Port overcharged $4.2M

The Auditor General’s report on the Royal Watler Cruise Terminal project suggests the Cayman Islands Port Authority has overpaid its two main contractors – Misener Marine Corporation and Hurlston Limited – up to CI$4.2 million for the construction of the facility.

The report, which was publicly released Wednesday, concludes the $18.5 million project was necessary and that it appears to be financially viable, but because of the overpayment, the Port Authority did not receive value for money.

In the opinion of Auditor General Dan Duguay, the project was poor planned and managed and commenced without establishing an implementation framework, resulting in ‘duplication of design efforts and other costs; non-existent financial planning/budgeting; poor contractor selection methodology; and cost overruns’.

The process of awarding the construction contract to Misener – which did the marine portion of the project – and to Hurlston – which did upland portion of the project – was flawed, the report concludes.

The contract award did not go through the Central Tenders Committee. Although the Port Authority was not legally bound to use the CTC, the Auditor General maintained it should have had in place sufficient alternative controls to ensure value for money was obtained.

Instead a Tenders Assessment Committee was formed, which made a recommendation on 3 December 2002 that a joint venture between McAlpine (Cayman) Ltd. and Arch & Godfrey be awarded the contract.

However, a little over a month after that decision, the project manager Burns Conolly Group submitted a report recommending the suggesting a review of the contractors ‘to confirm the scope and quality of (the) project included in the tender, as the initial drawings were not complete at the time of tender as this was a design/build tender and subject to interpretation’.

Burns Conolly group then interviewed bidding contractors and had them fill out questionnaires as part of a follow-up exercise.

‘Thus it appears that a conclusive and unambiguous recommendation as to a particular contractor made by the members of the Tenders Assessment Committee was overridden,’ the report stated.

Then, in a Port Authority Board of Director’s meeting held 9 January 2003, the Board put forward a motion asking three contractors to re-bid on the upland portion of the project.

However, after a series of board meetings over the next eight months spent discussing revisions to designs and specifications and revised pricing, the board abandoned the tendering process and awarded the contract to Misener/Hurlston, with the eventual contract prices ‘being substantially higher than those under the original competitive quotes’.

The Auditor General’s report indicates that the Misener/Hurlston bid was $4.29 million more than the lowest bids for the various portions of the project. In particular, the Auditor General said it was not difficult to conclude that the Port Authority paid at least $2.48 million more than necessary on the upland portion of the contract awarded to Hurlston.

In addition, the report said the selected contractors submitted final contract prices an aggregate 22.4 per cent higher than the original amounts submitted in their bids when tenders were invited.

‘Having abandoned the selection of contractor via competitive tender, the Port Authority was a victim of what could possibly be interpreted as price gouging,’ the report stated.

‘The Audit Office did not see evidence of significant revisions to the projects that would have led to increased costs of approximately $2.7 million.’

The report is particularly critical of Misener Marine, which the Auditor General believes overcharged the Port Authority for materials, design and engineering and performance security.

Misener also charged fees for demobilisation, which included the cost of shipping a crane back to the United States, even though Misener sold the crane to the Port Authority after Hurricane Ivan for a 67 per cent profit.

Looking at the materials purchased for the project, the Auditor General found that Misener made a $969,370 (or 139 per cent) profit on materials through a combination of overestimated quantities and high mark-ups.

‘While it is reasonable for the contractor to make a profit on materials supplied, we believe the mark-up here to be unsupportable, especially when one considers that these mark-ups were not obtained in a competitive environment,’ the report stated.

Of particular concern were sheet piles. The quantity charged per contract was 920 tons valued at $1.17 million. Bill of lading records filed in accordance the United States Export Administration Regulations show only 788 tons valued at $563,322 were shipped.

The quality of the sheet piles is also in question. The drawings that accompanied the invitations to tender specified a quality known as AZ-26, which are stronger and would stand up to a hurricane better.

However, Misener used AZ-18 and AZ-13 sheet piles on the project, which are thinner and less expensive, the report stated.

‘We are not certain why the contractor changed the specification given to him in the drawings that were provided… nor why a credit was not issued to the Port Authority if less expensive material was used.’

Misener argued successfully that it should be exempted from all-risk insurance during the construction, which the Auditor General believes should have really been its responsibility.

Additionally, in the schedule of values presented in the contract, there is $154,970 listed for insurance anyway.

‘Although it is not clear that this amount was for all-risk insurance, it is difficult to understand how the contractor can argue for a pass through of contractor’s all-risk insurance with such a fairly high figure already included in their schedule of values,’ the report stated.

Misener’s costs between bid and contract escalated $1.69 million, or 47 per cent.

‘The Audit Office does not consider that there were any significant changes in design that warranted such an escalation of costs,’ the report stated. ‘The fact that the contract was a design-build contract renders such a defence virtually moot.’

The report also criticised the award of the contract to Hurlston without vetting by the Legal Department, which resulted in a contract the Auditor General deemed to be too generous.

Hurlston was permitted to receive a payment advance approximately six months before the marine contractor was scheduled to begin work.

In addition, Hurlston was required to obtain a performance security worth $628,748 within 28 days of receiving the Letter of Acceptance, however it was never obtained.

The contract price quoted an amount of $50,000 for obtaining the performance security, which the Auditor General said should not be paid.

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