By: Paul Emanuelli
This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its October 2019 performance audit entitled RADA’s Management of the Rehabilitation of Farm Roads, Jamaica’s Auditor General found that weak portfolio management practices led to a series of procurement irregularities in the rehabilitation of agricultural roads by the Rural Agricultural Development Authority (RADA). In the report, the Auditor General noted a rising expectation of probity in government procurement practices:
Increasingly stakeholders are demanding greater levels of transparency and accountability in the management of public funds, as many public bodies continue to demonstrate weak governance practices that often overshadow positive developments in the technical areas of their operations. For public bodies to effectively carry out their mandates and achieve value for money, they must implement systems that facilitate the efficient and effective use of resources, while upholding the principles of good governance.
However, the Auditor General found that RADA failed to meet these standards since the institution was unable to even clearly identify which roads fell within its portfolio:
RADA could not readily distinguish between farm roads and the parochial roads managed by municipal corporations. Given that the farm road rehabilitation programme is extended to surrounding communities comprising parochial roads, we expected that RADA would have established criteria to distinguish farm roads from parochial roads to prevent overlap with municipal corporations. RADA established annual priority lists for the selection of farm roads to be rehabilitated but could not explain the basis for the selection of some farm roads. Whereas RADA’s policy required that roads selected for rehabilitation must satisfy the criteria shown below, RADA admitted that its definition of farm roads was inadequate and outdated.
The Auditor General also found that RADA lacked a proper roads inventory management system to support its road rehabilitation efforts:
RADA lacked a proper roads management system to support its road rehabilitation programme. Consistent with its mandate, we expected RADA to have a robust road inventory management system with a detailed master list of farm roads identified by location, condition and works undertaken; information necessary for the proper determination and prioritization of resources. Such a system would also provide RADA with the current status of farm roads to guide rehabilitation activities. Against this background, RADA, which continually revised its budget for farm road rehabilitation, failed to document reasons for revisions and often excluded or scoped out critical elements such as drainage after the commencement of contracts, in order to stay within budget.
The Auditor General also found RADA failed to ensure transparent and open competitive procurement practices for the award of most of the reviewed contracts, and improperly relied on emergency exceptions as the reason behind failing to properly tender many of those contracts:
RADA’s process of selecting contractors was not always transparent or competitive. We reviewed 112 road rehabilitation contracts valued at $1.6 billion and noted that RADA used the local competitive bidding methodology (LCB) for only four contracts valued at $90.8 million. Conversely, RADA utilized the limited tender (LT) methodology for 75 contracts (67 per cent), valuing $1.04 billion. RADA was unable to indicate the basis on which contractors were pre- selected for an invitation to bid on road rehabilitation contracts. Further, in six instances, RADA used the LT methodology to award contracts valuing $129.8 million, despite the procurement guidelines not being met, thereby denying other qualified contractors the opportunity to participate in the procurement process. RADA also utilized the direct procurement and emergency methodologies for 33 contracts valuing $520.93 million although the allowable circumstances permitting the direct and emergency procurement methodologies were not met. For instance, in 25 of the 33 direct and emergency contracts valuing $401 million (77 per cent) RADA’s justification for the use of these methodologies did not conform with the procurement guidelines.
The Auditor General determined that the failure to properly plan procurement activities was a major contributing factor to the procurement irregularities, which included weak tender evaluations:
Proper planning would have enabled the use of the competitive bidding process via public advertisement of the procurement opportunity, thereby facilitating transparency and achieving the best price.
Tender Evaluation Reports (TER) for the 112 contracts examined, revealed no evidence that RADA assessed bidders to determine whether they met the minimum qualifying criteria in compliance with the Instruction to Bidders and Procurement Guidelines. We noted that RADA’s due diligence process related to the selection of contractors was limited to the validity of the Tax Compliance Certificate (TCC) and the National Contracts Commission (NCC), and selection based on the lowest bid. RADA did not provide any evidence it conducted a prequalification exercise of potential bidders for limited tender contracts, in accordance with Section A7.3 of the Invitation to Bidders, which requires RADA to evaluate bids to determine compliance with regulations and includes assessment of experience in similar works, qualification and expertise of key management and technical personnel.
The report also found significant weaknesses in the preparation of specifications, which increased the risk of substandard work:
RADA’s omission of critical specifications from road rehabilitation contracts, coupled with the absence of routine and regular maintenance, heightened the risk of sub-standard works. We expected that RADA would ensure that the design for farm roads included proper drainage, to allow for adequate water run-off and extend the life of the road. RADA frequently re-scoped works to omit infrastructure that were deemed critical, such as drains and culverts and changed the location of contracted works without any evidence of re-measurements. We reviewed 46 contracts relating to 117 roads and found 53 instances where deliverables of the contracts works were re-scoped by works engineers and the Chief Executive Officer (CEO) to exclude the required drainage, culverts and pavements. In 33 of the 53 instances, the specification for drainage was omitted or adjusted despite RADA’s records7 showing that the entity had identified that the quality of roadwork could be easily undone by rainfall due to inadequate drainage. Our survey of farmers revealed that while some acknowledged that repaired roads made it easier to get to and from their farms and reduced wear and tear on their motor vehicles, many complained of poor drainage on some newly rehabilitated roads. RADA’s records showed that all these projects were frequently scoped down by the works engineer at the same cost level, by excluding critical drains and culverts which are key components of road infrastructure that could ensure its longevity.
The Auditor General also raised serious concerns over the inappropriate use of change orders in situations where the new work should have been put to public tender under a new contract:
There were also instances of incorrect application of variation orders. For seven contracts, related to nine roads, repair cost totalling $50.7 million, RADA changed the location of works, a critical component of the contracts, using variation orders, instead of formulating a new contract as required under the guidelines since these new roads were not named in the original contract. We were not assured that value for money was obtained as the ‘variation orders’ did not provide justifications or estimates of cost related to the changes, to ascertain whether the additional works could have been undertaken at lower costs through competitive tender. Further, we noted that four of the roads substituted were on RADA’s priority list to be rehabilitated, which raises further questions regarding the transparency of the selection process. This also underscored the importance of a roads management database, specifying location and condition, to provide some assurance that all farm roads are taken into account in the rehabilitation, planning and budgeting process.
The Auditor General also found that RADA needed to improve its contract inspection and monitoring practices by enforcing its existing quality assurance framework:
RADA’s inspection and monitoring activities were inconsistent with its quality assurance framework. As part of its quality management, RADA developed guidelines related to key quality requirements for general work activities such as bushing, drainage, earthworks and pavement. An inspection checklist was also developed for use by works engineers to verify whether each phase of the road work complied with requirements. RADA stated that its works engineers were usually on site throughout the road projects to carry out quality checks and on completion of road works are required to inspect the road and related structures for deficiencies and defects. However, we found no notations on inspection checklists regarding the nature, frequency of testing and physical conditions of the roads during monitoring and inspection activities. Consequently, we could not determine how RADA assured itself of adherence to guidelines or if the quality of the construction complied with the design specifications.
Our review of RADA’s Internal Audit Reports highlighted that site inspections conducted in February 2018, 10 indicated that roads rehabilitated in late 2017 had begun to show signs of deterioration, (e.g. potholes) in a short period (3-4 months) after rehabilitation. This supported our concern that RADA did not take steps to assure itself that contractor(s) rehabilitated roads to quality standards, through performance tests or inspections by works engineers throughout the process.
As this report illustrates, the failure to implement proper planning and oversight practices increases the risk of downstream procurement irregularities. To avoid being the next audit case study, public institutions should ensure that they are implementing appropriate procurement governance practices as part of their portfolio management strategy.
