The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The size of the $239 million New Providence Road Improvement Project’s cost overruns “exceed usual expectations”, the Inter-American Development Bank (IDB) has admitted, agreeing that Bahamian contractor capacity needs to be assessed when drawing up major infrastructure contracts.

While finding that the project had a $65.1 million Net Present Value (NPV), based on a 12 per cent discount rate, an IDB report said unforeseen construction material price rises and extra works required - the main factors driving the overruns - were exacerbated by “several years” worth of delays in executing it.

The main delay, the report said, was caused by the bankruptcy and abandonment of the New Providence Road Improvement Project by its initial contractor, UK-based Associated Asphalt.

That company had employed a design-build model to carry out the project, and the IDB said this created “a steep learning curve” for the Ministry of Works, which was the executing agency, because the method had only been used once before in the Bahamas.

And, perhaps more critically, the IDB said the design-build model “might not have provided the correct incentives for the executing agency (Ministry), supervising engineer (Mott MacDonald), bidders and contractor (JCCC) to correctly estimate project costs in an urban environment”.

The IDB itself also conceded that its procedures may not have been “effective in detecting neither the project risk related to the financial difficulties being faced by the lowest bidder, nor the underestimation of project costs”.

Its report added: “Although cost overruns are frequent in road projects in urban environments, the magnitude of the overruns observed in this project exceed usual expectations and what is commonly observed in similar bank projects.

“These costs overruns, mainly due to price escalation and unforeseen additional works, were significantly amplified by important delays in project execution. The main cause of these delays, which totalled several years and occurred at the critical initial stages of project design and execution, was the bankruptcy and abandonment of the project by the original contractor.”

The IDB report also said the New Providence Road Improvement Project found itself caught between two positions - too large for Bahamian contractors, but too small to interest major international firms and creating a competitive bidding process.

As a result, the report recommended: “Careful consideration should be given to the consolidation of works into few large packages or several small slices.

“For infrastructure projects of national importance in the Bahamas and most of the Caribbean, infrastructure contract requirements are often too large for national contractors to have the capacity to manage, and yet may not be sufficiently large to attract a competitive number of reputable international contractors to mobilise to work in a foreign market.

“When deciding contract sizes, careful analyses should be done considering the type of works, geographical distribution, capacity of local contractors, and availability of regional or international contractors, institutional capacity and availability of materials and equipment.”

The IDB report estimated that the New Providence Road Improvement Project had an economic internal rate of return of 16.6 per cent, and said that with a ratio of 1.34 cars per family on New Providence, and 85 per cent of the workforce commuting to work by car, Nassau was suffering from “inordinate traffic congestion”.

“This congestion problem impacts heavily on the attractiveness of New Providence as a tourist destination and on the cost of moving goods within the economy,” the IDB report said.

It added that in 2010, the then-Ingraham Cabinet approved a plan to unify the jitney system.

“As a milestone of the institutional work, a Bus Unification Project was approved in 2010 by the Cabinet,”the IDB report said.

“The project aims to rationalise transport supply currently composed by approximately 400 public buses privately owned. In 2011, an Implementation Committee was formed to reunite all stakeholders (government, bus franchise, individual owners), towards the service unification discussion.”