Riding the Dragon

las alturas
Las Alturas buildings cracked. Courtesy T&T Guardian.

This article is about the Las Alturas Enquiry into the collapse of two new Morvant apartment buildings erected by China Jiangsu International Corporation (CJIC) for the Housing Development Corporation (HDC). This Enquiry seems a politically-motivated one into a serious failure of professional practice which could have cost human lives. It is only in its opening stages, but it is already clear to me that this episode is one which contains serious lessons for our country in terms of the role of Enquiries; the role of the Chinese contractors; the culture of non-enforcement which we practice and of course, the impact of targets and political objectives on proper process. In the case of Las Alturas this is a large-scale multiple-housing project constructed on a former quarry-site on the Lady Young Road, just south of the lookout. Two apartment buildings which were completed in late 2010 were eventually declared uninhabitable due to severe cracking and the proposed demolition of those structures was announced at the end of May 2012. Each building comprised 24 three-bedroom/two-bathroom apartments, with the total cost of those buildings stated by HDC to be in the $29M range. The buildings were erected by CJIC on the design/build basis which usually places all responsibility for soil investigation, design and construction onto the contractor.

The role of Enquiries

The JCC offered to work with HDC in determining the causes of this serious failure and that offer was accepted, but our joint exercise did not last very long. The Commission of Enquiry was announced in September 2014 by the Prime Minister and despite the serious nature of the failure at this project, it seemed to suggest an attempt to discredit the Leader of the Opposition, Dr Keith Rowley, who was Minister of Housing between 2003-2007. I still feel that it was a poor choice of issue to investigate, given the burning questions at Invader’s Bay, the Beetham Water Recycling Project, UWI Debe and EFCL, to name just a few. The Terms of Reference of the Enquiry were published in the Gazette of 3 December 2014 and a five-month period was stipulated for its Report to be made to the President.The Enquiry, which is chaired by retired Justice of Appeal Mustapha Ibrahim, is to examine the causes of the structural failure of two blocks of apartments built in 2008-2010 for the HDC by CJIC. The other two Commissioners are eminent Structural Engineers, Dr. Myron Chin and Anthony Farrell. We have also seen reports of the contractor, CJIC, declining to appear at the Enquiry. I consider that refusal to be deplorable and a real sign that serious penalties need to be attached to that course of action. As it is, the fines for non-attendance are nominal, so people can refuse on a whim, since there are few prosecutions for that.

The role of the Chinese contractors

The really stunning revelation here is that the State was aware, since 2011, that these two buildings at Las Alturas had to be demolished. Despite this, CJIC was able, from early 2012 onwards, to compete for and secure the $500M+ contract for UWI’s Debe campus. The JCC protested at the poor process used in procuring that large-scale project. UWI Principal Professor Clement Sankat was advised that in view of the poor performance by CJIC in local State projects – including UTT Tamana, ETeck Wallerfield and various EFCL – no proper evaluation could proceed to recommend that further contracts be granted to that firm. Given that the normal pre-qualification process requires prospective bidders to identify claims, litigations or disputed matters, one can only wonder how CJIC was able to prevail in that project.

Culture of non-enforcement

One of the seldom-discussed findings of the Uff Enquiry was as to the lack of any culture of enforcement of contracts in the State construction sector, as set out in the sidebar. So, I was both thrilled and intrigued by the headline in this newspaper on Friday 6 March 2015 ‘HDC to sue Chinese contractor‘. The role and reputation of Chinese contractors in the local market have long been a bone of contention for the JCC. That statement was made in opening remarks by Vincent Nelson QC, who is the lead Counsel for HDC at this Enquiry –

“…The Housing Development Corporation (HDC) is moving to pursue legal action against China Jiangsu International Corporation (CJIC), the company contracted to construct the two towers at Las Alturas, Morvant, which subsequently had to be demolished because of structural damage resulting from land slippage. Attorney for the HDC, Vincent Nelson, was adamant about this as he delivered his opening statement at the Commission of Enquiry into the housing project yesterday at the Caribbean Court of Justice in Port of Spain…”

The culture of non-enforcement, considered with the chiefs at HDC (who transferred there after abruptly departing Caribbean Airlines), together with the special influence seemingly enjoyed by the Chinese contractors, all make me very sceptical as to whether a real and forceful lawsuit will ever emerge against CJIC.

The role of targets

Finally, one needs to consider the detrimental role of politically-motivated overambitious targets. The 2002 National Housing Policy set an unforgettable target of 100,000 new homes to be built in 10 years, which translates to an annual average of 10,000, which means a literally impossible 200 homes per week. Those are the facts behind the bizarre ‘numbers game’ which in turn likely had a decisive influence on the decision-makers at UDECOTT, HDC and of course the Housing Ministry. It would be useful, in this season of 100 houses a week and a billion dollars in land each year being promised, to reconsider the role of over-ambitious targets in distorting proper process.

SIDEBAR: The Outline Timeline

This is only an outline, but it is instructive –

  • December 2002 – UDECOTT acquires the Las Alturas site.
  • 2003 – Initial layout prepared for a total of 120 apartments, which was revised later that year to 292 units given the Town & Country Planning Division’s advice on the allowable number of units.
  • December 2003 – CJIC wins tender to design & build 297 apartments.
  • November 2004 – Start on Site.
  • 2005/2006 – Soil problems identified on part of the site.
  • July 2005 – UDECOTT rejects project redesigns for lower units numbers of 142 and 167 apartments. Those redesigns were intended to avoid the unsuitable soils.
  • July 2006 – the project is transferred from UDECOTT to HDC.
  • 2008-2010 – Blocks H & I are built onto the areas reported to be unsuitable.
  • 2011 – Blocks H & I are recommended to be demolished due to severe cracking.

We have also seen reports that both UDECOTT and the HDC were resistant to any reduction in unit numbers on the site.

