Dr. Vincent Lawrence, former head of the UDC.

The Sandals Whitehouse hotel, whose construction cost of US$113.3 million was US$43.3 million higher than its approved budget, might have been built for US$88 million - a mere US$2 million more than the estimate when the project was initially conceived, a forensic analysis of the development has concluded.

But concerned about the initial price tag, the developers, led by the Urban Development Corporation (UDC) dragged down the budget to US$60 million, then edged it up to US$70 million, without reducing the size of the 400-room property.

Then mismanagement and grandiosity set in, helping to drive the cost of the hotel 62 per cent above the approved budget, ultimately triggering the quarrel between the Government's UDC and Gordon's 'Butch' Stewart's Gorstew Ltd. over whether the hotel represented value for money, who was responsible for the runaway costs, and who should pay the additional bill. Gorstew, the UDC and another government agency, the National Development Bank of Jamaica, are each one-third partners in a company - known as Ackendown Newtown Develop-ment, which owns the property.

Reckless management

The forensic audit team, chaired by architect Desmond Hayle, appointed to get to the bottom of the issues, unearthed a pattern of hands-off and reckless management and what appeared to have been unrealistic assumptions, early on, about costs. Or, having established a budget, the UDC, then headed by Dr. Vin Lawrence, wanted to fit the project in what was thought to be affordable, without having to adjust the scale of the development.

"The initial budget estimate for the 400-room (360 keys) hotel project, as calculated by the consultant quantity surveyor was US$86 million," the Hayle report says. "This was based on the quantity surveyors' analysis of the then recently completed Beaches Negril hotel." Beaches Negril is one of the properties in Stewart's Sandals and Beaches hotel chain.

Adds the report: "Based on projections developed by Capital Options Limited, a budget of US$60 million was adopted. It is clear that this bore no relationship to the size or specifications of the hotel as conceptualised and proposed by the architects, Sant Associates, in May 2000. It is our opinion that if the US$60 million was to be adopted, then the size and specifications would have to be substantially reduced."

Yet, it was only after construction started in 2002, that the budget was revised to US$70 million, a figure agreed to by the partners.

At that budget, if it had been achieved, the hotel , which opened 15 months late in February 2005, would have cost about US$175,000 per room. But the audit team suggested that even that budget, especially for a property whose level of finishing is "well above average and into the upscale property range", was unrealistic.

"It is the opinion of the audit team that a base price of US$22,000 per room could be considered reasonable for a hotel constructed during the period 2002 to 2005 and with the level of finishes that obtains at Sandals Whitehouse," the report says.

In the end, however, the project cost not only more than US$43 million than what the developers agreed to spend, but US$25 million above what the Hayle team felt it might be turned in for.

Redundancies

Part of the additional cost, the Hayle team found, was because of redundancies and/or over capacity in areas such as air conditioning, standby electricity systems and the extent of the site, which led to additional costs for electrical installation, sewage drain runs, water supply distribution, storm water drainage, landscaping and irrigation and so on.

These, the audit group, estimate, would have added US$6 million to the bill, plus another US$3 million for over-sized "back-of-the-house" facilities.

The Hayle team, for instance, points to a food prep areas at Sandals Whitehouse that stretches "the entire length of the back-of-the-house and services the five restaurants in front".

"This arrangement does not exist at any of the other hotels," it says.

And not only are the cold and dry storage "well appointed with excessive areas for normal and emergency storage" but the hotel's laundry can far more than handle the requirements of the property.

"This is especially evident when the laundry is compared with the exiting laundry at Beaches Negril," the report says. "The laundry at Beaches Negril services for hotels at well over 450 rooms and less than half the size of that at Sandals Whitehouse."

There is, too, the ultra-modern Somag garbage disposal system.

Even with these extras the hotel would have cost US$97.76 million. But then came what Hayle's team calls the cost more directly related to the "management deficits", which more specifically points to the failures of the UDC and its sub-contractor, Alston Stewart's Nevlaco Consultants, who were project managers, but not limited to them. The bill here is US$15.5 million.

The audit team held that the building contractors, the Jamaican/ Israeli outfit, Ashtrom Building Systems, performed "poorly" as general contractor, but was aided by Nevalco by not providing information on a timely manner.

Indeed, the Hayle's assessment of the UDC/Nevalco was damning: "The failure of the UDC/Nevalco to exercise proper control and to conform to various protocols established for the execution of the project, adversely affected the various checks and balances consistent with good management and cost controls."

Checks and balances

But the board of Ackendown - the Gorstew, UDC, NIBJ joint venture which did not meet between October 2003 and January 2005 did not escape censure. The board, the report says, "abrogated its responsibility to the project" by relying solely on the UDC for all the checks and balances.

"When these were not forthcoming there were no efforts from the ANDCO (Ackendown) board itself to rectify the situation," it notes. "It must be said that the board had no independent management apparatus."

Indeed, Lawrence was chairnarman of Ackendown while other official's of the UDC also had roles in the company. But the report also points to other "shared executives" from the various partners whose related companies had contracts with the Whitehouse project.

"These relationships were not good for the project for as demonstrated ... there was too much power in the hands of some executives (primarily of the UDC), leading to lack of objectivity and accountability," it says.

In the end, the report argues, poor management help drive up costs in other ways. For example, the lack of funding of the project contributed to delays in the payment of just over US$1 million to the contractor for interest on outstanding payments.

Among the reasons the project could not meet its debts promptly, the report says, was the unavailablity of funds from the shareholders; delays in signing a shareholders agreement thus delaying access to loans; and the late transfer of the title to the property.

business@gleanerjm.com