The Sandals Whitehouse European Village and Spa in Westmoreland.

The Forensic audit report into the Sandals Whitehouse project which was commissioned by former Prime Minister P.J. Patterson into the multi-million-dollar overruns at the Westmoreland-based hotel was tabled in the House of Representatives on Tuesday. Here are excerpts from the report.

"In reviewing The Project Cost and Final Account prepared by the consultant Quantity Surveyor, the Audit Team can report net project overrun of approximately US$43.36 million. This is over and above the budget of US$70.0 million.

"These overruns can be summarised as follows:

1. Overruns Construction Contract US$38,420,056.33
2. Other Project Overruns US$6,443,374.12
3. Underexpenditure on Project US$1,957,401.00
4. Expenditures without Budget Provisions US$452,637.00
5. Net Project Overrun US$43,358,666.45

"Non-payment of shareholders equity also contributed to the overrun on the project. When these funds were not available, ANDCO was forced to seek funding elsewhere. Interest charges on these loans also contributed to the overruns on the project."

"In respect of the performance of contracted parties, we can make the following comment on the overall management of the project and the performance of the Project Manager. One of the items in the contract between Urban Development Corporation (UDC) and Nevalco Ltd. is that Nevalco "shall not without prior written consent of the UDC give instructions to any contracted parties which could increase the project cost or time taken to complete or procure anything that is not provided for in the bills of quantities of the project."

"As a large percentage of the bills of qualities were provisional sums, it meant that UDC/Nevalco should have closely monitored the expenditure of these sums. In the event that the final designs for these items of work resulted in a cost in excess of the provisional sum, permission should have been sought from the ANDCO board. The Audit Team has not seen any such request or written consent.

"The UDC had to "ensure compliance of designs to brief." It is clear that this was not effectively done as the designs far exceeded the original brief and Project Budget. It was not until the latter stage of the project when UDC's chief architect got involved with the project full time on site, that more concerted efforts were made to rationalise the cost of construction and to achieve completion.

"The Project Manager/Project Manager Representative had a responsibility to report projected cost overruns to the ANDCO board, advise on how to reduce these costs, and obtain the board's permission to proceed with the works. From all indications this was not done, and this was one of the main downfalls of the project.

No effective management

"The Project Manager/Project Manager Representative did not effectively manage the project. However, it should be noted that the ANDCO board did not meet formally between October 2003 and January 2005 and, therefore, this avenue of formal approval was not available.

"In respect of Gorstew Ltd./ Implementation Limited, Gorstew was greatly influential in determining Furniture Fixtures and Equipment (FF&E) and specialist items through the architect and interior designers.

"Although they assisted in determining the revised US$70 million project budget, it appears that the special system items, such as the air conditioning, standby generator, kitchen equipment, garbage disposal, special light fixtures, and their installation, were not accurately accounted for in the budget.

"On the overall, we are of the view that while the project was meant to be on a fast-track basis, most of the designs were not completed on time, resulting in claims for extension of time from the contractor and cost overruns.

"Ashtrom Building Systems Ltd. performed poorly in general as a main contractor and has contributed to the overall delays in the completion of the project. This could be deduced from the minutes of the site meetings where there were constant complaints from the Project Manager's Representative (Nevalco) and Implementation Ltd., about the slow progress and poor supervision of the works.

"This was compounded by the inadequate performance of the consultants in providing to Ashtrom the necessary design details and information on time for the fast-track construction process as was originally intended and agreed by all.

"The Project Manager's Representative (Nevalco) also contributed to Ashtrom's performance in not providing the necessary information from the consultants in a timely manner and not keeping a tight reign on the activities on site. Nevalco outlined proper project management guidelines at the outset, but these were almost never followed. It appears that issues were not always followed up and allowed to slip without due regard to the time schedule or the budget.

"The management arrangement for this project had more than its fair quota of shared executives. These relationships commenced with the Joint Venture Partners and filtered down to the consultants.

Joint Venture Partners

Chairman of ANDCO also executive chairman of UDC; company secretary of ANDCO also UDC's company secretary; project manager (UDC) also shareholder in ANDCO.

Gorstew Limited, shareholder and also consultant to the project.

Deputy general manager of UDC - Overseeing affairs of ANDCO consultants.

Executive chairman UDC/ chairman ANDCO also director of Jentech.

Consultants Limited, structural engineers to the project.

Gorstew shareholder ANDCO, also shareholder Appliance Traders Limited.

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

UDC At Fault

"Also, the failure of the UDC/Nevalco to exercise proper control, and to conform to the various protocols established for the execution of the project, adversely affected the various checks and balances consistent with good management and cost control.

"In this scenario, the board of ANDCO abrogated its responsibilities to the project as it relied solely on the UDC for all the checks and balances. When these were not forthcoming, there were no efforts from the ANDCO board itself to rectify the situation. It must be noted that the board had no independent management apparatus.

"It was only when expenditure on the project exceeded the US$70 million budget, as brought to light in January 2005, one month before the hotel was scheduled to open, that the board became aware that there were overruns on the project.

"It is arguable that a truly independent chairman of ANDCO, that is, one who was not also chairman of the UDC, might have been more inclined to carry out more detailed scrutiny of the performance of the UDC as project manager, as well as insisting on more timely financial and construction details.

"The management procedures established for the control of this project were almost never adhered to. For this the project manager must accept full responsibility.

"A number of dates were set at various times for the completion/ delivery of the hotel to the operators. Almost all of these dates failed to materialise. The hotel was delivered to the operators and opened on February 10, 2005. This, some three years and two months after commencement of construction or 15 months after the original contracted period.

Lack of competitive selection of consultants

"The fact that almost all consultants were selected by a non-competitive process, should not have affected their overall performance on the project, but the selection and negotiations of fixed-price contracts with the selected consultants succeeded in obtaining a fair price for the services rendered by these consultants.

"The total amount paid out for the negotiated professional services amounted to approximately 6.0 per cent of the projected construction budget of US$45 million, a very competitive amount compared to at least 12.0 per cent under normal market conditions. However, it should be pointed out that obtaining these competitive fees does not justify the circumvention of any relevant rules and guidelines.

"Some of the consultants were engaged and started working on the project prior to the publishing of the guidelines for Public Sector Procurement in October 24, 2000, and the establishment of the relevant Sector Committee in August 2001.

"The UDC was appointed project manager and in turn sub-contracted this aspect of the work to Nevalco Consultants Limited.

"The main contractor, Ashtrom Building Systems Limited, was selected by the UDC in March 2000, by a non-competitive process, and entered into discussions and negotiations with the UDC for the construction of the hotel using the tunnel form system.

"In respect of the effect of external influences on the project, while there were increases in inflation, and the cost of labour, and a rise in the cost of materials, especially from European sources during the life of the project, these increases did not form a major part of the cost overruns.

Benchmarking

"Regarding the question of benchmarking, we are of the view that the consultant Quantity Surveyor did use Beaches Negril as a benchmark in arriving at an initial project budget for Sandals Whitehouse. However, the designs, standards and specifications at Sandals Whitehouse have turned out to be far more elaborate than those at Beaches Negril and the French Village at Beaches Turks and Caicos."