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Biggest road project going to bid-rigging Japanese company
View(s):The road construction arm of Taisei Corporation, a Japanese firm tipped to receive the contract for the costly third section of the Central Expressway (CE III), was charged with bid rigging by the Japan Fair Trade Commission (JFTC) earlier this year.
Taisei Corporation is also currently grappling with a yawning sinkhole that opened in a major street in Fukuoka, Japan, on Tuesday. The company is a key member of a consortium extending a subway line under the street. The sinkhole began with two smaller holes that grew into one huge depression.
Bid rigging is defined as “a form of fraud in which a commercial contract is promised to one party even though for the sake of appearance several other parties also present a bid”. In February, the JFTC investigated bid rigging allegations against Taisei Rotec Co Ltd, which does road and infrastructure construction for Taisei Corporation. It found criminal violation of the Antimonopoly Act and filed charges.
The 2016 annual report of Taisei Corporation acknowledges the suit and expresses deep regret that training and guidance to prevent bid-rigging had “failed to be conducted sufficiently”. It vows to obey compliance requirements with increased rigour and to bolster measures to prevent a recurrence.
But Taisei Corporation is now facing similar allegations in Sri Lanka, with authoritative sources insisting that the CE III tender is being fixed in the company’s favour. They question the Government’s reluctance to solicit open, competitive bids for what will be one of the country’s most expensive road projects to date.
Sri Lanka’s Highways Ministry — under instructions from the Cabinet Committee on Economic Management (CCEM) — eschewed transparent, competitive bidding for CE III from the outset. Instead, it opted for limited tenders from Japanese companies, saying this was a prerequisite to securing a concessional “tied loan” from the Bank of Tokyo-Mitsubishi UFJ Ltd (BTMU).
Then, instead of opening the project out to all Japanese firms, the Ministry instructed the Japanese Embassy to nominate contractors. The Embassy came back with just three: Taisei Corporation, Penta Ocean Construction Co Ltd and Wakachiku Construction Co Ltd. It said they were recommended by the Japanese Chamber of Commerce and Industry in Sri Lanka.
In the first round, only Taisei Corporation submitted a bid. Penta Ocean Construction specialises in marine works and land reclamation, not road building. Wakachiku Construction has mostly been involved with bridge work in Sri Lanka. But Taisei’s bid was cancelled because it had neglected to submit the mandatory bid bond.
Incidentally, Penta Ocean Construction was also investigated for bid-rigging in 2006 and slapped with a bidding suspension and other administrative penalties by Central and Local Governments. Penta later introduced a ‘Bid Rigging Eradication and Compliance Declaration’ under which it resolved not to “carry out, force others or overlook” illegal acts or acts that may lead to suspicious activities.
After the Taisei bid was cancelled, however, Prime Minister Ranil Wickremesinghe’s Secretary wrote to his counterpart in the Highways Ministry saying: “Japanese authorities at the highest levels have forwarded a letter requesting that the third phase be awarded to a Japanese construction company and regretting the lapse on the part of the tenderer.”
The Government then chose to float a two-week tender to allow the same three pre-selected Japanese companies to bid again. It specified that the bid bonds must be provided. Officials said this has made a mockery of the procurement process.
According to official documents seen by the Sunday Times, the Government is to secure a yen loan equivalent of US$ 1 billion from BTMU for the project. The interest would be 0.95 percent above six-month Japanese yen (JPY) LIBOR. There would additionally be an insurance fee of 10.07 percent; an “arrangement fee” of 1.1 percent; and an annual fee of 0.25 percent, raising the total to about six percent above JPY LIBOR.