News
Discredited Aussie firm paid Rs. 1.4 billion by former regime
SMEC International–the Australian consultancy firm debarred by the World Bank last week over “inappropriate payments” for projects in Bangladesh and Sri Lanka–received more than Rs 1.4 billion for an expressway feasibility study which has still not been approved by the Road Development Authority (RDA).
Not only was the paid sum nearly Rs 450mn over the original fee, SMEC claimed an additional Rs 113.4 million as a second “cost variation” that the RDA is yet to meet. If disbursed, the total contract price would rise to Rs 1.519 billion. Even now, the SMEC study for the Northern Expressway is the most expensive feasibility study ever carried out for a road construction project.
Despite the towering fee, the SMEC study was found unsuitable for acceptance by the RDA. For instance, projected traffic volumes were deemed incorrect. A host of other questions were also raised by the planning division on the draft final report. Some were answered; others are yet to be addressed.
A feasibility study is “an analysis and evaluation of a proposed project to determine if it is technically feasible, is feasible within the estimated cost and will be profitable”. It is an imperative in expensive projects.
The contract for the Northern Expressway (which later became the Central Expressway) feasibility study was awarded to SMEC in 2013 without tender for Rs 958 million. The company had previously carried out the feasibility study for the Colombo-Katunayake Expressway. It was not possible to determine whether the contract fee was fair as open competitive bidding was rejected.
SMEC subcontracted to a local company called Ocyana Consultants (Pvt) Ltd. The period within which the study was to be completed was initially eight months from the starting date–that is, May 2013.
By November that year, SMEC claimed its first “cost variation” of Rs 450 million which was paid in January 2014. The additional fee was attributed to “changes made to the original work scope” and approved by the Cabinet. This brought the total amount paid to the company to Rs 1.4 billion. The Cabinet also allowed the scheduled date of completion to be extended to March 2014. After submitting its final bill, a second variation was claimed–again due to “scope change to the original contract”. This amount of Rs 113.4 million was solicited by SMEC in March 2015 saying the RDA project management unit had wanted the company to carry out a redesign of the trace “to satisfy M/s China Merchants Group’s proposal”.
At the time, Chinese funding was only under consideration for the Northern Expressway. SMEC also said it had been directed to update the hydrological report in the feasibility report using accurate topographical maps.
With the change in administration, however, all cost variations–a popular method of inflating prices to make allowance for corruption–for road sector projects came under scrutiny. According to RDA sources, the second claim is yet to be paid.
Both the terms of reference and the SMEC report were challenged in detail by RDA’s planning division director, who also said it did not display “any of the fundamental characteristics of a feasibility study”. It did not contain reference to previous feasibility studies done between 1990 and 2013. Traffic surveys were found to be inadequate. No consideration had been given to the ongoing development of the railway line (increased se of train services would negatively impact future road usage).
Input data for traffic forecasts were not clear; the correlation between GDP growth and traffic growth over the planning period was not given; and there were questions over costs published in the report. Several other queries were raised.
Last week, the World Bank announced a ‘Negotiated Resolution Agreement (NRA)’ that debarred SMEC International for 12 months, as well as four of its controlled subsidiaries based in India, Bangladesh, and Sri Lanka, for periods varying from six to 30 months for misconduct in the South Asia region.
“The NRA follows a World Bank investigation which revealed misrepresentations to meet bidding requirements under World Bank-financed projects in Sri Lanka and India,” a statement said. “The investigation also found evidence indicating inappropriate payments made in relation to World Bank-financed projects in Sri Lanka and Bangladesh.”
SMEC has committed “to make any necessary enhancements to its group-wide corporate integrity compliance programme to ensure that it is consistent with the World Bank’s Integrity Compliance Guidelines”.