By Jason Loh & Ameen Kamal,
A persistent and embedded problem in the government procurement process for construction has been abandoned projects resulting in the loss of millions of ringgit – the sheer waste is whereby magnified by the current Covid-19 crisis that’s crying out for more money to be spent of which infrastructure is a critical artery to boost the multiplier effect in the economy. Every year, the Auditor General’s Report would be replete with cases of wastages and leakages resulting from failed projects due to mismanagement by the ministries and government agencies.
A concrete example is in the construction of schools.
Only recently in a Dec 1 parliamentary statement, the Ministry of Education (MOE) acknowledged that the construction of three public schools have grounded to a halt due to poor due diligence checks of the financial background and status of the contractors.
It’s reported that the construction of national-type high school SMK Bandar Saujana Putra and primary school SK Bandar Saujana Putra had to be delayed after the contractor for both projects was found to be insolvent and forced to wind up. As of now, the progress for the high school and primary school stood at 95.8% and 45%, respectively.
A third school, SJK (Tamil) Heawood, was allocated RM13.88 million to build 12 classrooms and other amenities. But the Tamil national-type primary school remains unfinished as the contractor failed to complete the project according to stipulated milestones. The contractor failed to show progress with only 42% being completed.
As a result, the MOE will have to re-tender all three projects – which represents an inefficient and ineffective way of using financial resources that are taxpayers’ money to fund public projects.
What’s the cause and how can the problem be meaningfully and definitively addressed?
Construction projects are normally paid according to on-site progress. This will usually be based on an approved work programme that tie construction progress with financial milestones. There would have been regular progress reports submitted to and approved by the client which is the MOE or its representatives such as appointed consultants.
The low-level of progress in the completion of the construction projects (only 45% and 42% for the two schools referred to) – despite receiving an extension on the timeline – is unexpected and shouldn’t normally be factored in as a probable case scenario. This is because school construction projects are generally considered a straightforward and simple building construction.
This brings to question the credibility of project consultants who are in charge of verifying the works and the supposedly regular progress reports provided to the MOE.
The issue, therefore, could be attributed to at least three factors.
Firstly, the consultants failed to do proper and thorough due diligence checks and screening of the contractors during the tendering process. This could either be due to negligence or corruption.
Secondly, the consultants also failed in terms of their role in on-site management and supervision of the job scope. For example, there could have been design issues whereby certain specification changes were made based on the variation order (VO). However, it would seem that probably no proper instructions had been given to the main contractors.
Although VOs are common in construction projects, it is also one of the causes for disagreements and delays in the construction process. This is particularly true if the VO has a significant impact on the original budget, leading to payment issues to subcontractors because of costs overruns.
To pre-empt this, the consultants should have ensured that the contractors have firmed up the designs before submitting tenders to avoid changes down the road.
Thirdly, in some cases, the main contractors are not able to proceed until and unless the costs to the changes proposed by the subcontractors have been confirmed and mutually agreed. However, there are cases where subcontractors proceeded with the works when dealing with reputable main contractors on the basis that they could claim the costs later.
Under the present circumstances relating to the three schools, the main contractors responsible for the school construction might have faced an issue whereby the increased costs went beyond their existing financial capacity. Late payments to the main contractors could in turn delay payments to the sub-contractors.
However, should there be no issues on the part of the client i.e. MOE, then the MOE must have been dealing with questionable consultants and contractors which throws the spotlight on the tender selection process. On the consultants, the MOE should have outsourced the appointment process to the Ministry of Finance (MOF) or Implementation Coordination Unit (ICU), Prime Minister’s Department. And this should apply to the other ministries and government agencies also.
When it comes to the contractors, although cost is certainly a criterion, there would be other criteria for selection such as the project track record and financial standing, including gearing ratio and outstanding liabilities.
If it turns out that the contractors for the three schools have a questionable track record, the Malaysian Anti-Corruption Commission (MACC) must immediately open an investigation file to ensure there are no elements of corruption. These are public funds and there must be accountability on the issue.
Nevertheless, the construction business is known to be plagued with unscrupulous contractors that frequently use different company names which makes it harder to keep track.
As such, to promote transparency and accountability, the government and in this case the MOE ought to enhance its due diligence process and test by working closely with the Companies Commission of Malaysia (CCM), Malaysian Department of Insolvency (MDI), Attorney-General’s Chambers (AGC), National Audit Department, specialists consultants such as SGS Malaysia, private investigators, etc. to weed out roguish and unethical contractors; and that such information are shared and exchanged with the other ministries and government agencies so that the necessary action can also be taken.
The monitoring and surveillance system for project management involving the following stakeholders should be reinforced and bolstered:
- ICU, Prime Minister’s Department;
- Ministry of Works through the Public Works Department (PWD); and
- MOF with support from the Public-Private Partnership Unit (Ukas), Prime Minister’s Department; and in collaboration with the
- MACC – either broadly within or partly based on the National Anti-Corruption Plan (NACP) 2019-2023 framework with specific reference to the IT-based Project Monitoring System (PMS/SPP) II as further enhanced by the deployment of artificial intelligence (AI) software and blockchain technology.
Not least, one practical suggestion is for the MOE (or relevant ministry or government agency) to brief and share specific project management details with the local Member of Parliament (MP) and state assembly person concerned. This is so that the elected representatives too can play their democratic part on behalf of or in conjunction with interested citizens in monitoring the development and progress of the construction projects. Any remiss on the part of the MOE (or relevant ministry or government agency) can be quickly remedied or rectified on the ground with reports to the MACC and police, thus drawing early attention (like an early warning system in its own right) to the issue.
By extension, such move will contribute towards promoting transparency and accountability and help to minimise wastages and leakages.
Jason Loh Seong Wei and Ahmad Ameen Mohd Kamal are part of the research team of EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.