This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its January 2019 report entitled Owen Roberts International Airport (ORIA) Terminal Redevelopment Project-Progress Update as at August 2018, the Cayman Islands Office of the Auditor General found project delays, cost overruns, poor contractor performance, design defects, and weak oversight practices in an airport modernization project.
By way of background, the Auditor General noted that “Owen Roberts International Airport (ORIA) in Grand Cayman has a planned capacity level of 500,000 passengers a year” and that it “has been operating well beyond this capacity for a number of years, with statistics from 2000 onwards reporting that around a million passengers a year were flowing through the airport.” The Auditor General also noted that in October 2013, Cabinet issued a policy direction to further enhance the existing facilities at all three Cayman Islands airports “to improve the travel experience for passenger arrivals” with the goal of “setting the stage for success in the tourism industry.”
However, as the report detailed, the project was subject to ongoing delays, as well as cost overruns of 20% in excess of the initial budget. As the Auditor General detailed, these delays and cost overruns could largely be attributed to pre-build design defects (with over 60 of the 92 contract variations relating to “design errors and omission made by the consultant”), as well as poor performance by that lead contractor:
The lead consultant (RS&H) has not performed well and many of the performance issues have caused delays, resulting in elements of the project having to be re-phased, overall delays in the timescale, and cost increases. The sub-consultants have recently claimed that RS&H is slow to communicate with them, which has resulted in critical information not being updated or presented to the Senior Project Manager and Project Steering Group.
The report also raised concerns over the lack of meetings by the Project Steering Group and a lack of records relating to that group’s decision-making process. In fact, the Auditor found gaps in the frequency of formal meetings during a critical two-year period, and noted a lack of any formal records of decisions taken outside of formal meetings:
THE PROJECT STEERING GROUP DID NOT MEET REGULARLY BETWEEN 2014 AND 2016
It is important that oversight groups meet regularly to make decisions; receive regular updates on progress; and assess emerging risks and issues and agree on corrective actions to be taken. The Strategic Outline Case for the project stated that the Project Steering Group would meet monthly and at any other times necessary to coincide with key milestones.
The Project Steering Group has met monthly since August 2016 and attended monthly design workshops and project updates in the early design stage of the project. However, our review identified a number of gaps in Project Steering Group meetings. There were:
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No meetings for five months between July and November 2014. During this time, the procurement process for the lead consultant (RS&H) for design, cost and contract administration was carried out.
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Only seven meetings in the year from March 2015 to February 2016. During this time the contract for Phase 1 construction was signed and the tender documents for Phase 2 construction were issued.
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No meetings in the six months between March and August 2016. During this period the contract for construction of Phases 2 and 3 was signed.
We were told that that the Project Steering Group had input to all decision making although this may have been done through emails rather than meetings. For example, in September 2015, they were asked to virtually approve a change to the procurement for Phase 2; and in July 2016 they were asked to approve the ESTAR report for the procurement process of the Baggage Handling System by email. From our review of Project Steering Group minutes we can see that they were normally updated on key milestones once they have passed e.g. after contracts have been awarded.
However, the minutes do not record that the Group approved documents between meetings. In circumstances where virtual approval is sought outside of meetings a formal record of decisions should be retained to demonstrate appropriate governance and oversight and transparent decision making.
The lack of formal steering group meetings and records was particularly concerning given the significant cost overruns that arose due to multiple scope changes that were implemented during the period in question:
The project was initially estimated to be complete by the end of March 2018. A number of delays resulted in re-phasing and the overall project completion date has moved a number of times. The revised completion date is officially December 2018. However, the project schedule as at May 2018 estimates the final completion date as February 2019. It is expected that the terminal redevelopment will be substantially complete and the airport fully operational by December 2018.
The original estimated cost of the project specified in the OBC was $51.9 million. At the time of procuring the lead consultants the project budget was set at $55 million, which included a contingency of around 6 per cent of estimated construction costs ($2.5 million). In August 2015, the cost estimate increased to $56.62 million as a result of design changes requested by the CIAA Board. At the time of our audit, most of the contracts were signed and the estimated project cost based on contract values was $53.8 million. As at August 2018 the project was estimated to cost almost $64.4 million; $10.6 million (almost 20 per cent) more than the contracted values. Around $5 million of this cost increase is because of changes requested by the CIAA Board. The CIAA, MPO and Senior Project Manager continue to look for options to minimise the overspend.
While, as the Auditor General noted, this project was initiated prior to the series of recent government procurement reforms that included the creation of a project management office, cost overruns and delays for the airport project remain on ongoing concern as the Cayman Islands transitions to a more modernized procurement regime.
