Privatisation Unit defends Synergy termination
Posted By Stabroek editor On January 16, 2012 In Local |
Amid a barrage of criticism, the Privatisation Unit this evening denied that the termination of the Synergy contract for the Amaila Falls access road was because of the changed political circumstances and it argued that the government had received value for money and other contractors would be hired to finish the project.
The statement by the PU steered clear of continuing questions about whether Synergy was qualified in the first place to undertake the massive road building project but insisted that the government’s actions on the contract were “consistent with normal practices”.
The government’s termination of the contract on January 12, 2012 came even though it had amended the agreement – just weeks prior on December 21, 2011. Observers said given the government’s previous indulgence of delays in the Synergy contract, termination just weeks after amendment of the agreement seemed unusual. With the government not holding a majority in Parliament there will likely be calls for an investigation of controversial contracts like Synergy’s.
According to the PU, Synergy Holdings’ tender sum for the project was US$15.4M – the lowest – and within the evaluation criteria, price was weighted the highest. The other tenders went as high as US$26M.
It was also disclosed in the PU statement that the monies paid thus far to Synergy are below the value of the work completed.
Synergy was awarded a contract for the “upgrading of approximately 85 km of existing roadway, the design and construction of approximately 110 km of virgin roadway, the design and construction of two new pontoon crossings at the Essequibo and Kuribrong rivers”. It was also supposed to clear a pathway alongside the road for the installation of transmission lines. Critics had said that Synergy did not have experience with building such roads and should not have gotten the contract. From the very outset of the start of work in January last year there were delays.
Below is an edited version of the statement.
Following the termination of the contract with Synergy Holdings Inc, recent newspaper reports have sought to attack various persons involved in the process. Kaieteur News, in particular, has seemingly ignored the many reports made about this project, and descended into personal attacks on key officials of Government.
The Privatisation Unit/NICIL seeks to clarify certain facts of the matter:
1. 1. Evaluation of Tender and Award of Tender
The tender for the approach roads to Amaila was evaluated via normal procedures within Government. As would be expected, given the size of the contract, this award received the no-objection of Cabinet, following which the contract was executed by the Government of Guyana, NICIL, and Synergy Holdings Inc. It has been well established, that the tender sum from Synergy Holdings was the lowest of the 4 tenders received, with the price ranging from US$15.4 M to US$26M. Within the evaluation criteria for this project, price was weighted the highest.
1. 2. Synergy Contract contained usual checks and balances
Following the award of the contract to Synergy, Government sought to ensure that the contract contained the usual checks and balances. These included:
- Mobilization Bond and Performance Bond
- Valuations completed by an Independent Supervision Firm
- Payments to the contractor being based on Valuations less applicable deductions for Retention and allocation of the Mobilization Payment
- Approval by the Supervision Firm of all payments, change orders, variations, contract changes, and design changes. SRKN was selected as the supervision firm. Additionally, the contract was managed by the Ministry of Public Works, Government of Guyana.
It should be noted that the contract was a design-build contract. With all design-build contracts, although initial specifications are stated, the detailed design and related studies required completion. Given the nature of the terrain over which the road was being built, design considerations could not be understated. It has been a public record via statements from officials of the Ministry of Public Works, of progress and changes to the design, change orders, variations, etc. At the same time, it has also been a public record where Government has expressed concern on inadequate progress by the Contractor.
Given the international nature of this project, the completion of additional environmental work was necessitated to ensure full compliance with IFIs’s environmental requirements. This consideration alone, contributed to delaying Construction Notice to Proceed to January 2011 for Sections 6 & 7.
Recent reports in the media suggest that the current decision to terminate the contract was driven by political considerations. The record shows that Government over the course of this contract has not sought to “sugar coat” the performance of the Contractor. At the same time, the Government has disclosed the many issues that had to be addressed given the environmental nature of the project and considering that it is a design-build contract. At all times, the Government considered the checks and balances provided in the contract, and sought to protect itself.
1. 3. Monies paid to Synergy are below the value of Work completed
One important consideration that determined the contract being awarded to Synergy was based on Synergy having the lowest evaluated price. Given the checks and balances, Government at this point of termination, has not paid more than the value of the works completed, as determined by the Supervision Firm. As such, Government has received value for money based on the work completed. Checks that helped to safeguard this include Government retention of 10% of all valuations.