SIDEBAR: Uff’s understanding

The 2010 Uff Report into the Public Sector Construction Industry contains remarkable findings which were not listed amongst the 91 formal recommendations. At page 269 –

“Holding to account 29.21. …A recurrent feature of practice in the construction industry in Trinidad & Tobago is the extent to which rights and obligations prescribed by the Contract are or are not enforced. A simple example, discussed above, is the apparently mutual ignoring of contract provisions…”

At page 271 –

“…29.26. Underlying all the foregoing, however, is the question of enforcement of contractual rights and duties. What has been observed by the Commissioners is a culture of non-enforcement of rights, which appears to operate mutually, for example, by contractors not pressing for payment of outstanding sums while the employer does not enforce payment of liquidated damages. Whatever the explanation, the non-enforcement of contractual rights available to Government is a serious dereliction of duty on the part of those charged with protecting public funds. Equally, the non-pursuit of sums properly owed to commercial companies is a dereliction on the part of the directors of that company…”

The key point disclosed here is that contractual rights are seldom enforced in State contracts. A move to such a regular practice would require a major shift in our country’s governance culture.

The Elephant in the Room

The huge potential supply of State-built, unfinished office buildings in our capital is the ‘Elephant in the Room‘. There are potent elements at play here in terms of the viability of the long-term and large-scale investments which have been made in Port-of-Spain by private and public capital.

At this point, taking account of offices over 25,000 sf in size, there are over 1,500,000 sf of incomplete offices in our capital. This article will examine the likely outcomes for our capital and those investors as the various projects are completed.

Incomplete Port of Spain offices at February 2014 (Over 25,000sf)
Incomplete Port of Spain offices at February 2014 (Over 25,000sf)

The State has 1,329,000 sf of incomplete offices in POS and the private sector has 224,800 sf. The State has virtually seven times more incomplete offices than the private sector and that is the ‘Elephant in the Room’. This chart portrays the reality – the details are set out in the table below.

The legacy of the POS offices built during the previous administration is a matter which deserves serious consideration. The sheer volume of offices built by the State during the previous administration is sobering – 2.3M sf. Given that Nicholas Tower – that elliptical, blue tower on Independence Square – contains 100,000 sf, it means that the State built the equivalent of ‘23 Nicholas Towers‘ in our capital in that period of rapid development.

We also know that there was no attempt at public consultation or feasibility studies by the State or its agent, UDECOTT. At the Uff Enquiry, the Executive Chairman of UDECOTT, Calder Hart, admitted that a feasibility study had been done for only one of those projects. That project is the International Waterfront Centre (IWC), which comprises the two office towers of 890,000 sf, the Hyatt Hotel, New Breakfast Shed and car-parking/outdoor facilities. Hart also admitted, under oath, that the value of the land had been omitted from the viability study for the IWC, so it was a bogus exercise. The break-even rent is the amount which must be earned by a project to repay the cost of land, construction, professional fees and finance. The IWC, repeatedly boasted-of as UDECOTT’s flagship project, is not a viable project, since its break-even rent exceeds the highest rents now earned by A-class offices in POS.

The Parliament has now relocated there during the Red House repairs and renovations. A number of other Ministries and Public Bodies have also started to occupy those offices.

The Office of the Prime Minister is now in the new 75,000 sf building on St. Clair Avenue, opposite to QRC grounds.

The rationale advanced by the Manning administration for that surge in office construction in our capital is that it would free the State from the payment of large monthly rents to private landlords. Although I made several requests, I was never able to get the actual figures for the rents paid by the State in POS. My own familiarity with that market allowed me to estimate the average rent at that time (2007-2009) at about $8-9 per sf. The break-even rents of those new buildings exceeded $25 per sf, so the costs of those office projects would never be recovered. I have read reports that the estimated cost of the Government Campus Plaza, which is the largest element in the POS offices, was recently stated by UDECOTT’s Chairman, Jearlean John, to be of the order of $3.2 Billion.

We can reasonably estimate that the rate of rents paid by the State for office buildings has now increased since 2007, in terms of dollars paid per sf.

The completion of those State-owned office buildings is therefore a matter of the first importance, given the high carrying-costs. There is also the significant issue of the high opportunity cost of the State continuing to occupy rented offices alongside virtually-completed offices.
elephant tablet

Against this background, we are now seeing an active policy of decentralisation of POS offices by the present administration, with several Ministries and Public Bodies being relocated to south and central Trinidad. The decentralisation discussion is one which has been going on since the 1970s and it is an important issue to be pursued, in my opinion. That said, one has to wonder how is the decentralisation to be rationalised, given the existence of this over-supply of State-owned offices in our capital. That is a serious question which needs to be discussed if we are to achieve any proper resolution.

The completion of the State-owned offices is under the management of UDECOTT, the original developers, with recent disclosures from the Finance Minister of plans to sell the buildings and lease them back as a means of financing their completion. The terms of any such proposals would have to be carefully considered to avoid the mistakes and fraudulent behaviour of the past.

The completion and occupation of the State-owned office buildings in POS will pose an existential challenge to those private investors who have built offices for rent. The rental levels for offices in POS are likely to decline significantly, which will impact on the revenues of those investors.

Property Matters – State Enterprise Accounts

State Enterprise Performance Monitoring Manual
In the next few weeks, this column will cover some of the issues which are likely to have a bearing on the 2012 Budget.

In my view the State and its Agencies must perform in an exemplary fashion if we are to progress.  A good example is worth a thousand words.

At page 22 of the 2010-2011 budget statement, the Minister of Finance said –

…Mr. Speaker, no coherent, co-ordinated planning or strategy for state enterprises exists.  As a result we have begun to rationalise the state enterprises, including the special purpose companies, which will incorporate a new accountability system that goes beyond the presently operating company ordinances. It is these loopholes in public accountability that resulted in the UdeCOTT scandal. This must never again happen in Trinidad and Tobago…

The Ministry of Finance has now published a new State Enterprises Performance Monitoring Manual 2011, it is over three times longer than the previous edition, so it will be something to consider in weeks to come.

