Auditor General Dan Duguay said he will not change his special report on the Royal Watler Cruise Terminal project from January 2006 despite new evidence coming to light during the Public Account Committee’s review of the report.
In particular, there has been unchallenged testimony during the hearings that there was a significant change of scope in the project, which accounted for much of the cost increases over the initial bids received.
Both the Burns Conolly Group and Misener Marine Construction Inc. have asked that the report either be significantly revised or withdrawn.
Mr. Duguay said there was nothing in the law to allow for the report’s withdrawal and that he was not inclined to make any changes at this point.
‘That’s exactly what the Public Accounts process will do,’ he said. ‘If there were things that were left out, the Public Accounts Committee will put it in. That’s the proper place for it to be.’
Mr. Duguay said his office had included all the salient information about the project in his report, and that he would have taken into account any other information that had been provided to his office during the drafting of the report.
Besides the change of scope issue, several other contradictions to the auditor general’s report arose during testimony at the Public Accounts Committee hearings last week.
Misener’s sale of crane
In his report, the auditor general suggests Misener made a 67 per cent profit on the sale of the crane it brought to Cayman to complete the work.
This assumption was made by comparing the value of the crane Misener listed on the bill of lading with the price paid by the Port Authority.
The Port Authority needed the crane because its equipment had been severely damaged by Hurricane Ivan.
The auditor general’s report states that the Port Authority had approached Misener with a view of leasing the crane, but Misener refused.
Testifying before the PAC, Misener General Counsel Cabell Acree disagreed with the auditor general’s statements about the crane, starting with the revelation that Misener had actually loaned the crane to the Port Authority free of charge for a period of three to six weeks.
Mr. Duguay said he was not aware that had been done.
Mr. Acree said the Port Authority had then asked to lease the crane on a long-term basis, but Misener could not accommodate them because it needed the crane for other works.
A 14-page statement given to the PAC by Misener stated the Port Authority asked Misener to use its contacts to try to find a crane it could buy and have shipped to Cayman quickly. That effort was unsuccessful.
Ultimately, the Port Authority bought the crane from Misener for US$750,000. On the bill of lading, Misener listed the value of the crane as US$450,000.
Misener contends the bill of lading does not reflect the actual value of a crane.
‘Bill of lading values are established principally for US tax and insurance purposes,’ Misener said in its written statement. ‘…The amounts set forth in the bull of lading are instead an estimate of the insurance value of the equipment, which is not replacement cost…’
Mr. Acree said a bill of lading bears little relevance to the actual value of things.
‘Using a bill of lading to value something is a wrong-headed approach,’ he said.
After selling the crane to the Port Authority, Misener had to adjust its planning of future projects to make arrangements to avoid expensive delays, its written statement said.
‘Indeed, Misener subsequently had to locate a replacement crane in the US on the open market to meet its other contractual obligation, and as such had to incur higher purchase costs in doing so,’ the statement said. ‘It would have made little business sense for Misener to sell the crane on the island to the Port Authority at a price below fair market value, only to then have to turn around and purchase a replacement crane on the open market.’
In the end, Mr. Acree said both parties were served.
‘We think we sold the crane to the Port Authority for a fair market value,’ he said, adding that Misener even negotiated an instalment plan so the Port Authority did not have to pay the entire amount up front.
Price gouging claims
The auditor general’s report states that as a result of abandoning the competitive tender process, ‘the Port Authority was a victim of what could possibly be interpreted as price gouging’.
In its statement, Misener objects to the use of pejorative language such as ‘price gouging’.
‘Not only does Misener reject these characterisations and conjecture, but also posits that such language and techniques have no place in a report we presume to be for the purpose of setting out facts and conclusions reasonably drawn from such facts,’ its statement said.
Misener rejected any suggestion there was price gouging or opportunism in connection with any increases in project costs, citing in particular what it termed ‘significant changes in scope’.
The auditor general also stated in his report that Misener had a profit mark-up of 139 per cent for some materials. The values for the calculation were determined by looking at the quantity and value charged in the contract, and then subtracting the quantity shipped based on the values listed on the bill of lading.
Misener once again stated the bill of lading did not reflect actual value, but the raw costs of materials without fabrication, manufacture, alteration, modification or installation. As it argued was the case for the crane, the bill of lading represented insurance value of the materials, not replacement cost.
In addition, Misener’s statement said the bill of lading did not list all materials used in the project.
‘Certain critical delivery items with short lead times were delivered by air and other shipping in order to keep Misener’s marine work on schedule,’ the statement said, adding Misener also procured some materials locally.
Engineering/design fees too high
In his report, the auditor general states the opinion that too much money was paid for marine design and engineering services for the Royal Watler Cruise Terminal project.
The report states $173,866 was paid to CGMJ Ltd. for design work that included ‘fairly compete marine drawings’. Misener’s list of values in the contract included $480,791 for outside engineering/design.
The auditor general stated ‘we did not see evidence of significant revisions to the drawings and it is therefore difficult from our perspective to understand how such a large fee could be charged when Misener were given fairly complete drawings with which to work’.
In its response, Misener noted not only the changes in scope and changes to the desired design, but a more basic reason for its design/engineering fees.
‘We do not know, but reasonably believe, that the drawings upon which bids were initially based were not complete, but were so called ’15 per cent or 30 per cent’ drawings to provided guidance to bidders, which drawings thereafter were expanded to complete project drawings.’
In addition, Misener pointed out its tender was on a design-build basis, and it negotiated its contract accordingly. As such, it was entitled to receive the lump sum it had negotiated for, regardless of component costs.
Since design and engineering was part of its tender, Misener subcontracted the work to another firm, Mr. Acree stated.
‘These costs are certainly not out of the ordinary based on our understanding of the industry,’ he said.
The Burns Conolly Group’s written response to the auditor general’s report called its contention that too much was paid for marine engineering/design ‘total nonsense’.
‘[The CGMJ] drawings were issued for guidance as is stated in the tender documents,’ the BCG report stated. ‘The designs were completely re-done as was the engineering as part of the design/build process.’
The BCG report said the project changed in many ways, not only in scope, but in design. It called the auditor general’s contention that Misener had significantly complete designs from CGMJ ‘erroneous.’