Report fears fraud, graft

The Office of the Director of Public Procurement’s (ODPP) probe into alleged irregularities in the construction of Reserve Bank of Malawi (RBM) Mzuzu Branch has raised a red flag for “possible fraud and corruption” in the project’s implementation.

Grounds for suspecting fraud include gross neglect of laid down contract provisions that saw a 180 percent increase in the contract sum that was “unjustifiably” pegged to the US dollar; failure by the contractor to pay liquidated damages for delaying construction and flouting of procurement procedures.

The ODPP has since recommended a full investigation into the matter.

The probe has also raised fears that government might have coughed out more than K14 billion on the project, whose initial contract sum was pegged at K5 billion.

The ODPP, in collaboration with Anti-Corruption Bureau (ACB), launched the inquiry on the project early this year after a complaint was lodged to the bureau by a concerned party.

The probe also followed the publication of an investigative story by our sister paper The Nation which revealed that the project was rocked by “malpractices and rampant breach of contractual and procurement procedures”.

According to findings contained in the ODPP’s report dated August 2015, which Weekend Nation has seen, the project implementers grossly disregarded the contract’s provisions in its administration, project management and procurement.

Several other findings in the ODPP report—which was compiled by a team from the ODPP and ACB after reviewing copies of documents and correspondences made by several players on the project—corroborate what The Nation story unearthed in its December 2014 investigations.

The report queries how RBM revised the initial contract sum of K5 155 455 615.30 to around K14 billion, representing an increment of around 180 percent, without approval from ODPP, acting contrary to advice from the consultant/project manager—NDDC Consortium.

It further suspects that the K14 billion final contract sum might be less than what was actually spent on the project.

“There are strong indications that the contract sum was revised beyond the K14 billion,” reads the report.

According to the report, the 180 percent revision in the contract sum grossly flouted procedures which state that an increase in quantities which exceeds 15 percent of the contract sum requires either a new procurement proceeding, or justification, if appropriate, as single-source procurement in accordance with Section 36 of the Public Procurement Act.

The report also questions why, after revising the contract sum, RBM pegged the contractor’s payment to US dollar at a fixed rate of $1 to K281 when clause 46.1 of the General Conditions of Contract (GCC) provided that all payments be in Malawi kwacha.

Without justification for the currency change, the report observes, all payments to the contractor were expressed to the US exchange rate prevailing at the time of payment.

Further, a specific formula provided for in the GCC for computation of any such adjustments of prices—which were to be made only for fluctuations in the cost of inputs if provided for in the Special Conditions of Contract—was ignored.

“There is no evidence that such a formula was ever used in computing any adjustments which constituted the revised contract sum. Given that the contract provided for adjustment, there is no justifiable ground why the entity decided to convert the contract price into US dollars,” reads the report.

The ODPP also faulted how dates for construction works, which commenced on August 23rd, 2010 with an original completion date of August 22nd 2012, had been revised on three other occasions, yet the project remains incomplete to date.

“Despite the completion date being extended to 30th May 2014, the works have not been completed. Further, there are conflicting details as to whether the project manager [NDDC Consortium] approved a further extension of the project beyond 30th May 2014,” says the report.

ODPP also notes that after failing to complete the works on the revised completion date of May 30, 2014, the contractor, SR Nicholas, was supposed to pay liquidated damages, “ but records indicate that the contractor was not deducted any damages after failing to complete the works and decided to abandon the assignment”.

ODPP also discovered that despite SR Nicholas voluntarily terminating the contract on November 11, 2014 and the employer accepting the cessation on December 2, 2014, the contractor did not immediately leave the site as provided for in the contract.

In the end, RBM convened a meeting with the contractor on January 30, 2015 to renegotiate with a view to reinstate the contract despite being advised by the project manager that the move was contrary to the provisions under clause 59.5 and 60.2 of the GCC.

But the report states that at the time SR Nicholas was abandoning the project, the company had already received around K13.7 billion with just about K190.9 million as the outstanding balance whose payment delayed due to disagreements over liquidated damages.

In re-engaging the contractor after the termination, RBM is also accused of flouting procedures as public procurement procedures which categorized the transaction as a new procurement all together.

The other thorny issue raised in the report is on procurement and installation of equipment which were not procured in accordance with architect instructions.

The ODPP investigations revealed that equipment comprising, among others, money sorters, money shredders, specially designed furniture, vault doors and ICT installation were all procured and installed without architect instructions as provided for in the contract.

Observes the ODPP in the report: “There are indications of gross disregard by the employer of the authority that was vested in the project manager by the contract as some decisions were made unilaterally by the employer without engaging the consultant/project architect.”

In an interview on Thursday, SR Nicholas director Gianluca Bizzaro said the company did not voluntarily terminate the contract.

“We had contractual issues but were resolved amicably. There were discussions and agreements.

“We agreed that on certain conditions we will go back to work; those conditions were met and we went and completed the job. So everything was done under the provisions of the contract,” he said.

Bizzaro said construction work was completed and the office complex was officially handed over to RBM at the end of July.

“Fundamentally, the job was completed; contractually, we have a one year maintenance period so we are still on the site carrying out small extra works the client has asked us.

“We no longer have a site office we just have junior people who go there and just do basic maintenance nothing substantial,” he said.

ODPP recommendations

Noting “strong indications of possible malpractices” on several issues including revision of contract sum, pegging of the revised contract sum to the US dollar, extension of contract period, procurement of equipment, termination of contract, failure to charge liquidated damages and reinstatement of the contractor after voluntarily terminating it, the ODPP has recommended to the ACB to undertake to establish whether provisions of the Corrupt Practices Act were not flouted.

The ODPP further recommends the establishment of the extent to which RBM interfered with the project implementation and the implications as indications show that most decisions were made unilaterally by the central bank.

On revising the contract sum from K5 billion to K14 billion, the ODPP calls for a review to establish to what extent and why the contract provisions were not followed and also how RBM entered into a fresh contract with SR Nicholas after the termination.

The ODPP also wants RBM to make available audit reports which were done by JMD Consultants, but were not presented to ODPP during the inquiry, saying the reports are crucial in shedding more light on what happened during the course of project implementation.

“It is only right and proper that both ACB and ODPP undertake further investigations on the issues raised in this report so as to establish clearly which areas of the Corrupt Practices Act, the Public Procurement Act 2003 and the contract itself were flouted so that appropriate actions can be taken,” concludes the nine-page report.

As we went to press, RBM, ACB, ODPP were yet to respond to questionnaires Weekend Nation sent to the offices inquiring about the issue.

A cache of documents uncovered by The Nation investigation last year showed that RBM was warned several time about the mess the project was in and was asked to “urgently intervene” to preserve the project’s integrity and public funds, but there was no suggestion in the information that the distress calls were acted on.

For example, in a November 18 2014 letter to RBM Governor Charles Chuka, project architect DD Chidyaonga of DDC Designs, also a member of NDDC Consortium engaged to provide design and supervision services for the project,literally pleaded with the RBM top brass to intervene.

Said Chidyaonga: “The continual arrogance in undermining the authority of the designated project supervisors on this very important project and the wanton payments to contractors and suppliers without following right procurement procedures is seriously draining the public purse on a project whose revised contract sum of K14 billion has now been far exceeded to over K15 billion without further official addendum to revise the contract sum.”