OCG slams NIF dealmaking over Braco
Published:Friday | March 14, 2014 | 12:00 AM
Avia Collinder, Business Reporter
The Contractor general has found a number of breaches of procurement rules in a deal struck between NIF and hotel group Blue Diamond Hotels and Resorts but has recommended no punitive action, opting instead to use the case as a teaching moment for the public sector.
The agency has also put the National Insurance Fund (NIF) on notice that it would be taking a microscope to the deal struck with another foreign hotel group, Melia Hotels.
The Office of the Contractor General (OCG), following a probe of the management agreement for Braco Resort in Trelawny, noted in a report dated February that there were clear breaches of contracting guidelines and reminded both NIF and the Ministry of Labour and Social Security that such breaches were in fact 'criminal'.
The OCG concluded that the "actions and inactions" of the NIF and the ministry were "improper, irregular and inappropriate".
On Wednesday, NIF Senior Director of Investments Audrey Deer-Williams told the Financial Gleaner that the agency would make no comment on the report at this time.
She said the procurement process for upgrades at the Trelawny property was under way ahead of Braco's planned reopening for winter 2014 under Melia's management.
Refurbishment is estimated at over $1 billion.
NIF in late 2011 contracted Blue Diamond Hotels and Resorts to manage Braco Resort, which is owned 100 per cent by the pension fund.
The management agreement called for Blue Diamond to pay NIF US$500,000 in the first six months of operation ending April 2013, and then US$1.3 million per year if the contract was extended beyond the interim period. The arrangement was approved by Cabinet in August 2011.
Blue Diamond - in addition to rental terms - promised as part of the Sunwing Travel Group to increase airlift to Jamaica by two planes in support of the hotel at its reopening.
The hotel company would also provide the funding for investments in hardware, soft goods, staff and training, guest satisfaction, plant maintenance "to meet or exceed" Braco's existing condition, and committed to "cover all operating costs of the hotel, including any potential operating losses during the period of this interim agreement", the OCG report said.
The interim arrangement was not extended for a year to May 31, 2013. NIF last year contracted with Melia for the same property.
Blue Diamond was said by NIF and the ministry to be the only company willing to accept a six-month lease for Braco - an offer made following assessments ofoffers from Karisma Hotels and Resort Corporation Limited,Blue Diamond, Desires Hotel, and H10 by Ocean Hotels, according to the Contractor General's report.
But, citing a number of breaches, the OCG additionally notes that Blue Diamond only became National Contracts Commission-certified after the agreement was reached.
"The OCG cautions that pursuant to Section 40 of the Public Sector Procurement Regulations (2008), the breaches and contraventions of the procurement guidelines, which have been identified herein, amount to a criminal offence and carries with it sanctions, upon conviction in a Resident Magistrate's Court, of a fine not exceeding one thousand dollars and/or to imprisonment for a term not exceeding three months or to both such fine and imprisonment," the report states.
The Contractor General, however, made no recommendation for action against NIF, only that it be more closely monitored.
Instead the report chose to lecture Government's accountable officers as a body on their obligations under the law.
The OCG, headed by Dirk Harrison, reminded all heads of government agencies and accountable officers that guideline breaches are serious and may attract penalties, saying they constitute a "criminal offence", even when Cabinet has approved the contracts.
Regarding the NIF, the OCG recommended that frequent compliance reviews of the accounting, procurement and public administration management practices at the pension fund be undertaken by the Public Administration and Appropriations Committee of the House of Representatives, the Auditor General and the Ministry of Finance and the Public Service.
The contract watchdog also announced its own intention to closely monitor the process under which Spanish chain Melia Hotels is being selected to take over the management of Braco, noting that it was informed of the management agreement signed between Melia Hotels International and the Commissioner of Lands, the Accountant General, and NIF Resort Management Company Limited by Deer-Williams in a letter dated January 9, 2014.
Braco is one of several properties which have provided diminished returns for the pension fund since the onset of the global recession in December 2008.
Following the abrupt termination of an agreement with SuperClubs in 2010, the NIF embarked a search for either a buyer or lessee. It was approved by government for divestment
The property has valuations - as indicated in the OCG report - of US$24 million to US$36 million, but has so far failed to secure a buyer.
Breach of procedures occurred in 2011, the OCG said, while detailing a chain of events starting with the receipt of an 'unsolicited proposal' from the Blue Diamond on August 12, 2011 sent to the attention Deer- Williams and Ludlow Bowie.
A cabinet submission on August 19, 2011 disclosed that Ministry of Labour and Social Security, then headed by Pearnel Charles, was recommending the engagement of Blue Diamond Hotels to manage Hotel for six months commencing November 1, 2011 and ending on April 30, 2012, and that the hotel group was selected from among a number of offers.
The OCG describes the process of selection as "lacking in transparency", even while citing the explanation given by responsible officers that while there was a tender process to seek a long term lessee for the hotel, "because of the urgent need to re-open the hotel in time to meet the start of the 2011/2012 winter tourist season... there was no formal tender process to identify an interim manager/operator."
The breaches detailed by the OCG included:
- failure to utilise a formal tender process;
- failure to draft tender specifications and the failure to prepare a Tender Document/RFP in the solicitation of bids;
- failure to prepare a tender evaluation report, and;
- failure to strictly adhere to the procedures for the procurement of goods, general services and works, as articulated in the prevailing guidelines (GHPPP, October 2010).
The report further states, that while the Contractor General's office "recognises the overarching difficulties which were stated to have been experienced by the NIF, as a result of the premature termination of its lease agreement with the SuperClubs Group, the OCG must, nonetheless, recommend and encourage the NIF to ensure that transactions involving the use of state resources and funds are conducted in a transparent manner to ensure, amongst other things, the integrity of the process."
At the time, SuperClubs had been paying NIF US$2.4 million monthly for its lease of the property.
The OCG admonished NIF and Ministry of Labour officers, going forward, to ensure "scrupulous compliance" with the now revised and applicable procurement procedures in the Handbook of Public Sector Procurement Procedures.
Care is needed, it said, in respect of the "constitution of the procurement committee, the oversight which it provides to the evaluation of tenders, and the proper maintenance of procurement records, in light of the handbook's provisions.
It also cautioned accountable officers to observe and conform to "the provisions which govern unsolicited proposals, and advised NIF to henceforth promote competition in the procurement process.
"The OCG is of the considered opinion that within the respective organisations of the public sector, there should be adequate 'check and balance' mechanisms which are designed to promote transparency, integrity and probity in the management and administration of the affairs of the state," the report stated, while cautioning other public bodies to take note.