Last week, we discussed Financial Papers 1 and 2 of 2016 which the National Assembly recently approved before going into its customary two months’ recess. The first paper dealt with the replenishment of the Contingencies Fund based on advances granted. We considered that these advances did not satisfy the criteria for access to this emergency fund since the related expenditure was neither urgent, unavoidable and unforeseen nor was the public interest in any jeopardy. In addition, Parliament was neither prorogued nor dissolved, and a sitting could have easily been called to approve of a Supplementary Estimate prior to incurring the related expenditure. We concluded that there has been a continued abuse in the use of the Contingencies Fund, an observation that I had made year after year during my tenure as Auditor General. I also recall making a presentation to parliamentarians in 2012 at which I outlined the constitutional and legislative requirements regarding the use of the Contingencies Fund. Despite this, the abuse in the use of the Contingencies Fund continues unabated.
As regards Financial Paper 2/2016, we felt that the request for additional resources was partially due to inadequate budgeting. That apart, an amount of $501 million was approved as partial out-of-court settlement to BK International as a result of the termination of the contract for operating the Haags Bosch landfill site because of consistent unsatisfactory performance. BK International sought judicial intervention, and the court ruled against the government.
Background to the BK International case
The construction of Haags Bosch landfill site began in 2010 following the closure of the dumpsite at Le Repentir Cemetery because of not only a serious health hazard in view of its proximity to residents in the neighbourhood but also insufficient capacity. Those who drove through the Cemetery Road during that time would attest to the unbearable stench and the unsightliness. The project is funded by a loan from the Inter-American Development Bank (IDB) in the sum of US$20 million while the government is responsible for funding the operating costs. The new site, which is located on a 65-acre plot of land at the back of Eccles Industrial Site, was officially opened in 2011. It was to be initially designed to process 6,000 tons of solid waste per month involving garbage disposal from Georgetown and some 15 Neighbourhood Democratic Councils (NDCs).
According to an IDB newsletter, problems in Guyana’s solid waste management sector include unclear and overlapping responsibilities within key agencies, an inadequate level of public awareness, the absence of systematic waste minimization or recycling efforts, and a weak legislative and regulatory framework. As a result, in several NDCs waste is not collected, forcing residents to burn or bury it, or dump it in vacant lots, along roadsides, and in drainage canals. In addition, over the years, the impact of improper solid waste management has become the critical environmental problem in Georgetown and all over Guyana. This problem has become more acute over time, creating unpleasant aesthetic conditions and threatening the health of the urban population. The negative impact of improper waste disposal was heavily felt during the January 2005 flood when waste-filled canals did not drain as rapidly as expected.
BK International, in association with Puran Brothers, was awarded the contract in the sum of US$9.710 million (later reduced to US$7.710 million because of financial constraints) to construct and operate the new landfill site covering a period of five to nine years. The operations were supervised by the then Ministry of Public Works with the late Walter Willis as the Project Manager. However, following a series of disagreements between the contractor and Mr Willis, the latter was removed from the project.
Termination of the contract and response from BK
In February 2015, the government terminated the contract on the grounds that BK International had missed several deadlines in addition to a number of other breaches. The following month, the contractor sought the intervention of the court, contending that the decision was arbitrary and illegal and breached his expectation as contained in the contract. BK International also claimed that 140,000 tons of waste were processed annually and that as of July 2013, it was owed US$324,677.
Meanwhile, according to a Guyana Chronicle report dated June 26, 2015, the IDB refused to continue funding the project until BK International was removed because of unsatisfactory performance, including a deviation from the plan for the successful completion of the project. The funding agency was also providing training and capacity-building skills in the management of the project, and a key component requires the preparation of a master plan for waste management. There were also environmental concerns prompting the Minister of Communities to declare that the project had become a dumpsite instead of a landfill site, an environmental hazard, and a ticking time bomb.