Certainly, there are stricter requirements in relation to the filing of accounts – at pg 30 of the 2011 guidelines –

3.2.5 AUDITED FINANCIAL STATEMENTS

State Enterprises are required to submit the following:

  1. Audited Financial Statements (2 originals and 120 copies) to the Minister of Finance within four (4) months of their financial year end. These reports are to be laid in Parliament and subsequently submitted to the Public Accounts and Enterprises Committee for consideration;
  2. Copies of their Management letters issued by Statutory Auditors…

At pg 16 of the 2008 edition –

1.3.10 Publishing of Financial Statements by State Enterprises

Government has agreed that State Enterprises be required to publish in at least one (1) major daily newspaper a summary of the audited financial statements within four (4) months to the end of their financial year and a summary of the unaudited half-yearly statements within two (2) months of the mid-year date.

Such summary statements must be in accordance with the requirements of the Securities Industry Act, 1995.

The new guidelines appear to be stricter, but the requirement to publish to the press seems to have been removed.

There are swirling issues on this –

  • No accounts for years – As I have pointed out before, some of the largest State Enterprises have published no accounts for years.  UDECOTT and NHA/HDC are just two examples of this flagrant breach of the shareholders’ instructions as set out above. In the case of HDC, there is a greater concern in my view, since sections 18, 19 and 20 of the HDC Act require the audited accounts to be produced and published.  Anyhow you try to spin it, those are terrible signs.  For a private company to have no accounts, for even a few months, is indicative of poor performance at the very least.  No accounts for years is unacceptable.  One can only wonder how clearly could anyone plan if basic information is being obscured in this fashion.  We expect better from the chiefs of these State Enterprises and certainly we expect better from the Peoples’ Partnership.  In his preamble to the 2010-2011 budget, Minister Dookeran said –

…We must at all times remember who we work for. We must make Government work for the people.  As our Prime Minister always says: serve the people, serve the people, serve the people…

  • Serious debts outstanding – There are continuing reports, despite some efforts, that contractors, consultants and suppliers are owed substantial monies by State Enterprises for extended periods.  That has a disastrous effect on our local economy both on an immediate tangible level and in terms of the more subjective element of confidence.
  • Ambitious new projects continue to be announced, even as the basic accounts are incomplete and substantial bills remain unpaid.

Apart from the evident confusion, at the very highest levels of the State and Government, the unacceptable part is that there is not even an attempt to explain what is the hold-up or what areas of the accounts remain unresolved.  The few times anyone in authority has attempted to explain the delays in those accounts, it has been a model of vagueness and ambiguity.  That uncommunicative behaviour does not augur well.  These State Enterprises are not building a wartime bunker or a new spy satellite, only new homes and offices.

But there is more, according to S. 99 (1) of the Companies Act 1995

  1. every Director of a company shall in exercising his powers and discharging his duties act honestly and in good faith with a view to the best interests of the company; and
  2. exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

Those provisions make mismanagement of a company an offence.  It is literally impossible to manage or direct the affairs of a multi-billion dollar company in the absence of audited accounts.  So there must be serious concerns as to how the Directors of those State Enterprises without accounts could have properly discharged their obligations under S. 99 (1).

SEC logoApart from these points, there is now the fact that the SEC has made Orders in respect of Contraventions of the Securities Industry Act 1995 and the Securities Industry Bye-Laws 1997.  Those Orders are in relation to the failure of these huge State-owned Enterprises to publish their accounts –

  1. 19th March 2010 against HDC, with fines totalling $121,000 – see http://www.ttsec.org.tt/content/pub100326.pdf.
  2. 15th June 2011 against UDECOTT, with fines totalling $120,000 – see http://www.ttsec.org.tt/content/Order-for-settlement-re-UDECOTT.pdf.
  3. 25th July 2011 against HDC, with fines totalling $400,000 – see http://www.ttsec.org.tt/content/Order-for-settlement-re-Trinidad-and-Tobago-Housing-Development-Corporation.pdf.

I was pleased to see the SEC taking this firm action against these offending State Enterprises, it is an important and necessary intervention.  I am not at all sure what, if any, ongoing penalties are being applied.  If there are no ongoing punishments or fines, this important regulator needs to take a tougher stand.  It is simply not good enough in my view for the regulator to levy these fines and allow the companies to carry on with ‘business as usual‘.  That would be like a dutiful policeman ticketing a motorist for smooth tires, no seatbelt and no headlights – issuing the ticket and then letting that motorist drive off.  The SEC needs to consider heavy daily fines and banning orders against Directors of these companies in breach of the law, if such do not already exist.

The era of irresponsibility in high office needs to be brought to a close.  The role of the Treasury in supporting this grossly irresponsible behaviour is questionable.  The silence on the missing accounts is intolerable.  The chapter of getting away with it needs to be ended.

Expenditure of Public money – Accountability – Transparency = CORRUPTION

State Enterprises and Public Procurement

procurement cycleState Enterprises were created to enhance the pace and quality of Public Procurement, yet they are now the scene of the most bedeviling paradoxes in the entire system of public administration.

Some of the key procurement issues which arise in this arena flow directly from the split character of the governance model.

The basic rationale for the existence of State Enterprises is they can be more effective because they are not bound by the strict rules which control the conventional civil service.  The absence of those rules is supposed to allow more latitude in terms of hiring, borrowing and contracting.  State Enterprises can hire professional staff at market rates, enter complex commercial arrangements and borrow on commercial terms, all of which should amount to significant improvements in public services.

The typical State Enterprise is owned by the State, with the shareholding held by the Corporation Sole, an exceptional legal creature which exists within the Ministry of Finance.  Apart from its owner, the State Enterprise will sometimes have a ‘line Ministry’, which would be its sole or main client.  For example, the Ministry of Housing & the Environment is the sole client of the Housing Development Corporation (HDC) and the Ministry of Education is the sole client of the Education Facilities Company Limited (EFCL).

State Enterprises can operate within the existing Companies Act or be established by a separate Act of Parliament, as is the case with the HDC.  That legal framework ought to ensure that a satisfactory standard of corporate governance and accountability is maintained.

The fact is that many of the Directors and Officers of State Enterprises are political appointees, which puts the entire rationale onto a doubtful footing.  Because the salaries and perks are so attractive, not to mention the commercial opportunities, the State Enterprises are prize targets for political appointments and favours.

