The Tribune

By NEIL HARTNELL Tribune Business Editor WITH more than $112 million in public monies spent "without any evidence of due process", the Bahamian Contractors Association's (BCA) president has urged the Government to use the Value for Money audit "as a guide to correct construction industry deficiencies as it relates to government housing". The report, conducted by UK-based Crown Agents on the Government-funded housing programme for the Bahamas' Auditor-General, revealed weaknesses such as the absence of proper contractor procurement procedures "in all respects", with BCA chief, Godfrey Forbes, acknowledging that created conditions "for abuse to take place". Speaking to the Value for Money report's findings, when it came to the hiring of contractors by the Ministry and Department of Housing, the housing programme's quality and whether homeowners/taxpayers got what they paid for, Mr Forbes said the conclusions drawn seemed on the mark. "I found it very interesting," he told Tribune Business of the report's findings. "I think they're spot on in terms of their assessment, and what they're finding appears to be real, not just perception. Having been in the industry for so long myself, there are real problems facing us day-to-day, and these are things that they [Crown Agents] see. "That report should be given some attention to, and used as a guide, to address deficiencies we have in the industry as it relates to government housing. It does affect us all." While sections of the Value for Money report, which was tabled in the Senate last week, have already been published, little has come out on the Government-sponsored public housing programme's relationship with contractors, and the Bahamian construction industry at large. And, while the report looks at the period 2000-2008, its findings certainly remain relevant today. Among the main findings were: * By holding down contractor profit margins, via an "artificially low" construction cost per square foot, the Government housing programme discouraged larger, top quality Bahamian contractors from participating. The Value for Money report said the $60 per square foot construction cost for government homes should have been at least $80-$90 per square foot. The thin contractor profit margin encouraged builders to take construction 'short-cuts', thereby potentially compromising quality * The Ministry/Department of Housing practice of spreading construction work between as many contractors as possible denied homeowners and, by extension, the Government's agencies and taxpayer from getting 'value for money' because it eliminated the possibility for efficiency and economies of scale gains. Detailing their findings on the latter aspect, Crown Agents said: "This audit found that the financial incentives offered by the Housing Programme to housing contractors are insufficient to achieve the required level of quality...... This has been a major contributing factor to the poor Value for Money of the programme in recent years, most obviously evidenced by the large remedial programme." Indicating that political necessity essentially smothered practical reality, especially when it came to the former Christie administration's approach to the Housing programme between 2002-2007, the Value for Money audit said the contractor selection process was again at risk of being influenced by "patronage". "Notwithstanding the (unwritten policy) of sharing out house building in small numbers per contract (a form of patronage that is not necessarily healthy, and unlikely to achieve Value for Money), the [Housing] Department should consider increasing the number of units awarded to each builder (and reducing the number of builders), thus giving the builders greater incentive through improved efficiency and economies of scale," the report said. "It [sharing our housing contracts] is a strategy that we contend compromises quality and threatens value for money." When it came to construction costs and pricing, the Value for Money report, written in 2008, noted that the prices for the different government home models had been fixed at $60 per square foot, using costs "said to be three years old". "A profit margin for the builder of approximately $2,600 per house is included," the report said. "We were unable to obtain a copy of the price and quantities upon which the calculations were based, and therefore we cannot be definitive on how realistic the build costs are or what might be more appropriate. "However, even $70 per square foot is regarded by contractors as too cheap, and a more realistic market rate is said to be $80 per square foot." Crown Agents said their engineering estimates put government home costs at nearer $90 per square foot. And they added: "Whatever the right price per square foot should be it was generally accepted by most stakeholders that the existing approach was compromising quality by filtering out higher quality contractors. "Whilst this does not mean that all the builders have been of low quality, it does lead to involvement of builders that would otherwise struggle to run a business and obtain more profitable work." The Value for Money report said the artificially low construction costs, and contractor profit margins, encouraged "corner cutting and the use of inferior materials" to ensure house builders did earn a profit on the job. And the third problem identified by the report was contractors treating the Government-run Housing Programme "as sideline work - work they take on as an addition to be conducted in their free time, weekends or evenings". The Housing Programme's government controls, the report said, removed market forces and normal incentives, taking "reasonable profit" out of the equation and introducing "moral hazard" on the part of contractors engaged in the construction programme. To remedy the situation, the Value for Money report suggested turning to a more 'private sector' oriented approach. Among the recommendations were for contractors to obtain their own financing for constructing government homes, and for the Government to sell serviced lots (those with infrastructure and utilities already in place) to individuals who would then be responsible for constructing their own homes. "We, therefore, consider it worth experimenting with competitive tendering of a significant number of houses in order to test the market and determine what the larger construction companies are able to deliver in terms of price, quality and timeliness of delivery," the report said. "A final option that could be considered would be to auction parcels of serviced lots to the private sector developer, removing the Government from involvement in house building aspects. A combination of all alternative approaches may also introduce variety and innovation to the Programme, whilst reducing government's involvement in house building."