Court ruling on the matter and the government’s response
In November 2015, the then acting Chief Justice ruled that the termination of the contract was not correctly done. In particular, BK International was not afforded an opportunity of being heard before the decision was taken. Accordingly, he granted a conditional order quashing the government’s decision on the grounds that the “decision to terminate and the corresponding termination notice was made and issued arbitrarily, unreasonably, irrationally, unlawfully, illegally, erroneously, in bad faith and in breach of the rules of natural justice”. The effect of the court ruling was that the contractor could remain on site.
In December 2015, the government filed an appeal against the ruling and requested a stay to be filed against the decision. At the same time, it entered into negotiations with BK International, the results of which saw both parties agreeing to an out-of-court settlement in the sum of $1.177 billion payable in three instalments.
The government argued that it opted for the settlement because of the urgent need to resume the operations of the Haags Bosch landfill site which had come to a halt, resulting in unbearable stench and smoke from fires being experienced in the neighbouring communities. The government also indicated that it was guarded against its experience with the Demerara Distillers Ltd (DDL) and the Rudisa Beverage Company cases. DDL and the government agreed to settlement of G$1.5 billion relating to Consumption Tax that the company had owed the government. In the case of Rudisa, the company had appealed to the Caribbean Court of Justice over the environmental tax that the government was charging and was awarded damages in the sum of US$6.2 million.
Reaction from the political opposition
The former Attorney General contended that “[E]very lawyer knows that suing doesn’t mean winning. The fact that legal proceedings have been filed does not mean it will succeed. It also does not mean that the plaintiff will get the amount of damages claimed… Nobody gives up on litigation that easily unless there are extraneous matters influencing the situation…We would have sued BK for breach of contract. They ended up gifting this company that has breached its contractual obligation.” The former AG also felt that there were enough grounds for suing the contractor for defective work performed. It is, however, not clear whether there is provision for a performance bond which could have been levied on at the time of termination of the contract. If the argument of the former AG is valid, then there has been double loss to the state – defective work performed, and the out-of-court settlement.
The former AG also contended that three government ministers conveyed the clear impression that the contractor had sued the government for compensation in the sum of US$10 million and that the latter managed to persuade the contractor to accept just over 50% of the claim. He indicated, however, that a diligent search at the Supreme Court Registry did not turn up any evidence that such a case was filed. Yesterday’s Kaieteur News also reported that it contacted both the current Attorney General and BK International for confirmation as to whether or not the latter had sued the government for compensation but was unable to obtain any information in this regard.
Conclusion
The construction and operations of the Haags Bosch Landfill Site had ground to a halt as a result of the termination of the contract with BK International for unsatisfactory performance. The IDB made it clear that it would cease funding the project if the contractor was not removed from the site. Judicial intervention by the contractor resulted in a ruling against the government which appealed of the ruling. The government then entered into negotiations with the contractor and an out-of-court settlement was agreed on. The political opposition, however, felt that the government should not have abandoned the appeal and settled the matter with BK International as this would result in a double loss to the state in the form of defective work performed and monetary settlement of the dispute.
Given the threat of cut-off of funding for the project, one expects the government to act expeditiously to bring an end to the dispute with the contractor and to resume the operations of the landfill site. If it had proceeded with the appeal, no one knows how long it would have taken for the matter to be heard and conclusively dealt with. To the extent that the matter remained pending in the court, the contractor would have stayed on the site in keeping with the Chief Justice’s ruling, but no work would have been performed.
This column therefore is of the view that the government acted correctly and in the public interest in its efforts to bring the dispute to an end and to resume the operations of the landfill site. However, it would have been more appropriate for an independent third party to be involved in the negotiations and adjudication of the matter. In this way, the government could have argued for compensation for defective work performed. The result might have been a ‘win-win’ situation for both parties. As it stands, the out-of-court settlement was heavily weighted in favour of the contractor, with the government abandoning its claim for compensation for defective work performed unless this was taken into account in the quantum of the settlement.
