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OCG alarmed at ballooning contract costs

Published:Tuesday | June 9, 2015 | 12:00 AMDaraine Luton

There has been a 7.5 per cent increase in the number of public-sector entities that have reported cost overruns or contract variations, resulting in $2.59 billion in unprogrammed spending by taxpayers.

Contractor General Dirk Harrison, in his office's 27th annual report, which was tabled in Parliament last week, said that in 2013, his office requisitioned 200 public bodies, 49.5 per cent of which indicated that there were no cost overruns or variations. This, however, is a deterioration from the previous year. In 2012, 57 per cent of 198 public-sector entities requisitioned reported no cost overruns or contract variations.

The data submitted by public bodies to the contractor general reveal that in 2013, the combined goods, works and services, contracts of which have value greater than $500,000, were at approximately $19 billion. The contractor general found that overruns cost taxpayers $499 million and variations resulted in an additional $2.1 billion being spent.

"The OCG (Office of the Contractor General) is reiterating the recommendation in its 2012 annual report that in order for the entities to significantly reduce the occurrence of cost overruns and variations associated with these contracts, a greater level of diligence needs to be undertaken and at the pre-contract stage of the procurement process and there needs to be greater supervision during the implementation state of the contract," Harrison wrote in his report.

 

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The data indicate that the procurement of works, with 3.7 per cent, has the highest percentage of cost overruns, followed by goods and services with 1.98 per cent and 1.92 per cent, respectively. For instance, infrastructure works and housing construction at the Hellshire Phase IV housing scheme in St Catherine racked up an extra $150 million in overruns. Some $1.25 billion was budgeted for the project.

Another St Catherine project - the development of a new water source for South East St Catherine - which has an original contract sum of $1.27 million was overrun by $36.7 million.

There has also been an $18-million overrun on the construction of a Youth Information Centre in Spanish Town, St Catherine. The project was budgeted to cost $70.8 million.

The government procurement guidelines define cost overruns as an increase in the contract sum resulting from escalation in the price of labour and/or material. Variation refers to the change in the deliverables under the contract, caused by a change in the scope of work.

In the meantime, Harrison has blamed several project delays in the public sector on poor performance and tardiness by contractors.

In applying set formula to determine whether the required result is being achieved in respect of several projects, the contractor general pointed to several cases of poor performance by contractors in project implementation.

Contractors NF Barnes & Equipment Company Limited, which won an $802.5-million contract to carry out works on the Boscobel Housing & Infrastructure Project, was adjudged to have performed poorly, and this, coupled with "less than diligent project management and financial constraints by the entity" has resulted in the project being significantly behind schedule.

Two major projects being implemented by the Ministry of Agriculture through the Sugar Transformation Unit, have also come in for sharp criticism by the OCG because of poor implementation. In one instance, contractor DR Foote Construction Company Limited requested to have the time for completing the Barracks Relocation Project at Spicey Hill, Trelawny, varied, because of a series of implementation flaws. These include the absence of sewer drawings and information related to storm-water drainage.

In addition, there was inadequate data on soil conditions that resulted in variations and additional costs for excavation works related to pipe laying and manhole inverts on the nearly $60-million project.

daraine.luton@gleanerjm.com