has resulted in a contractor, that is Lagan, that is highly claims-conscious attempting to compensate for a low bid.”

These factors led to substantial delays. A contract whose performance was originally twelve months extended to twenty four months. Inevitably, this also added to the original cost.
 

AN EARLIER INDICATION:

Some have asked, why is it that this Government did not indicate earlier, the total cost of the project?

As I explained on Mr. Poleon’s Newsmaker Live Programme, the Government could not advance a final amount for the cost overrun, when it was engaged in negotiations to finalise the full amount. Of what use is it to announce a figure, which is, at best, a preliminary figure. Then, too, the final cost constitutes a variation which must be approved by the Central Tenders Board. All of these procedures had to be resolved.

CAN GOVERNMENT HIDE?
 

Some, in their mission to sow distrust, calumny and suspicion, accuse the Government of hiding the figures. The fact is, no Government can hide public expenditure of the scale incurred in the construction of the Vieux Fort to Soufriére highway. Such expenditure must emerge because the Director of Audit will, eventually see to it. So too will public officers who mange Government funds. Moreover, the loan was secured from the Caribbean Development Bank, so inevitably, they will, as they have done, publish the total loan advance to the Government of Saint Lucia.

CONCLUSION:

Like all Saint Lucians, I would prefer to have all projects completed on time and within budget, with the highest quality of finish. However, this is not always possible in the real world.

I hope my explanations have helped you to better understand an issue tainted with slander and misinformation. But, that’s enough!

Today is “May Day”, so I salute the workers of Saint Lucia. I wish to assure every worker that this Government, no matter what, will continue to advance the cause of workers of Saint Lucia on every front.

So happy May Day, be of good cheer, and God Bless, until next week.

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