This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
Recent years have witnessed a significant increase in the level of audit scrutiny directed at procurement projects in the Caribbean. In fact, recent public audits have found serious deficiencies in procurement projects across a broad range of Caribbean jurisdictions, including Barbados, Bermuda, Trinidad and Tobago, Jamaica, and the Cayman Islands.
Turning first to Barbados, in its July 2012 Special Audit of the Barbados Water Authority, the Barbados Audit Office concluded that the government water agency failed to achieve value-for-money for the taxpayer since the agency was unable to receive the contracted amount of water due to infrastructural limitations. The report also noted significant procedural irregularities involving procurements at the agency’s desalination plant:
Information on the procurement activities of the Authority was not adequately documented as no Contracts Register was kept. Non-adherence to its procurement policies resulted in substantial losses to the Authority. This was evidenced in contracts awarded to two (2) United States based firms. Orders for substantial amounts were placed with these companies without the performance of adequate due diligence. As a result goods and services costing over $700,000 were paid for but not delivered.
As this report illustrates, government institutions require proper contract management practices to better ensure value-for-money and the protection of public interest.
Similarly, in its Report of the Auditor General for the Year 2015, the Barbados Audit Office found that the government failed to properly assess whether it was achieving value-for-money in its public-private partnership, referred to as PPP, procurements:
The processes that would contribute to the achievement of value-for- money in PPP arrangements were not consistently applied. There is a need for decision makers to have knowledge of whether PPP arrangements are more cost effective than under a traditional procurement method and, in this regard, the financial analysis of the proposals needs to be strengthened to achieve this. In addition, the analysis of affordability should be emphasised and there should be available evidence that risks in the projects have been fully analysed and taken into consideration.
The lack of evidence of risk analysis for some of the PPP projects raised questions as to whether there was an adequate transfer of risk to those best able to handle them. As the report illustrates, the failure to establish comparative benchmarks to assess the advantages and disadvantages of using alternative financial arrangements exposed those procurement projects to retroactive criticism regarding risk transfers and cost-effectiveness. This underscores the importance of properly addressing these considerations during project planning.
Furthermore, in its September 2016 audit entitled Special Audit on the National Housing Corporation High Rise Apartments at Grotto and Valerie, the Barbados Audit Office found insufficient financial and technical reviews during the planning stages of a public housing project:
There was no evidence provided to indicate that the Management of the NHC carried out the necessary financial and technical review on the Grotto and Valerie projects before submission to the Board for approval. Such a review would have assisted the Board in determining whether the proposals as presented met the Corporation’s policy objective of providing housing for lower income persons in a cost effective manner.
The Audit Office also found that the government failed to publicly tender the projects, as required by the applicable procurement rules:
The Management of the Corporation did not go to public tender with these projects even though the expenditure exceeded the $100,000 threshold, then applicable under the Financial Rules 1971. The tendering process would have advertised the project to a larger pool of potential developers, therefore facilitating greater competition in the selection process.
The audit recommended that in future, the National Housing Corporation “put measures in place to ensure that procurement procedures as prescribed by legislation are followed.”
Bermuda’s Auditor General has also found flaws in recent government procurement projects. In its October 2014 audit entitled Special Report of the Auditor General on the Port Royal Golf Course, the Auditor General found that the government failed to control the expenditure of public funds, monitor the project, or follow payment approval processes. It recommended that, going forward, the responsible board ensure proper reporting:
We recommend that the Board of Trustees comply with its legislation and Financial Instructions when undertaking major capital development projects. We further recommend that the Board of Trustees prepare reliable, complete and accurate financial information and provide such information for audit on a timely basis.
The Auditor General also called on the government to ensure that those who are delegated the responsibility to manage major capital projects have the required competency to properly manage those projects and adhere to appropriate accounting standards:
We also recommend that the Government should satisfy itself that those charged with managing and monitoring major capital projects have the required competency. Furthermore, it should accurately record capital spending in its accounting records and follow the rules and procedures governing the authorization of payments.
