The cost of building Bermuda’s new $15million Transport Control Department was allowed to spiral to three times the original estimate —without proper oversight or intervention from Government.
The Auditor General yesterday released a damning report criticizing the financial management of the new emissions testing plant in Hamilton and two satellite testing stations in St David’s and Southampton.
The report concludes that there is no guarantee Bermudian taxpayers got value for money on the new facilities — which enable TCD to test cars and bikes to international environmental standards.
It highlights how Government disregarded its own regulations to select a private company — Bermuda Emissions Control Limited — to manage and run the job for them.
It questions “ministerial interference” from the Tourism Minister [Dr. Ewart Brown] to pre-select the firm (which is run by his cousin Donal Smith) for the job without inviting rival firms to bid for the work.
The report also raises concerns over how construction work for the project was then handed to Correia Construction — again without going out to tender.
It highlights the fact that Dennis Correia is a part-owner of both firms and questions why this “conflict of interest” was not perceived to be a problem.
And it points out that the project was brought under the remit of the Transport Control Department rather than Works and Engineering — which is supposed to have the mandate, the manpower and the expertise to oversee capital projects.
It states that the cost of the work rose by almost $10million and says documentation to support the need for such increases was insufficient, or in some cases not supplied.
Auditor General Heather Jacobs Matthews told the Bermuda Sun the findings were “disturbing”.
She said Government had recruited BECL to run the project and allowed them to have free rein.
“You are looking at a project which Government had to fund but they didn’t have any control over the development or oversight of the cost. They took on all the financial risk but they weren’t in control of the project. The contractor was able to name his price and change it along the way.”
In June 2003 BECL was contracted, without tender, on a five-year deal to conduct annual emissions testing and vehicle safety inspections for a fee of $1.77million-a-year — a fee it later increased to $2.4m.
At the same time the company was recruited to manage the project to build the new TCD facilities and install the necessary equipment — a role that would normally be fulfilled by Works and Engineering. The report suggests that there was ministerial pressure “from the outset” for the two contracts to be given to BECL, highlighting a letter from Dr. Brown to the company promising them the job — two years earlier.
It quotes from the letter communicating Government’s decision, “to waive the requirement to advertise for tendering and award any contract for services dealing with vehicle emissions testing to Bermuda Emission Control Limited”.
When the deal was agreed in 2003, BECL was proposing to partner with Correia Construction to build the new TCD centre and satellite stations and sell it back to Government for $5.3million.
Correia Construction’s part owner Dennis Correia, the report says, had acquired a 30 per cent stake in BECL months earlier.
By 2005 questions were being raised within Government about the nature of the deal.
The Accountant General — Government’s principal accounting officer — advised there was “no case” for “contravening financial instructions” and allowing the two satellite stations to be built without tender.
According to the report, “the Accountant-General then specifies various issues that would need to be addressed in order to make the case to not follow the Government’s tendering requirements”.
The assessment is then revised in a 2006 e-mail from the Accountant General, saying that BECL had subsequently asked for cost estimates from two other firms — thus satisfying the requirements of Government’s Financial Instructions.
But the report indicates that the consulting firms were simply asked for estimates — not invited to bid for the work.
“The Accountant General failed to recognize the need to follow an open-tender process. It is important to note that the inability of the Accountant General to bring this project back in line with Financial Instructions can somewhat be explained by the pressure exerted on the Accountant General to ‘just make it happen’.”
The report also indicates that Cabinet requested an open-tendering process be followed, but this was ignored by senior civil servants and BECL hired Correia Construction to do the work.
By this time the contract was signed in May 2007, the cost of the project had risen from the initial $5.3m estimate to $8.6m.
But a number of “change orders” saw that spiral to $12.5million. A further $1.75million increase to reach the $14.25million price tag placed on the project in the 2008/2009 Budget was not supported by any explanation or documentation.
And the report says the Ministry of Finance and the Ministry of Tourism were unable to provide any explanation for this increase or why the project’s final cost rose again to hit the final $15.23m bill.
The Auditor General also questions how BECL was able to increase its annual fee for running the emissions plant from $1.77m to $2.4m.
“Our discussions with senior civil servants within the Ministry of Tourism and Transport reveal that no one within the Ministry assessed the reasonableness of BECL’s annual fee.
“BECL did provide the Ministry of Tourism and Transport with a projected annual operating expense schedule which served as the basis for calculating the annual fee, yet no scrutiny of these expense projections ever took place.
“We reviewed BECL’s projected annual operating expenses and noted a number of questionable items. For example, the contract with BECL allows BECL to claim amounts relating to depreciation, repairs and maintenance and utilities, however, in reality these costs are being incurred by the Ministry of Tourism and Transport.”
The report also takes issue with the oversight of the changes that were supported by documentation, suggesting that BECL — acting for Government — simply approved increases without always demonstrating that they were necessary.
It highlights one cost increase of $120,000 for an “interior fit out” including toilet partitions, shower doors and bathroom accessories.
The report points out that $237,204 had already been assigned in the original project budget for an “interior design fit out” and nearly $700,000 had been assigned for furniture.
It recommends the Ministry of Transport takes a closer look at the discrepancies to see if it is entitled to any money back.
The original decision to recruit BECL to manage the project for the transport department — rather than through Works and Engineering — is also called into question.
There is stipulation within Government’s regulations to negotiate with a sole entity for major projects when there is only one “single capable bidder”.
But the report dismisses this reasoning, pointing out that BECL sub-contracted all aspects of establishing the programme, including equipment design, supply and installation and training, to other firms.
The Auditor General concludes that Government’s financial safeguards were not followed by TCD officials in this case.
In her introductory comments to the report Ms Jacobs Matthews says: “The project lacked the necessary oversight and project management processes to ensure value for money.”
She added: “I further concluded that the manner in which the project was managed resulted in Government retaining all the financial risks while effectively relinquishing control over the development costs to a consultant company (BECL) that became the operator of the Emissions Testing Facilities and a construction company (CCCL) that was related to the consultant company.”
She insists that the protocols exist within Government for “value for money” to be guaranteed but concludes that they were consistently not complied with and ignored.
And she issues a reminder to Government ministers and civil servants to ensure they follow their own financial instructions at all times.
“This is necessary to achieve economy, efficiency, effectiveness and transparency — and in so doing, enhance the public’s trust and confidence in Government’s management of public finances.”
She also questions ministerial interference in this case and reminds civil servants and ministers to familiarize themselves with their own code of conduct.
“The Code advises ministers of their “duty to uphold the impartiality of the civil service” and to refrain from asking civil servants to act in a way which would compromise their “personal responsibility for the propriety and regularity of the public finances” for which they are responsible.
Section 12.3 of the Ministerial Code of Conduct provides detailed steps that should be taken by Accounting Officers if a minister is contemplating a course of action which involves a transaction that “would breach the requirements of propriety and regularity”.