Additionally, it would be noted, that the Agreement for Completion to the contract with Synergy, executed in December, 2011 provided certain additional safeguards, including assigning the rights to the equipment to Government.
1. 4. Timing of Termination was due to Contractor Failure and Overall Timetable for Larger Project
The termination of the contract with Synergy was strictly in accordance with the amendment to the contract executed by Synergy, which Synergy breached shortly after execution. At all times, Government sought to ensure that there were adequate safeguards to ensure that value for money was received, and that the overall project timeline was not jeopardized. This constant risk assessment was important given the dynamic nature of the contract.
Given that time is now of the essence, in that the main project should be ready to start towards the end of the second quarter of this year, Government considered Synergy’s breach of the recent amendment (by not providing a new Performance Bond) and the time that one or more third parties would take to complete the project, and opted to terminate. Termination at this time, with the safeguards secured from the contractor (including assignment of all site equipment and rights to litigate) ensure that both value for money and the ability to achieve a timely completion with a third party are achieved. As such, the timing of termination is tied to the above facts and not as is being speculated, political expediency.
1. 5. Contracts and Breaches
The last point is that there are many cases where Government looks at optimizing value for money and the overall project benefits. The Synergy contract is no different. The Government in this case accepted the lowest price and received value for money. It will now use other contractors to complete the job, in line with the main project. The experience and knowledge of the design and risks associated with the project will be brought to bear when the new contractors are selected.
Government has generally treated with contracts based on the rights and obligations of the Parties. It cannot guarantee the outcome but it ensures that adequate safeguards are in place. When contracts are breached, termination clauses are invoked and/or legal action taken.
This is no different in the case of privatisation. Example–in 1999 the Government privatized GSL to Royal Investments. When a US$2 M outstanding balance was not paid two years later, the matter was taken to court in 2004 following attempts to settle the matter amicably. This is normal business practice. The Government acts in good faith but seeks the usual protections as is the norm in its contract for breach of performance.
In summary, Government actions on this contract are consistent with normal practices. The bottom line is that Government has received value for money for the work completed and additionally expects to be able to have other contractors complete the project in a timely manner without jeopardizing the overall timeline for the main hydro project.
Source
Posted By Stabroek editor On January 16, 2012 In Local |
Amid a barrage of criticism, the Privatisation Unit this evening denied that the termination of the Synergy contract for the Amaila Falls access road was because of the changed political circumstances and it argued that the government had received value for money and other contractors would be hired to finish the project.
The statement by the PU steered clear of continuing questions about whether Synergy was qualified in the first place to undertake the massive road building project but insisted that the government’s actions on the contract were “consistent with normal practices”.
The government’s termination of the contract on January 12, 2012 came even though it had amended the agreement – just weeks prior on December 21, 2011. Observers said given the government’s previous indulgence of delays in the Synergy contract, termination just weeks after amendment of the agreement seemed unusual. With the government not holding a majority in Parliament there will likely be calls for an investigation of controversial contracts like Synergy’s.
According to the PU, Synergy Holdings’ tender sum for the project was US$15.4M – the lowest – and within the evaluation criteria, price was weighted the highest. The other tenders went as high as US$26M.
It was also disclosed in the PU statement that the monies paid thus far to Synergy are below the value of the work completed.
Synergy was awarded a contract for the “upgrading of approximately 85 km of existing roadway, the design and construction of approximately 110 km of virgin roadway, the design and construction of two new pontoon crossings at the Essequibo and Kuribrong rivers”. It was also supposed to clear a pathway alongside the road for the installation of transmission lines. Critics had said that Synergy did not have experience with building such roads and should not have gotten the contract. From the very outset of the start of work in January last year there were delays.
Below is an edited version of the statement.
Following the termination of the contract with Synergy Holdings Inc, recent newspaper reports have sought to attack various persons involved in the process. Kaieteur News, in particular, has seemingly ignored the many reports made about this project, and descended into personal attacks on key officials of Government.
The Privatisation Unit/NICIL seeks to clarify certain facts of the matter:
1. 1. Evaluation of Tender and Award of Tender
The tender for the approach roads to Amaila was evaluated via normal procedures within Government. As would be expected, given the size of the contract, this award received the no-objection of Cabinet, following which the contract was executed by the Government of Guyana, NICIL, and Synergy Holdings Inc. It has been well established, that the tender sum from Synergy Holdings was the lowest of the 4 tenders received, with the price ranging from US$15.4 M to US$26M. Within the evaluation criteria for this project, price was weighted the highest.