Some of the main issues which arise when one is considering this sector are –

  • the number of State Enterprises – there needs to be a reduction in the number of State Enterprises.
  • If the politicians can instruct the State Enterprise, via the Permanent Secretary, on specifics, what is the purpose of the Board?
  • Given the preceding point, do the Board members of State Enterprises have the same duties under the Companies Act as in the case of other registered companies?
  • In terms of our proposed Public Procurement legislation, what is the boundary between the fiduciary responsibility of the Directors and the contracting powers of an ‘authorised officer’ – i.e. someone identified as having the power to enter certain contracts?

Proceeding along the Procurement Cycle and using the International Waterfront Centre (IWC) as an example –

  1. Needs Identification – This is the first stage of the Procurement Cycle and it ought to be an objective assessment of needs.  In this case, the IWC was part of a huge, disastrous boom in building new offices in POS – this is all detailed at ‘Capital Concerns – New Office Buildings’ – here.  Before the boom started in 2005, there was 6.5M sq. ft. of offices in Greater POS, at the start of the boom some 3.2M sq. ft., or an additional 50% of the capital’s office supply was approved for construction.  Please remember that Nicholas Tower, which took 5 years to fill, is only 100,000 sq. ft.  Just under 2.8M sq. ft of new offices was actually built in POS in the last 5 years, with 2.3M sq. ft. of that space (82% of it) actually built by the State.  Every State project identified at the outset was executed, but in stark contrast, virtually half the private sector projects stopped before construction began.  The obvious consequence of that over-building by the State has been a collapse in the office rental levels in the capital, which is detailed in the next point.
  2. Reconcile Needs with Funds – This is the stage at which a developer ought to consider critical questions such as the cost of funds, the cost of the project and the returns from it.  That is sometimes called a feasibility test and this is where the IWC dissolves into utter confusion.  When then PM Manning addressed the Senate on 13May 2008, he emphasized that every UDeCOTT project was approved by Cabinet and had been vetted by a Finance Committee on Financial Implications.  That is the most important address if we are to see the depth of the problem with these State Enterprises – see here.  The break-even point on such projects is the rent at which the project can repay its costs of construction – at minimum, those costs would have to include for land, design, construction and finance.  On that ‘bare-bones’ basis, which makes no allowance for maintenance or periods when spaces are vacant, the break-even rent for the IWC is in the $30 per sq. ft. range.  This is the largest single office building ever built in our capital and the best rents ever achieved for space of comparable quality is about half the break-even figure.  There is no way that the IWC project could ever have satisfied any proper feasibility test.  Every new office project started in our capital only increased the supply of offices, which reduced the market rent, which, in turn, increased the gap with the break-even rent.  Under oath at the Uff Enquiry, Calder Hart tried to rationalize the confusion when he confirmed that only one of UDeCOTT’s projects had been subject to a feasibility test and that one was the IWC.  He was even so bold-faced as to estimate a break-even rent in the $20 range, but, when pressed, had to admit that he had left the cost of the land out of the calculations!  That is the extent of the deformed thinking which typified the best schemes of the leading State Enterprise.  Only one of the State’s many office development projects tested for feasibility and in that case, the cost of the land is omitted, yet that same land is included as a part of UDeCOTT’s Assets at $224M in that very financial year.  Political imperatives were allowed to pervert a process which exists to protect the public interest from this kind of empire-building.  But it is in the next part that the full confusion comes to bear.
  3. The rest of the procurement cycle – This is the stage at which tenders were invited for design-build and the winning bidder selected, the project built and the complex opened.  According to UDeCOTT’s statements, the IWC project is its flagship and an outstanding success, having been built on time and within budget.  Even if one accepts those assertions as being true, the IWC project is an example of the tragic consequences of a limited application of proper procurement processes.

As a result we have a completed project which is said to have been built on time and under budget, yet makes no economic sense and has a break-even point at some uncertain point in the future, if ever.

Some collateral damage needs to be noted, to quote one of the former PM’s notable phrases.  Contrary to his statement to the Senate which is cited here, UDeCOTT did not publish its accounts since 2006, which is a breach of both the Companies Act and the Ministry of Finance guidelines.  A total breach of the elementary norms of good corporate governance, which is the protection the private sector structure was supposed to give us taxpayers as a safeguard.  Because of the political element in the operation, we can see clearly that UDeCOTT was carrying-out the instructions of the Cabinet and those Directors have not been punished or censured in any way, apart from their public dismissal.  The consequence of those breaches being condoned at the largest State Enterprises – UDeCOTT and HDC – how does one get the smaller and less-visible State Enterprises to conform to good governance?

If the priest could play, who is we?

This is why we need a complete review of our procurement controls.

An Overview on the CIVIL SOCIETY submission to the Joint Select Committee on PUBLIC PROCUREMENT

This special publication is dedicated to the important issue of Public Procurement.  It is written by the a private sector group, headed by the Joint Consultative Council for the Construction Industry (JCC).  The JCC consists of:

  1. Association of Professional Engineers of Trinidad & Tobago (APETT)
  2. Trinidad & Tobago Institute of Architects (TTIA)
  3.  Board of Architecture of Trinidad & Tobago (BOATT) – observer status
  4. Trinidad & Tobago Society of Planners (TTSP)
  5. Trinidad & Tobago Contractors’ Association (TTCA)
  6. Institute of Surveyors of Trinidad & Tobago (ISTT) comprising Land Surveyors, Quantity Surveyors and Valuation Surveyors.

The private sector group consisted of –

  • Joint Consultative Council for the Construction Industry
  • Trinidad & Tobago Chamber of Industry & Commerce
  • Trinidad & Tobago Manufacturers’ Association
  • Trinidad & Tobago Transparency Institute.

The members of that Private Sector group were part of the Working Party on the Public Procurement White Paper, which was published in August 2005 and laid in Parliament the following month.

