Shifting away from PDP towards turnkey contractor

Finance Minister Lim Guan Eng has announced that Abdul Yazid Kassim will take over as CEO of MRT Corp from Feb 1.

PETALING JAYA: The change in the terms of the contract for the MRT2 project whereby the consor­tium of MMC-Gamuda Joint Venture is to complete the works on a turnkey basis marks a shift away from the Project Delivery Partner (PDP) model that the government adopted for large projects.

MMC-Gamuda was initially awarded the PDP role in the MRT2 project in February 2014.

As a PDP, MMC-Gamuda had to ensure the project was completed on time and within the cost determined by project owner MRTCo Sdn Bhd.

In return, the PDP earns a fee of about 6% of the total project’s cost and reimbursed for some expenses incurred.

Under the turnkey model, MMC-Gamuda is the main contractor and is responsible for seeing that the project is completed and handed over to MRT Corp.

The turnkey contractor takes the construction risk and the returns are based on how well the project cost is managed and not confined to 6%.

The turnkey contractor also undertakes financing risks as it has to pay sub-contractors’ claims from the project owner later.

In the PDP model, the payment comes direct from the project owner, either MRTCo or Prasarana.

“The turnkey contractor model helps the government save money as it does not need to pay the 6% PDP fee on top of the construction cost,” said a contractor.

As a turnkey contractor in MRT2, an advantage for Gamuda is that it should also be able to participate in the underground works for the MRT2 project.

This is because companies who are given the mandate as PDP are generally not allowed to participate in any construction work packages related to the project.

“But since MMC-Gamuda is now a turnkey contractor, the company may be allowed to participate in the tender for the underground works.

“Moreover, the project is now broken into two portions, which are the above-the-ground and underground packages,” said the contractor.

In the latest development related to the MRT2 project, the Finance Ministry has said that the underground works would be given out after an international tender is called.

Generally, the underground works are the most expensive component of construction projects such as the MRT.

In the first phase of MRT from Kajang to Sungai Buloh, the total underground works make up almost 50% of the total construction cost of the project, that has reached an estimated RM30bil.

In MRT phase 1, MMC-Gamuda joint venture was awarded the tunnelling works worth some RM8.1bil.

Previously, some industry players had quibbled that it was unfair for MMC-Gamuda to also participate in the tendering process as the JV was already a PDP and had more insights and a better understanding of the design of the project against the other bidders.

An analyst said that the Finance Ministry should also spell out the reasons why it wanted to retender the MRT2 underground work contract.

“The government should outline the reasons why the contract was terminated, whether it was on cost or it was due to other factors,” he said.

“They need to provide more details on their expectations and make clear their direction.”