1. 2. Synergy Contract contained usual checks and balances
Following the award of the contract to Synergy, Government sought to ensure that the contract contained the usual checks and balances. These included:
- Mobilization Bond and Performance Bond
- Valuations completed by an Independent Supervision Firm
- Payments to the contractor being based on Valuations less applicable deductions for Retention and allocation of the Mobilization Payment
- Approval by the Supervision Firm of all payments, change orders, variations, contract changes, and design changes. SRKN was selected as the supervision firm. Additionally, the contract was managed by the Ministry of Public Works, Government of Guyana.
It should be noted that the contract was a design-build contract. With all design-build contracts, although initial specifications are stated, the detailed design and related studies required completion. Given the nature of the terrain over which the road was being built, design considerations could not be understated. It has been a public record via statements from officials of the Ministry of Public Works, of progress and changes to the design, change orders, variations, etc. At the same time, it has also been a public record where Government has expressed concern on inadequate progress by the Contractor.
Given the international nature of this project, the completion of additional environmental work was necessitated to ensure full compliance with IFIs’s environmental requirements. This consideration alone, contributed to delaying Construction Notice to Proceed to January 2011 for Sections 6 & 7.
Recent reports in the media suggest that the current decision to terminate the contract was driven by political considerations. The record shows that Government over the course of this contract has not sought to “sugar coat” the performance of the Contractor. At the same time, the Government has disclosed the many issues that had to be addressed given the environmental nature of the project and considering that it is a design-build contract. At all times, the Government considered the checks and balances provided in the contract, and sought to protect itself.
1. 3. Monies paid to Synergy are below the value of Work completed
One important consideration that determined the contract being awarded to Synergy was based on Synergy having the lowest evaluated price. Given the checks and balances, Government at this point of termination, has not paid more than the value of the works completed, as determined by the Supervision Firm. As such, Government has received value for money based on the work completed. Checks that helped to safeguard this include Government retention of 10% of all valuations.
Additionally, it would be noted, that the Agreement for Completion to the contract with Synergy, executed in December, 2011 provided certain additional safeguards, including assigning the rights to the equipment to Government.
1. 4. Timing of Termination was due to Contractor Failure and Overall Timetable for Larger Project
The termination of the contract with Synergy was strictly in accordance with the amendment to the contract executed by Synergy, which Synergy breached shortly after execution. At all times, Government sought to ensure that there were adequate safeguards to ensure that value for money was received, and that the overall project timeline was not jeopardized. This constant risk assessment was important given the dynamic nature of the contract.
Given that time is now of the essence, in that the main project should be ready to start towards the end of the second quarter of this year, Government considered Synergy’s breach of the recent amendment (by not providing a new Performance Bond) and the time that one or more third parties would take to complete the project, and opted to terminate. Termination at this time, with the safeguards secured from the contractor (including assignment of all site equipment and rights to litigate) ensure that both value for money and the ability to achieve a timely completion with a third party are achieved. As such, the timing of termination is tied to the above facts and not as is being speculated, political expediency.
1. 5. Contracts and Breaches
The last point is that there are many cases where Government looks at optimizing value for money and the overall project benefits. The Synergy contract is no different. The Government in this case accepted the lowest price and received value for money. It will now use other contractors to complete the job, in line with the main project. The experience and knowledge of the design and risks associated with the project will be brought to bear when the new contractors are selected.
Government has generally treated with contracts based on the rights and obligations of the Parties. It cannot guarantee the outcome but it ensures that adequate safeguards are in place. When contracts are breached, termination clauses are invoked and/or legal action taken.
This is no different in the case of privatisation. Example–in 1999 the Government privatized GSL to Royal Investments. When a US$2 M outstanding balance was not paid two years later, the matter was taken to court in 2004 following attempts to settle the matter amicably. This is normal business practice. The Government acts in good faith but seeks the usual protections as is the norm in its contract for breach of performance.
In summary, Government actions on this contract are consistent with normal practices. The bottom line is that Government has received value for money for the work completed and additionally expects to be able to have other contractors complete the project in a timely manner without jeopardizing the overall timeline for the main hydro project.
Source
