Introduction
Today’s column concludes my examination of project failures and weaknesses revealed in public investment management in Guyana during the 2000s. Last week’s column had introduced a distinction between project failures and weaknesses seemingly specific to Guyana’s unique legal and institutional environment on the one hand, and on the other, ones found worldwide. In practice, however, both types occur in Guyana’s prevailing investment environment and would naturally reflect this. Last week’s column focused solely on the “Guyana-specific” project defects manifest in NICIL’s operations and what I classified as “opportunistic government projects”.
Similar to last week’s column, today’s does not detail all applicable observations. It is selective, but hopefully adequately representative of the factual situation. Furthermore, while the present column is focused on “universal-type” project defects, where Guyana’s investment environment affects any of them it is indicated.
1: Cost Overruns
Project cost overruns constitute, I believe, the most recognized project defect worldwide. This is true also for Guyana. The project management literature describes cost overruns as unanticipated or unexpected changes in project costs incurred during completion of its works and undertakings, which exceed the actual budgeted costs laid down for the project, as a result of their underestimation. Judging from comments and statements carried in the local media, this notion is often confused with another, namely cost escalation.
Cost escalation is different however; indeed it refers to the direct opposite: expected (or anticipated) cost changes. These can occur for several good reasons, for example, those estimating the project’s budgeted actual cost may make provision for expected cost increases due to price inflation or exchange rate variations, which could affect the future cost of project inputs.
Public trust is low and cost overruns are so common in public projects that many Guyanese consider these deliberate and deceptive tactics designed to entice the Government, as investor. They therefore put this tactic in the same bracket as deliberate exaggeration of project benefits designed to mislead. It goes without saying that since such behaviour constitutes fraud. If it is indeed widespread this would be the country’s most lethal project defect. Unfortunately, I do not have reliable estimates of the extent of this defect, but insiders speculate that almost all public projects, large or small, face cost overruns as a formidable problem.
Global case studies, as well as comparative ones, which examine cost overruns by sector, country and region have reported that variations in the size of cost overruns are affected greatly by the measure utilized. Two such measures are commonly used, namely 1) the difference between project costs at the time it is decided to build and final completion cost or 2) the difference between costs at contract award and final completion cost.
The several reasons provided in these studies for the prevalence of this occurrence seem all to apply to Guyana. These include: weak information/data gathering; unacceptable application of consistency testing for project design and pre-screening; faulty project design especially in terms of project scope and definition; severely inadequate project management, especially in areas of project accounting, auditing and oversight; limited risk analysis; as well as poor communications strategy combined with inadequate listing/identification of indicators for project performance.
2: Incomplete & delayed projects
Similar reasons seem to account for delayed and incomplete projects. Two striking examples are: first, Guyana’s largest public investment project, the Skeldon Sugar Modernization Project (SSMP), was designed way back in 1998 (see IMF and Booker Tate documentation reported on in my SN Sunday column August 7 2011). Today the SSMP remains incomplete overall and much delayed in its major components. Construction began in 2005, and the factory was commissioned in August 2009 by the former President Jagdeo, however, the article referenced above states: “Soon after the handover of the factory, hundreds of defects emerged”. This has led to on-going legal and other heated public controversies between the Government of Guyana (GoG) and the project management company Booker Tate.
Second, the Marriott Hotel project, which was officially fast-tracked by the GoG and permitted to import Chinese labour for its construction, in the face of loud public protests, was scheduled to be completed by August 2014, but only opened a week ago!
Like the defect of cost overruns, delayed and incomplete projects are found in both small and large public projects. Because the reasons for these defects are similar to those accounting for cost overruns, there is clear indication of organizational failures and weaknesses in Guyana’s public investment management regime, as well as likely deficiencies in available skill-sets in the area of project preparation and execution.
3: Public Procurement
The area of project weakness/failure that has attracted the greatest public fury is public procurement. The public perceives endemic corruption here. Furthermore, it is widely believed that contractors linked to the ruling political elites, whether through friendship, family, politics or crime, are unfairly preferred for public contracts. This facilitates corruption through deliberate underestimation of costs and overestimation of benefits. As a rule, awarding public contracts in Guyana lacks fairness, transparency, and strict adherence to even the weak project rules of the un-reformed administration of procurement that obtains today in the absence of the constitutionally mandated Procurement Commission.
There are calls for organizational changes including: establishment of the Procurement Commission; termination of Cabinet direction over selection of “major contracts”; curtailing NICIL’s execution of public projects; securing National Assembly oversight by directing key financials of public projects to utilize the Consolidated Fund; and, the formation of an independent, professionally competent commission, reporting directly to the National Assembly.
There are also calls for procurement good- practice process changes including: ending sole-sourcing, brand naming; use of fixed cost and cost re-imbursement procedures; ensuring complete record-keeping, especially of procurement history, evidence of contractors’ evaluations, project reviews and approvals; strict adherence to procurement rules especially as regards suspected contractors and those debarred; and, effective internal control systems to deter fraud and abuses.