As this report illustrates, flawed project governance can have a significant reputational impact on government institutions.
Similarly, in its March 2015 audit entitled Special Report of the Auditor General on the Royal Naval Dockyard, the Bermuda Auditor General found that the government’s $60 million project for the construction of a cruise ship pier failed to follow approved policies and procedures. The report observed that that the government failed to properly assess the priority and affordability of the project, conduct a comprehensive financial assessment, or obtain Cabinet approval before awarding the contract. The report also found that the appropriate planning and design work was not conducted before construction began, which resulted in significant cost overruns. Therefore, the Auditor General concluded that the project failed to meet the required good governance standards:
…the Government did not use effective practices in planning and managing the spending of public money to build Heritage Wharf and its related infrastructure. Inadequacies in the management of the Project did not protect the Government’s interests or provide the Government with the ability to measure whether value for money was achieved in many areas. The blatant disregard for the policies, rules and procedures designed to protect the public purse is unacceptable and violates principles of good governance, accountability and responsibility. Those guilty of such violations and neglect must be held to account and the appropriate sanctions should be applied including appearance before the Public Accounts Committee.
This report provides another example of how audit oversight can expose weak project governance practices, and how those governance failures pose significant reputational risks to public institutions.
Turning to Trinidad and Tobago, a recent public audit also raised concerns about major flaws in the public transportation portfolio. In its June 2016 audit entitled Special Audit of the Public Transport Service Corporation, the Trinidad and Tobago Auditor General found weak planning and governance at the Public Transport Service Corporation. The report found that the agency failed to generate enough revenue to cover operating costs and was dependent on the government to fund the procurement of new buses. The report also found that the agency lacked a bus fleet replacement strategy and was spending large sums on the repair and maintenance of old buses. As the report illustrates, the failure to implement a long-term procurement strategy can undermine the ability to obtain value-for-money for the taxpayer.
Jamaica’s Contractor General has also released multiple recent reports that revealed irregularities in Jamaica’s public procurement practices. For example, in its November 2017 Special Report on St. Ann Municipal Corporation Contracts, the Contractor General found widespread contracting irregularities in Jamaica’s St. Ann Parish. The report noted an absence of bid evaluation records, an absence of records substantiating work for contract payments, political interference and favouritism, and a general absence of procurement oversight. The report concluded that municipal officials “failed in their statutory responsibilities and obligations to appropriately account for the prudent disbursement of entrusted public funds, in keeping with the fiduciary responsibilities” as required under Jamaica’s Financial Administration Act.
Furthermore, in its March 2017 Special Report on Jamaica 50 Celebration Activities, Jamaica’s Contractor General found that government officials breached government procurement rules when they failed to maintain proper contract award records. The report dealt with multiple contract awards relating to events celebrating the 50-year anniversary of Jamaican independence. The Contractor General found that government officials failed to properly document the award of contracts or the evaluation criteria for many of those contract awards. The report also found inconsistent or inaccurate accounting information relating to service payments for those contracts.
Procurement practices in the Cayman Islands have also come under audit scrutiny in recent years. For example, in its July 2011 report on Management of Government Procurement, the Cayman Islands Office of the Auditor General “found that the Government has not been effectively managing procurement and that there has been a fundamental breakdown in controls to ensure fairness, efficiency and transparency in procurement, as well as compliance with the laws and regulations.” The audit also noted “that there has been little regard to the consideration of value for money” and expressed concern over the lack of accountability:
I am extremely concerned by the absence of senior management leadership across the public services to ensure that there is effective and efficient procurement of supplies, services and assets. We could not find anyone in the Government who has taken responsibility for this function; either centrally or at the entity level.
