The World Bank has specific guidelines to highlight conflict of interest situations especially in procurement.
This one from the bank’s Procurement Guidelines should be of interest to us:
1.7 A firm shall be considered to have a conflict of interest in a procurement process if:
(a) such firm is providing goods, works, or non-consulting services
resulting from or directly related to consulting services for the preparation or implementation of a project
that it provided or were provided by any affiliate
that directly or indirectly controls, is controlled by, or is under common control with that firm.
Therefore, applying this guideline in the case of SRS Consortium, the project delivery partner that has come up with a 20-volume transport proposal for Penang (which has deviated substantially from the Penang transport masterplan designed by Halcrow) – my interpretation is, any member of SRS Consortium (or any of its affiliates) should not bid for any work package under the SRS proposal; otherwise a conflict of interest arises.
So Gamuda (which has a 60 per cent interest in SRS) should not bid to build the LRT or the Pan Island Link; neither should the two Penang-based property development companies (20 per cent interest each) bid for any of the components in the SRS proposal, including the sale of reclaimed land. To do so would be to create a conflict of interest which the guideline seeks to prevent.
They cannot say that if nobody else submits a bid, they should be allowed to bid. That defeats the whole purpose of this guideline – which is to prevent a consultant from coming up with a proposal that it would have an interest or undue advantage in.
There should be no exceptions to this procurement guideline, if the state is serious about accountability and transparency.
I believe my interpretation is shared by Gamuda founder Koon Yew Yin. Speaking about the World Bank-funded Muda irrigation scheme in the 1960s, he said:
The government engaged a reputable engineering consulting firm which has had experience with similar projects to put up a proposal and to open the project bidding to all contractors to tender. The most important thing to note is that the consulting company responsible for the tender process should be independent and should have no interest whatsoever in the project implementation…
In this case, SRS Consortium has no experience with trams and bus rapid transit, which is in the Halcrow transport blueprint that the state government adopted.
Never invite contractors to submit project proposals for any mega project because each contractor will submit his own planning and design which will be impossible for the tender board to evaluate. You cannot compare the cost of an apple with the cost of an orange, a banana or a pineapple.
A contractor should not be permitted to take on the role of the engineering consultant responsible for design as well as that of the role of a construction contractor responsible for the project implementation as the two roles are of conflicting interest. If the company is permitted to do so, it will lead to public perception of abuse and corruption….
Take for example the recent news report that the construction giant Gamuda Bhd is the favourite to land the job as the project development partner (PDP) to oversee the implementation of key components of the integrated transportation plan on the island of Penang.
Firstly, it is clear that Gamuda and all the other companies reported to be in the running for the massive multi-billion dollar project do not have any experience to be in the position of the overall design consultant.
They are not (even) engineering consultants. They are construction contractors. Gamuda might have constructed the tunnel in Kuala Lumpur but they did not design it.
Secondly, CIMB Research has found it “pleasantly surprising” that the Penang state government opted for the Project Development Partner (PDP) structure similar to that of the Klang Valley MRT which has been heavily criticised for cronyism and abuse. From the rakyat’s experience, what is “pleasantly surprising” to contractors will definitely be unpleasant and disastrous for the public.
The consulting company responsible for the tender process should be independent and should have no interest whatsoever in the project implementation…
The other area of conflict of interest relates to the 6 per cent project delivery partner fee. This is what Tony Pua said in 2012 about the PDP fee structure in relation to the KL MRT:
Given that the PDP is being paid on a percentage of contract cost and has to bear any cost-overrun beyond the 15% “allowed contingency”, the PDP which has to help the govt evaluate the various tender proposals will be incentivised to pick the bids with higher prices than the lower ones.
The simple reason is that the higher priced ones will translate into a higher fee for the PDP given the fixed 6% structure.
In the case of the Penang transport masterplan, the cost has ballooned from an earlier estimate of RM27bn to RM46bn; so the PDP fee and expenses will run into the billions.
So there you have it – what the World Bank stipulates, what Koon Yew Yin said and what Tony Pua said. It’s not just me saying it.
This is why I believe the PDP system for Penang is fundamentally flawed and ridden with potential sources of conflict of interest. And I have said so loudly and clearly at each Penang Transport Council meeting I have attended.
Why is this important? Because we are talking about the use of RM46bn of public funds. No chicken feed, that.