A smiling Dr. Vincent Lawrence (right), former chairman of the Urban Development Corporation, enters Gordon House, to testify before the Public Accounts Committee of Parliament Tuesday. Beside him at left with hand across face is Alston Stewart, head of Nevalco, the firm Lawrence contracted as project manager. - Rudolph Brown/Chief Photographer
Although I have not been directly invited by this committee to appear, I have accepted Mrs. Campbell's invitation to attend on behalf of the Urban Development Corporation and welcome the opportunity to be present because I believe that I can assist the committee to better understand the main aspects of the Sandals Whitehouse project.
These are firstly, the disparity between the initial projected cost of US$70 million and the eventual outturn of US$113 million; and secondly, the lessons that may be learnt from this experience as to how joint ventures of this nature between a public sector entity and a private entrepreneur may be structured so as to accommodate the legitimate requirements of both.
The documents which the Contractor General claims to have looked at also show very clearly that Jentech was one of the team of consultants inherited from Gorstew Limited. In fact, from the very first Sandals hotels in the 1980s Jentech has provided Engineering Consultancy Services to the Sandals Group. It has provided those services to Sandals Negril, Sandals Montego Bay, Sandals Antigua, Sandals Barbados, Sandals St. Kitts, Sandals St. Lucia and was also employed on the Beaches Negril project.
It was the same on the project Gorstew attempted to undertake at Whitehouse.
The second issue that I wish to address is the assumption that appears to underlie the Contractor General's report, namely, that the only way to achieve impartial and meritorious awards is by some process of public tender. He states that as CEO of the UDC, I must have been aware of the procurement rules established in 2001 and, therefore, the failure to select the consultants by public tender is evidence of impropriety and irregularity on my part.
This contention overlooks the fact that the procurement rules permit in appropriate cases authorisation for the use of direct contracting through 'negotiation or sole source processes'.
TO EXPLAIN LATER
The Contractor General has also complained that none of the consultancy contracts that exceeded $4 million or the appropriate amount in U.S. dollars had been submitted for approval by the National Contracts Commission.
At a later stage, I will explain why it was genuinely felt that in this particular case these approvals did not have to be sought.
Now to the general issues.
As chairman of the UDC, in 2000 I personally made representation to National Investment Bank of Jamaica (NIBJ) for them to participate in the project.
NIBJ agreed and the joint venture among Gorstew, UDC and NIBJ was born.
We (the proposed partners and consultants) started working together on the project in 2000, and a Heads of Agreement was finally executed in July 2001, among Gorstew, NIBJ and UDC.
This agreement included a requirement for a joint venture company to be incorporated, with the three parties as shareholders, to undertake the development. Ackendown Newtown Development Company Limited was thus incorporated also in July 2001.
The UDC certainly felt we were entering into a meaningful partnership.
Regrettably, while the expected standards were met, and in several instances surpassed, there was lack of cooperation which caused increased cost, and I will later highlight some of the areas where there were deficiencies.
The project was completed at a cost which is approximately US$43 million above the development budget previously agreed by the parties.
A number of different allegations have been made from different quarters about what factors have caused or contributed to the increased costs.
It has been suggested that there was misappropriation of funds, that there was cronyism in the employment of consultants who were paid huge fees and that there was mismanagement by UDC as project manager by itself and through its representative, Nevalco Limited.
Neither the Contractor General nor the Forensic Audit Team found any misappropriation of funds and in so far as cronyism is concerned no credible evidence exists to establish that.
COST/VALUE
There is a genuine desire to determine the factual reasons for this disparity between the originally projected cost and the ultimate outturn.
Although the Contractor General's report did have some correct statements, I suggest that the more reliable source of information is the forensic audit team report and not the Contractor General's report. The latter concentrated almost entirely on the issue of procurement and particularly relationships between the consultants.
Furthermore, on his own admission the Contractor General because of the time constraints that he himself imposed on his investigation admitted that his views on the issue of overall cost "must be viewed as preliminary and would require further attention when the final accounts are agreed."
When one looks at the Forensic Audit Team report one is able to glean the following:
1.The initial projection of a total cost of US$70 million was a gross underestimate. This was due to the fact that the estimate was made without benefit of the full range of designs that were going to be used.
Additionally, the initial assumption was that the hotel would be the equivalent in quality of 'Beaches Negril'. Whereas, the hotel was actually built in accordance with the completed designs these designs were of a significantly superior quality.
According to the Forensic Audit Team report a more realistic starting figure would have been US$88 million. Using that figure, the increase would therefore be $25 million and not $43 million.
2. In implementing the project, it transpired that the designs for the mechanical and electrical equipment mandated an increase in the cost over what was originally budgeted. More substantially, the sitespread occasioned by the basic design of the hotel and the oversizing of the "back of the house area" significantly exceeded the original estimate in a variety of ways such as the cost of the air conditioning system, the laundry, the energy centre. These matters added a further US$9.7 million of legitimate expenditure to the origiznal estimate.
The effect of these items was then to bring the legitimate cost of the hotel to US$97.7 million for its construction and furnishing. With these further adjustments the increase would now be $15.3 million instead of $25 million.
3. The remaining difference between outturn and original estimate is attributed by the Forensic Audit Team report to what it calls 'management deficit'. It is these items that we must now examine to find the causes for the remaining disparity between the outturn and what could have been expected under ideal conditions.
I will address the issue of management deficits later.
The unfounded allegation of misappropriation has been dismissed and dispelled by both the Contractor General and the Forensic Audit Team who both confirmed Ñ what the UDC has always maintained Ñ that all of the project funds were spent on the project.
The Forensic Audit Team in its report showed an accounting for all of the funds spent and when they were before you, they indicated that they found no evidence of fraud.
In addition, both the Contractor General and the Forensic Audit Team have affirmed that the completed project represents value for money. The Contractor General stated in his report that "overall value for money was received having regard to the works which have been completed on the ground."
See the conclusion of Dr. Lawrence's statement in Sunday Business, November 12 where he speaks on his management of the project.