These audit concerns over a lack of accountability also manifested themselves in a major cost overrun in a school construction project. In its May 2015 audit entitled Major Capital Projects – Building Schools, the Cayman Islands Office of the Auditor General found significant delays, cost overruns, and post-award scope changes in a school construction project. These factors resulted in the completion of only one of the three planned high schools, which took nine years and cost $127 million, while the other two high schools were left started but incomplete. The completed high school saw significant scope changes, which caused the original plans to change from a single building to a multi-building campus complex. The primary school portion of the project also ran 34 percent overbudget, with only four of the five planned classroom buildings completed.
These audits served as catalysts for a broad range of reforms to government procurement practices in the Cayman Islands, which by 2018 included the adoption of a new statutory framework with clearly defined roles and responsibilities, detailed regulations adopting United Nations Commission of International Trade Law Model Law on Public Procurement (known as the UN Model Procurement Law) tendering formats, and the implementation of automated solicitation drafting, bid evaluation, and reverse auction platforms. In fact, in its October 2017 audit entitled Major Capital Projects – Follow Up, the Cayman Islands Office of the Auditor General found that implementation of a Major Projects Office governance framework was improving project governance. However, to facilitate better advanced planning, the audit noted that a long-term capital investment plan was needed. While the audit found that the creation of a Major Projects Office “was a very positive improvement in managing major capital projects…there remains much that needs to be done to develop an overarching capital investment strategy and to improve the budgeting and financial frameworks to ensure that major capital projects are adequately funded and value for money is achieved.”
In its 2019 annual report, the Barbados Audit Office found that the Barbados Water Authority (BWA) awarded multiple untendered contracts, paid consulting fees without documenting the work performed for those fees, allowed the assignment of a direct award at inflated prices, and entered into unfunded long-term spending arrangements without obtaining government approvals.
As the report noted, an estimated “forty-nine percent (49%) of the water pumped by the Authority was unaccounted for and this was partly due to faulty meters and undetected burst mains”. The BWA initiated multiple capital works projects to address water infrastructure problems.
The Audit Office performed a review of this portfolio to determine “if the BWA was pursuing procurement practices in line with its policies, as well as the requirements of the Financial Management and Audit (Financial) Rules, 2011.” In performing that review, the Audit Office found widespread spending irregularities. For example, the audit noted that approximately 90 percent of the contracts awarded under the water system upgrade projects were awarded without an open tendering process.
The report also raised serious concerns regarding the payment of project-related consulting fees since BWA’s records failed to show that the services were ever actually performed. After concluding that “payment to the Firm for consultancy services has not been explained and there was no evidence of any service being provided”, the report recommended that the appropriate “legal action should be taken on those responsible for this transaction.”
Furthermore, the Audit Office found that the BWA awarded an uncompleted contract for the construction of the Grand View Reservoir in St. Michael for an initial estimated cost of $6 million, and then allowed the contractor to assign that work to another contractor at a revised cost of $23.93 million, which included interest payments of $7.7 million. The report concluded that these awards were non-transparent and that the “high financing cost was not in the best interest of the Authority.”
The Audit Office also found that the BWA failed to obtain required government funding approvals before agreeing to long-term payment commitments for its desalination plants. In its conclusion, the Audit Office raised concerns that there “seemed to be little or no adherence to the Authority’s procurement rules and a lack of sufficient financial and technical analysis of proposals prior to the selection of suppliers of goods and services”.
The Audit Office also raised concerns over the weak recording-keeping for the sole-sourced contracts, stating that in the majority of instances “there was no tender process, and there was inadequate information for determining how the contracted amounts were arrived at, or how the procurement process was initiated.” The Audit Office recommended stronger oversight to better ensure compliance with open tendering rules.
As this case study illustrates, when governments allow their infrastructure to deteriorate, they will inevitably face significant pressure to rush contract awards to repair that infrastructure. However, the failure to plan for long-term life cycle maintenance is not an excuse for downstream sole-sourcing and financial mismanagement.
As these examples illustrate, governments across the Caribbean will continue to be under the increasingly watchful eye of public audit offices. This should serve as a catalyst for further bolstering project management projects, particularly where major projects are concerned.
