Under airport contract the government takes responsibility for defective work by the contractor

Dear Editor,

Guyana is now saying the requiem of the Amaila project and hopefully that matter could be put to rest for the time being. When it raises its head again and information becomes available on Amaila II, we will then subject this revival to analysis. Indepen-dent analysis is always a good thing, especially when done to arrive at the truth and in the national interest.

Such analysis is particularly necessary when dealing with an arrogant secretive government which has no time for transparency. And protecting the revenue of the country may even require forensic analysis to unearth corruption and waste of taxpayers’ monies and to expose the ignorance and incompetence of officials and politicians.

The Cheddi Jagan International Airport Expan-sion Project suffers from all the diseased processes alluded to above. If pursued in its present form it quite likely will end up being one great disaster burdening the taxpayers for years to come with a project loan and cost that is not value for money.

The CJIA project is one of that raft of high profile projects conceived by the Jagdeo administration: the Provi-dence Stadium (Indian construction and financing), Skeldon Packaging Plant (India, China), Convention Centre (China), Amaila (China financing), Speciality Hospital (India) and Marriott (Chinese construction with NICIL funds). The common feature of all of these big ticket projects is more about an obsession with legacy building and less with national development or raising the quality of life of the ordinary people.

They all have nothing to do with permanent job creation, technology transfer, raising incomes or creating the returns or surplus to repay debt.  They stand as monuments to an increasing rich-poor divide, widening marginalisation, neglect of communities, a capital city that stinks and public services that are inadequate and deteriorating. Meanwhile, what little good health and education opportunities exist are in the main reserved for those who can afford it.

There is another set of common features of all of these projects: they are secretly done with no transparency and parliamentary oversight; the tendering process is absent or if done as in the case of the Speciality Hospital is attended by allegations of unfairness. They are all therefore necessarily and severely overpriced. These big ticket projects will not only cause a sharp use in the external debt (or guaranteed debt) but the burdens of repayment will have to be carried by the national Budget, because the projects themselves are not likely to produce the returns to service debt.

Mr Ram has already written about the CJIA project, but as more information becomes available, much more will be written. We recall that the US$138 million contract was signed by Permanent Secretary Balram Balraj of the Ministry of Public Works on the eve of the 2011 General Elections with China Harbour Engi-neering Company Ltd.

The contract discloses that the Conditions of Contract (Parts I and II) FIDIC 1999 Design Build (as amended) are to form part of the contract documentation. FIDIC is an international engineering organisation whose standard contracts are internationally accepted as best practice to safeguard the interests of the government or other entity employing a contractor. Normally the FIDIC conditions are attached to the contract to enable a better understanding of what the parties to the contract may have modified. In the case of the airport contract this was not done, requiring a painstaking effort to discover the FIDIC conditions that were varied. While some of the approximately 40 variations were not significant others were quite important and even fundamental.

This letter deals with a few of the critical issues. The General Conditions of the FIDIC Standard Plant and Design-Build clause 1.1.2.4 requires an engineer appointed by the government to be named in the appendix to the signed contract. No such person has been named. It is not clear if the intention here is to have the contractor be his own supervising engineer in which case there is no need for a government appointed engineer as is normal, or it is an oversight on the part of the government or the government has agreed to this abnormality?

But the real kicker is in relation to paragraph 1.13 of the FIDIC which states “The Contractor shall give all notices pay all taxes, duties and fees, and obtain all permits, licences and approvals, as required by the Laws in relation to the design, execution and completion of the works and the remedying of any defects and the Contractor shall indemnify and hold the Employer harmless against and from the consequences of any failure to do.”

This has been amended dramatically and incomprehensibly. The government has agreed that the word “Contractor” is to be changed to “Employer” (ie government) and conversely where the word employer appears, it is replaced by contractor. The effect of this amendment is to transfer from the contractor to the government the responsibility which the standard FIDIC clause imposes on the contractor. Even where notices and expenses are incurred in remedying defects caused by the contractors then the government is required by contract to deal with this.

This is not only unbelievable but reckless, irresponsible and insane. It is elementary and logical that any contractor is responsible for remedying defective work done by him. In this case, the government has said no, we will take the responsibility to pay for any defective work, even if the lifts do not work, the roof collapses or each half-a-million toilet does not flush!

This is déjà vu all over again. This is Skeldon II. Not only is the government required to do what normally the contractor must do, but by upturning logic the government indemnifies the contractor and protects him from the consequences of his having failed do what he was supposed to do in the first place. Amazing!

The performance security which the Chinese contractor gives the government is a mere 10% of the contract price and is drawn on a Chinese bank. This is Fip Motilall’s/NICIL’s/Hand-in-Hand’s Amaila Road project all over again. It is interesting to contemplate how the government will enforce a claim in China against a Chinese contractor through a Chinese bank. Incidentally while the security is for 10% of the contract price, the minimum amount of insurance for the works and contractors equipment shall be “Full Replacement/reinstatement cost or 100% of the accepted Contract Amount, which is greater.” The government places its interest at 10% of that of the Chinese!

But we cannot even pursue our sovereign interest in our sovereign country. We have agreed that any arbitration will take place in England under English Rules of Arbitration. The similarities between this contract and Skeldon are too dangerous and too obvious to ignore. But not too dangerous or obvious it seems, for the Ministry of Public Works or the government. This raises another question.

When we look at all these big ticket deals – Convention Centre, Stadium, Packaging Plant, Skeldon, Amaila, CJIA, Marriott, Specialty Hospital – a common thread runs through all of them, besides the fact that apparently only Chinese and Indians are involved in designing, building and funding these deals.

Both China and India are countries with a lot of corruption, corrupt politicians, corrupt officials and corrupt contractors. It is naive to believe that when those contractors come into contact with politicians and officials in other countries they will behave like angels. Human nature does not operate like that. This is not to say that officials and contractors from other countries like USA, Canada and the UK are not capable of corrupt transactions, even though the rules there are somewhat stricter. But then again, we hardly do these big ticket deals with those countries, except recently where an American company – Sithe/Global/Blackstone ‒ joined up with the Chinese to prepare what would have been the greatest disaster ever to befall Guyana, the Amaila project. Fortunately, that has not happened as yet.

Yours faithfully,
Ramon Gaskin

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