The Peoples’ Partnership’s manifesto, at page 18, commits to –

Procurement

  • Prioritise the passing of procurement legislation and appropriate rules and regulations
  • Establish equitable arrangements for an efficient procurement system ensuring transparency and accountability by all government departments and state enterprises…

In keeping with those campaign promises, the Minister of Finance tabled two legislative proposals in Parliament on 25 June 2010.  Those were a Bill to amend the Central Tenders’ Board Act (originally prepared in 1997, when Ramesh Lawrence Maharaj was Attorney General) and the Public Procurement Bill (originally prepared in 2006, after publication of the White paper).  A Joint Select Committee (JSC) was established on 1 October 2010 to examine those proposals, invite submissions and make recommendations.

The stated target of the PP government is to have the new Public Procurement legislation in place by the first anniversary of their electoral victory – i.e. by 25 May 2011.

Our Private Sector/Civil Society group reconvened last year and made a joint submission to the JSC in December 2010 – it is available here from the JCC‘s website.  Our Private Sector group has had several meetings with the JSC – which was chaired by Education Minister, Dr. Tim Gopeesingh – but the results of those are not featured in this publication.

This special publication is intended to inform readers of the necessity for new Public Procurement legislation in our country and to set out the objectives of our proposals.

The guiding Principles

 These are –

  • Transparency
  • Accountability
  • Value for Money

The broad picture

One of the most serious findings of both the Bernard Enquiry (Piarco Airport Project) and the Uff Report (UDeCOTT and HDC) was the extent to which the largest State projects were being executed outside of any normal system of accountability.  The very purpose of setting up these companies and procurement methods was to bypass the Central Tenders Board.  The natural consequence of that way of proceeding being that if the CTB could be sidelined as a deliberate act of public policy, then other important elements of the regulatory framework are violated as a matter of course.  In the case of both UDeCOTT and NHA/HDC, accounts were not filed for years – since 2006 for the former and 2002 for the latter – in flagrant violation of the rules and laws.

These were the largest State projects – often described as being the flagship or centre-piece of this or that government’s policy – yet they were breaking the main rules and getting away with it.  The ‘getting away with it’ is the cloudy part of the picture, because we never hear of any penalty being sought against those State Enterprise Directors who broke the governance rules.

But that is the very centre of the puzzle and we need to understand it before we can try to unlock it.  So, we are told, time and again, that the only way to really get important and urgent projects done in the correct fashion is to go outside the rules.  The stated reasons are that the old rules are too cumbersome, slow etc… and yet, we end up, time and again, in the same mess.

Some of the features of these fiascos are –

  • Huge cost over-runs on virtually every project.
  • Unfinished projects which virtually no one can make sense of – to date there is no proper rationale for the huge and loss-leading International Waterfront Project, apart from Calder Hart’s bogus explanation to the Uff Enquiry.
  • A gross burden on our Treasury going forward – The continuing delay in completing the accounts for these State Enterprises shows how difficult it is to work out exactly what the State owes and to whom.

What all that tells us is that the existing rule-book seems to be blocking progress and the attempts to bypass it have done little better, if not far worse.

The dismal picture on public procurement is not limited to construction projects and can be found in all the other areas.

A new approach is needed and that is what is at the foundation of these legislative proposals.

What is Public Money?

Central to the new proposals is that any new Public Procurement system must be in full effect whenever Public Money is spent.

Public Money’ is defined at page 5 of our proposals as money which is either due to, or ultimately payable by, the State.

Our proposals are intended to form part of a financial management reform package to include for a National Audit Office and a Financial Management and Accountability Bill.

The intended move is towards a greater transparency and duty of care in terms of how taxpayers’ money is spent.  Our citizens, particularly the unborn ones who will have to pay for some of the wasteful schemes which are littering the landscape, deserve no less.

The new equation confronting us is –

Expenditure of Public Money
minus            Accountability
minus            Transparency
equals         CORRUPTION

We must fix that.

So, what is at stake here?

Our society is beset by large-scale corruption, which sustains wrong-headed decision-making.  The wider social consequences of that toxic culture are now hatching, with a vengeance, in the naked violence and wily crimes which pre-occupy our head-space.

The killing-fields of East POS, the decimation of African urban youths, the URP and CEPEP gangs and the battle for turf are all part of this picture.

As long as our society continues to applaud and reward dishonest, corrupt behaviour, we will continue sliding downhill.

The structure of our economy is that most of the country’s foreign exchange is earned by the State in the form of oil & gas earnings.  The rest of the society relies on the State and its organs to recycle those earnings for the benefit of those of us not directly engaged in the energy sector.

For that reason, the State casts a very long shadow in our country, far more so than in other places.  Virtually every substantial business relies on the State and its organs for a significant part of its earnings.  A healthy connection with the State is essential for good profits.

But that is where the particular problem is, since the conduct of the State and its organs is often found to be lacking in the basic ingredients of fairplay, accountability and transparency.

If the State is the biggest source of funds in the place and the State is not playing straight at all, a serious question arises – How can we hope to uplift our society?

The State has an over-riding duty to behave in an exemplary fashion in its policy and operations.

Due to its tremendous footprint, the State has to behave in that exemplary fashion if we are to move out of this mess.  A positive shift in State conduct will have a salutary effect on the commercial culture and wider society, one that is long overdue.

So, who spends Public Money?

We have a vast, expensive and confusing array of organs, all of which are authorized to spend our money.  For a country of about 1.4M people, we have 26 Ministries.  Just consider that the UK, with a population of about 65 million, has 19 Ministries and the USA, with a population of about 300 million, has 16 Ministries.  For a Caribbean example, Jamaica has twice our population and 16 Ministries.

Quite apart from the number of Ministries, there are two further layers of agencies which also have the power to spend – our country has 73 Government Bodies and 58 State Enterprises.

Given the vast range of operations undertaken by these agencies, any new system would have to be flexible in order to cover all those types of transactions.

The main features of the new system

Three new independent organs will be created –

    1. The Procurement Regulator (PR), with the duty to create overall Guidelines and a common handbook to guide the public procurement process.  The Regulator is appointed by the President in his own discretion and reports only to the Parliament.  Agencies can create their own procurement handbooks, once these conform to the overall Guidelines, as approved by the Procurement Regulator.
    2. The Public Procurement Commission (PPC) will be the investigative arm of the new apparatus to which complaints will be directed.
    3. The National Procurement Advisory Council (NPAC) will be purely advisory and comprises 14 members from a broad range of named private sector/civil society organisations – the JCC, Manufacturers’ Association, Chamber of Commerce, Transparency Institute – as well as the Ministry of Finance and the Tobago House of Assembly.

