The Tribune

By NEIL HARTNELL Tribune Business Editor BOTH the Government and Opposition PLP yesterday effectively attempted to blame the other for the poor management and huge cost overruns impacting the controversial New Providence Road Improvement Project (NPRIP), with foreign currency borrowing to fund it set to hit $206 million. Prime Minister Hubert Ingraham, addressing the House of Assembly ahead of a Public Accounts Committee (PAC) Report on the Road Project, revealed that the Government was set to seek a further $65 million loan from the Inter-American Development Bank (IDB) to bridge a $77 million 'funding gap'. Once issued, that will take the IDB's existing Road Project lending from $129 million to what Mr Ingraham said would be $206 million. Clearly seeking to head-off any politically-related damage that might result from the PLP-controlled PAC's report in the Road Project, Mr Ingraham implied that the 2002-2007 Christie-led administration's failure to pick up the infrastructure programme - left in place by his first administration - had contributed heavily to the high costs and overruns now being incurred. In particular, the Prime Minister noted that oil prices - a key component in most raw materials used in construction projects - were at just $23 per barrel in 2003, compared to the $100-plus prices now being obtained on world markets. Lamenting the Christie government's failure not to award the Road Project to Interbetton, the contractor that delivered the second Paradise Island bridge "on time and within budget", Mr Ingraham said more than $24.8 million spent piecemeal on a variety of road improvements between 2002-2007 could have been saved. Interbetton came to the fore after the initial Road Project contractor, UK-based Associated Asphalt, went bankrupt. "Additionally, the project would have been completed by mid-2005, with substantial cost savings and the benefits to the economy, and the benefits of the project would have been realised much sooner," Mr Ingraham told Tribune Business. Undeterred, Dr Bernard Nottage, the PAC chairman and PLP MP for Bain and Grant's Town, read out a detailed statement to the House of Assembly. The committee's report, seen by Tribune Business, said Road Project cost overruns on the $113 million contract held by existing contractor, Jose Cartellones Civiles (JCCC), were likely to total 36.28 per cent of that sum - taking total costs to $154 million, a figure $41 million above the initial price. Up to June 30, 2011, the PAC report said the Road Project had incurred some $23.36 million in cost overruns. Of that sum, some $13.494 million was attributed to contractual issues and changes, with $9.866 million ascribed to "the fluctuation in costs of the raw materials used in the roadwork's project, such as asphalt, cement, oil and plastics". "By the end of the project, now anticipated to be the end of September 2012, the cost of the direct works only is estimated to be $127 million," the PAC report said. "The additional cost variance attributable to the fluctuations in raw material pricing is estimated to be $27 million, based on the current trends for the project. The formula proportions for the raw material pricing is 20 per cent asphalt, 20 per cent diesel, 10 per cent plastic, 10 per cent cement, 40 per cent fixed." Raw material cost estimates had been based on a $70 per barrel of oil price, the PAC report said, adding that such "cost overruns as a result of international pricing volatility is estimated to be $27 million by project end". Inadvertently, the PAC appears to at least partly back Mr Ingraham's assertions. The PAC asked Colin Higgs, permanent secretary in the Ministry of Works and Transport, if the Government had sought to use 'hedging' techniques to mitigate oil price volatility. He said that while some talks were held on the issue, the Ministry of Finance decided it was "too expensive to do so". Via a November 11, 2011, letter, the Ministry of Finance said the Road Project's engineer, Mott McDonald, had advised that it would be better to adjust the contract escalation formulas rather than purchase a 'hedge'. And the PAC report added that JCCC had complained changed Customs duty rates had caused it to incur higher costs. Some $202,010 of the cost overruns were attributed to these changes and higher work permit fees. In summing up the cost overruns, the PAC report said: "Testimony before your committee confirmed that additional cost overruns were expected to escalate to some $40 million-plus by the completion of the contract, expected to be some time in September 2012. "Your committee concluded that much of this additional cost could have been avoided by better management and supervision of the project. Your committee further concluded that the cost may have been significantly lower if the Government had taken out a hedge to protect against the fluctuations in the prices of some of the commodities used in the project. The accumulated cost overruns on this road programme will add millions to the country's foreign debt payment." Mr Ingraham, meanwhile, said that following Associated Asphalt's collapse, Interbotten put forward a $56 million price in 2002 to complete the contract. This sums was $22 million above the $34 million remaining on the initial contract price, but the Prime Minister said the company had "the required experience and resources" to do the job. "Interbetton proposal was rejected by the [Christie] government," Mr Ingraham said. "This rejection of Interbetton's proposal is instructive in that Mott McDonald, the Government's Engineer of Record, several months later estimated the cost to complete the project at $57 million. "It is unfortunate that the Interbetton proposal was not favourably considered by the Government. Had the proposal been accepted, the $7.7 million spent on Harrold Road; the $3.3 million on Baillou Hill Road from the roundabout to Robinson Road; the $11 million on the Milo Butler Highway extension from Fire Trail Road to Carmichael; the $2.8 million committed for the extension of Gladstone Road from JFK Drive to West Bay Street, and the millions of dollars being spent on the roads from Thompson Boulevard to Baillou Hill Road and the connector road between Bethel Avenue and Yellow Elder Way would not have been spent or would not now be needing to be spent." Mr Ingraham said three Bahamian contractors pre-qualified to bid the 2003 Harrold Road and Bethel Avenue roundabout project. But, while Bahamas Hot Mix's $6.5 million bid met requirements and was in line with Mott McDonald's $6.2 million estimate, the contract was awarded to Bethell's Trucking and its $5.3 million offer, despite the latter being "substantially non-responsive". The Tenders Board, Mr Ingraham said, determined that all tenders for that project should have been rejected for lateness. If it proceeded, the Board said it should have gone to Bahamas Hot Mix. Just prior to Cabinet discussing the issue, Mr Ingraham said Bethell's Trucking and Bahamas Hot Mix announced they had formed a joint venture for the project, and were subsequently awarded a $5.7 million contract. Arguing that cost overruns were not limited to the current road project, Mr Ingraham said the Bethell's Trucking/Bahamas Hot Mix JV completed the job for $7.7 million, some 34 per cent or $2 million more than budgeted. The same JV combination also received the $3.3 million contract for the Robinson /Baillou Hill road roundabout and 0.25 mile dual carriageway linking to Harrold Road. This, again, suffered major cost overruns, the Government rejecting the JV's claim for an additional $3.8 million above the initial $3.3 million contract sum. The project also took 14 months, not the envisaged seven, to complete. As for the Milo Butler Highway extension, the $8.85 million contract awarded to Knowles Construction and Development rose to $10.95 million, including a $1.7 million price escalation cost.