All expenses are to be drawn on the Consolidated Fund, with the Procurement Regulator and Advisory Council required to report annually to Parliament.

A vital part of our proposals is that Cabinet, Government Ministers or politicians are prohibited from instructing or directing these new agencies in any way.

They are intended to be entirely independent of political influence, which conforms to the proposals in the White Paper.

That freedom from political influence was also specified in both the 1997 and 2006 draft legislation.

A Complaints Procedure

The proposed system will create clear rights to make complaints or report wrongdoing.  Those rights are an important aspect of any modern procurement system and we propose three types of complaints/investigations –

  1. Potential tenderers/suppliers can complain, in the first instance directly to the Agency with which the tendering opportunity resides, then, if that is not dealt with satisfactorily, they can complain to the Public Procurement Commission.  Ultimately, the right to seek the protection of the High Court is preserved, once the established complaints procedure has been followed.
  2. The Whistleblower – We are proposing that whistleblowers be given legislative protection and practical means to bring their complaints direct to the Public Procurement Commission.
  3. The Public Procurement Commission can also, on its own initiative, start an investigation into an area of concern.

There are strict time-limits for acknowledgement and resolution of complaints.

Our proposal is for the Public Procurement Commission to have powers to punish both frivolous complainants as well as parties found to be in breach of the new system.  Those can range from fines to embargoes, during which offending parties can be banned from tendering opportunities.  Offending public officers can be subject to both fines and/or imprisonment.

The concern over the cost of the new apparatus

One of the most frequently expressed criticisms is that as critics of the rationale and operations of significant State Enterprises, we seem to be proposing a new series of state-funded agencies.  Some people have pointed out that these offices are unlikely to be cheap, particularly the PPC, which is to be constituted as a standing Commission of Enquiry under those existing legal provisions.

Yes, there will be new agencies and yes, they will cost money.

Given the recent revelations as to the cost of the Uff Enquiry – already estimated to exceed $50M – there are genuine concerns that we could soon have three new state-funded agencies which could absorb maybe $100M a year.

The challenge here is to move beyond the obvious and factual observations so that we can consider the decisive factors.  Our proposals have the promotion of Value for Money as one of its founding principles and that is good for the public.  So, how can we measure the value for money of these proposals, at this stage?

The scale of public procurement spending

In the case of expenditures direct out of the Ministries, the 2011 Budget has an anticipated capital expenditure for the Ministries of $7.050Bn, as per para 8 at page 4 of the Public Sector Investment Program (PSIP).

Also in that Budget there is an anticipated capital expenditure for the State Enterprises of $6.725Bn, as per the Foreword at page 4 of the Supplementary Public Sector Investment Program (Supplementary PSIP).  The combined figure of $13.775Bn is only for projects, so it excludes the salaries, rents and normal running expenses.  Please note that other elements in public expenditure, beyond just capital projects, will be covered by these proposals.  The guiding principle being that those activities involve the expenditure of Public Money.

There are very limited exemptions from the proposed provisions and those can be viewed at the JCC website.

I am also sure that there are other ways in which Public Money is being expended which are not shown in the national Budget, so the amounts are surely larger than that estimate.

The potential for savings

The scale of the public transactions, involving Public Money, which will come under the control of this new system is huge, at least $14Bn in size.  Even if the new system only saves 5% of that sum every year, we can easily justify an annual running expense in the $100M range, as mentioned earlier. 5% of $14Bn is $700M.

In the next 30 days, we expect our Legislators to make the crucial decisions on this series of proposals and we all need to be vigilant to preserve the key points.

Those key points would include –

  • Heads of Independent organs to be appointed by the President
  • Separation of the Regulator from the Investigator
  • Regulations laid in Parliament for negative resolution, with no Ministerial or Cabinet approval required.
  • Independent Organs funded from the Consolidated Fund, with no requirement to seek a Ministerial approval or Budget vote.
  • Accountability is ensured by the requirement to report annually to Parliament.
  • Private Sector/Civil Society oversight via the National Procurement Advisory Council.
  • Proper provisions for complaints and Whistle-Blowers.

The ultimate question, given what we know now, is – Can we afford not to take this step?

At this unique and challenging moment in what has been a long, twisted journey, the prospects of more corruption and waste are grim.

For these proposals to succeed, the legislators will have to vote in favour of a new law which reduces their power and discretion.  To some, that might be an impossible contradiction and an unreasonable thing to expect, but there will be considerable political credit to the account of those who make this change happen.  Our citizens deserve no less.

Freedom of Information in the CL Financial bailout

This – clfFoI-1 – is a copy of the letter sent today from my attorney to the Ministry of Finance, requesting that they provide –

  • ‘The Duprey letter’ – The fateful 13th January 2009 CL Financial letter, signed by Lawrence Duprey, seeking urgent and massive financial assistance from the Central Bank.
  • CL Financial’s 2008 audited accounts – These should have been prepared by PriceWaterhouseCoopers, as at 31st December 2008 and of course those are of great interest, since the 2007 audited accounts (published on 18th November 2008) disclosed assets of $100.6Bn, while ‘the Duprey letter’ showed assets of $23.9Bn.

The letter invites the Ministry of Finance to send the documents in 10 days or we go to the High Court.

Given the current state of play at the Colman Commission, there are no prizes for guessing which of those is going to happen.

Housing Policy Imperatives – part 6

I am bringing this analysis to a close by asking the question as to which individuals are ultimately responsible for this scandalous situation.  The age-old questions persist – Are we mere creatures of circumstance?  What influence can one individual have on transforming a situation?  Do modern outlooks over-emphasise the power of the individual?

We need to close the circle to understand the role of the high-powered individuals in charge of this policy.

The Author of the Policy

Calder Hart
Former HMB and UDeCOTT CEO, Calder Hart

Calder Hart, then CEO of Home Mortgage Bank and well-known to be a protégé of Andre Monteil’s, claimed to have authored our National Housing Policy – ‘Showing Trinidad & Tobago a new way home

In October 2002, Hart told me that in his office and he made a point of seeking my views of the new policy.

I questioned the originality, relevance and feasibility of the proposed policies and a frank discussion ensued.  It seemed clear, from Hart’s reaction and subsequent behaviour, that he had indeed taken authorship of that misguided policy.

That policy can be viewed at here.  Given their non-involvement in the later stages, it is interesting that the cover-page of the housing policy highlights UdeCOTT as a main state agency in its implementation.

The Minister of Housing

Keith Rowley
Former Min. of Housing, Dr. Keith Rowley, M.P.

The Minister of Housing with longest tenure through this period was Dr. Keith Rowley, M.P., currently leader of the Opposition PNM – he was in that office from  November 2003 to November 2007 – see http://www.ttparliament.org/members.php?mid=26&pid=5&id=KRO01.

The HDC was launched on 1st October 2005 to replace the National Housing Authority.  The Trinidad and Tobago Guardian newspaper reported Dr. Rowley’s remarks at that time – see http://legacy.guardian.co.tt/archives/2005-10-15/news7.html

Earlier, Rowley said the NHA was restructured because it lacked accountability.

There are a lot of things that did not go right in the NHA and one of those things had to do with accountability…The HDC is not going to function like that. We are required by law to have the accounts ready in a certain period of time.  The CEO will be held accountable and the Cabinet will hold the minister accountable and the Parliament will hold the Cabinet accountable. That is what the HDC means.

“…the HDC never published any accounts in the 5 years of its existence. It goes even further, since the NHA’s accounts for the period 2002 to 2004 have only recently been prepared.”

Continue reading “Housing Policy Imperatives – part 6”

VIDEO: First Up Interview – 18 May 2010

VIDEO: First Up Interview – 18 May 2010

Afra Raymond sits down with Jessie May Ventour and Derek Ramsamooj for a discussion of matters pertaining to the construction industry prior to the national elections. Topics include UDeCOTT, the controversial Guanapo church and the Uff Commission Report.

  • Programme Air Date: Tuesday, 18 May 2010
  • Programme Length: 0:40:33

Learning the Lessons of the UDeCOTT fiasco: Part 3

The reflections continue this week, by drawing heavily on the text of the Uff Report and the transcripts of the Uff Commission, to set some of the scandalous facts into context.  This is for those who are still wondering ‘What was it all really for?

Last week I wrote that the State must behave in an exemplary fashion.  It is also important to know that the State has a responsibility beyond the moral plane.  On an entirely practical level, it is clear that the State controls the majority of economic activity in our nation. As such, it is responsible for the majority of construction projects in the country.  If we exclude the exceptional projects built for the energy sector, over 75% of the construction in the country is carried out by the State.

Apart from statutory undertakers – like TTEC, WASA, TSTT etc. – the State carries out most of its capital investment via various SPEs.  Those would include:
SPE logos

  • National Infrastructure Development Co. (NIDCO)
  • Housing Development Corporation (HDC)
  • Urban Development Corporation of T & T (UDeCOTT)
  • University of Trinidad & Tobago (UTT)
  • Evolving TecKnologies and Enterprise Development Company Limited (e TecK)
  • Education Facilities Co. Ltd (EFCL)

The conduct of the State is therefore fundamental to the conduct of a huge slice of the business activity in our country.  If the behaviour in the majority of our commercial relationships is improper, that is good reason for the cynical attitudes and poor standards which flourish.

Yes, there is considerable ambiguity in the term ‘improper’ and I am therefore going to illustrate.

  • The role of Boards of SPEs – As I said when warning against the appointment of Michael Annisette as an Independent Senator – see https://afraraymond.wordpress.com/2010/04/22/2008/01/12/an-unhealthy-choice/ – speaking of “…Directorships in significant State-owned enterprises…it is a widely-held view that such appointments, especially to those who are not experts in the relevant fields, are only offered to those in political favour.  To put it plainly, one would hardly expect to see UNC or COP members, however expert, on State Boards under a PNM administration…”  Despite the fact that there are many excellent and hardworking Directors of SPEs, that is the background to those appointments.  Just to make sure, given the ‘silly season’ we have entered, I am equally convinced that when UNC was last in power they also allocated those SPE Directorships in a similar fashion.
  • The role of the Executive Management – Suffice to say that there is little difference in the considerations when making those appointments.
  • The role of consultants and contractors – It is impossible to say who these stakeholders support, apart from themselves.

One of the perennial questions is ‘How come State projects are almost always overbudget and late?’   That is a truly universal question and the problem, if only the main element is isolated for discussion, is that the parties are too close.

The typical contractual and managerial controls of budgets, accounting systems, independent professional advice and penalty clauses were all violated wantonly.  Our Treasury has been plundered.  See the sidebar for an extract from the Uff Report.

UDeCOTT and the HDC are the State’s two main agencies in the move to physical development, they are both under the Ministry of Planning, Housing and the Environment.

We are now clear that both have been failures when measured against the goals set for them.  The sheer scale of the failure will be set out next week in this space, again with extracts from the published record.

We need to ask what has to happen differently?  Can we make the change?

SIDEBAR: What is ‘Good Governance?’

Governance is one of the vexed aspects of this discussion on the purpose and performance of Special Purpose Entities (SPEs).  Whether we are looking at the HDC or UDeCOTT, the concerns are similar.

At the national level, we can have a broad description of good governance which includes elements such as – equity, participation, accountability, transparency and conforming to the rule of law.  Of course, when we focus on the SPEs, there is a narrower definition of good corporate governance being the rules which are followed by a Board of Directors to achieve fairness, accountability and transparency in the relations with the company’s stakeholders.

When one considers that the SPEs were introduced to overcome the delays of the old civil service rules, their corporate governance rules are key in achieving those elusive levels of performance.

  • Extract from the Uff Report – Paras 62 and 63 at pages 33/34.

    “Holding to account

    62. We have observed, in the context of contractual issues as well as regulatory matters that there exists a culture of non-enforcement which appears to operate on a mutual basis. Contractors seem reluctant to issue proceedings for payments overdue or to enforce claims and employers in turn refrain from enforcing time obligations which are routinely not complied with.  In regard to delay issues, the point was demonstrated by the fact that no witness or representative appearing at the enquiry was able to quote any case in which a contractor had actually been required to pay or had been debited with liquidated damages. In the wider field there was a tacit acceptance that regulatory approvals, particularly as to planning, were rarely given in a final form before the work was performed, this coupled with an expectation that such approval would be forthcoming retrospectively.

    63. At the same time we had the impression that one contractor who made a habit of enforcing contractual rights, if necessary by formal proceedings, was regarded as being “confrontational”.  Such an attitude does not sit well with the careful drawing up of commercial agreements; nor with competitive tending, which is carried out on the basis that contracts will be enforced.  It is also inconsistent with the clear duty of directors of companies and public bodies to enforce the contracts they negotiate and enter into.  If there is a desire to promote the timely and proper performance of public sector contracts, this will only be achieved by holding parties to account for any breaches of contracts freely entered into; as well as enforcement of legal duties in regard to regulatory matters. Enforcement must also be assured through efficient and timely processes of courts and other tribunals.”

The emphases are mine.

Learning the Lessons of the UdeCOTT fiasco

Former UDeCOTT Board
Former UDeCOTT Board, (l-r) Dr. Krishna Bahadoorsingh, Sen. Michael Annisette, Mr. Anthony Cherrie, Mr. Wendell Dottin

The leaking of the Uff Report, the delayed dismissal of the remaining, ‘squeaky-clean’ UdeCOTT Board members and the dissolution of Parliament are all part of a major distraction operation. The fallout from suppressing the Uff Report would have been huge and unpredictable, so the name of the game was spin. That spin is what we have been getting from government ever since we entered the end-game. The ultimate attempt to distract us was of course the dissolution of the Parliament by FAX on Thursday 8th April.

The strategy seems to be an attempt to provide the media and the population with even more interesting talking points, so that the Uff Report slips into obscurity. I expect that if the incumbent party is returned to office, there will be attempts to claim that the ‘mandate’ granted by that vote is a justification for the matters revealed in the Uff Report. Already a large slice of attention has been shifted to the impending elections, as expected.

I have no intention of allowing those distractions to take hold. I will continue to write on the lessons of the UdeCOTT fiasco.

This entire series of revelations is historic in that finally we have a Report by a Commission of Enquiry published. The second note for us is that it raises once again sobering governance issues, including matters of professional integrity and Directors’ responsibility. Those are aspects into which Property Matters will delve in the coming series.

Some main points for us to consider –

  • Cleaver Heights – The Uff Report makes it clear that there is no missing money. None. There are other serious concerns addressed in the Report as to the change in the form of contract and the fact that some $140M was paid to the contractor without title having passed to the State. I do agree that those are matters worthy of further investigation. To be clear, the questions would have to be whether any undue benefit was enjoyed by the contractor and, if so, how did the HDC’s checks and balances fail to detect and arrest this? Please note that the entire contract sum was never estimated to exceed $150M for this project. That said, we still have two mysterious parts of the puzzle to figure out – firstly, now that, under cross-examination, everyone has denied doing so, ‘Who told the Prime Minister that blatant untruth about ‘missing money’? Secondly, the renowned Forensic Accountant, Bob Lindquist, has been investigating the Cleaver Heights project for some considerable time now, so what are his findings? Note well that I am not asking for his report, since some ‘bright’ person would be quick to say that he never submitted his report or that it is incomplete. I am asking for his findings, even the interim ones, before we spend more money on more investigations.
  • The non-gazetting of the Uff Commission – We were all shocked to learn, at the end of August 2009, that the Enquiry had not been properly set-up, due the failure to ‘Gazette’. A special, one-man Enquiry into that episode was launched by the AG, with a final report handed into the AG on 9th December 2009 by retired Judge, Anthony Lucky – see http://guardian.co.tt/news/politics/2009/12/10/lucky-report-goes-cabinet-today-lead-pg3. What are the findings of the Lucky Report, Mr. AG? I think that we need to know and now, please.
  • Was there any evidence of criminal wrongdoing by UdeCOTT? – According to Para 14.41 of the Uff Report – “…there should be an investigation by an appropriate criminal law Authority into the award of the MLA contract to CH Development to include the role of Mr. Calder Hart and the conduct of the Board in not ensuring that an enforceable guarantee was given by the parent company of CH Development….”
  • Calder Hart – Was Calder Hart a good executive manager, who may have just ‘over-reached’ his authority in an effort to meet his demanding targets? According to Para 12.55 of the Uff Report – “…We have noted the apparent absence of any note of criticism or dissent within the UdeCOTT staff and the dominant influence of the Executive Chairman, Mr. Calder Hart. To the extent the failure of senior staff and directors to raise any voice in opposition to the level of financial irregularity found on the Brian Lara Project amounts to loyalty, such loyalty is clearly misplaced…”
  • That UdeCOTT Board – It was a relief to see the dismissal of these Directors. In fact, the more one considers their bizarre and reckless statements, the more obvious it was that this was indeed a large corporation in crisis. Problem was, that it was our money they were wasting and worse yet, failing to publish audited account for three years. A sad example of wrong and strong. The AG said, on 1st April as he announced that the Uff Report would be published in full, that Calder Hart was just ‘an ordinary citizen’. It seems to me that Calder Hart enjoyed benefits far beyond those extended to the ‘ordinary citizen’. I have never heard of the PM tipping off anyone else under serious investigation. The other UdeCOTT Board members were not given the ‘tip’ to resign and have had to be fired. There must be a lesson in there, somewhere.
  • The Model – This colossal failure is such as to prompt a serious re-examination of the idea that the Special Purpose Entity (SPE)is the preferred vehicle for our national development. The continued down-sizing and sidelining of Ministries and the promotion of SPEs have continued apace, most recently in the TTRA proposals. I am saying that it is time to soberly re-examine these ideas against the actual results, so that we can chart a better way forward.

Next, I will be examining the implications of the SPE model and its effects on the nation.