Oversight needed to plug the leaks

Cost overruns in govt projects must be accounted for as public funds are involved

THE upgrade repair works on the Parliament building remain unfinished. The targeted completion date has been overshot by several years, with 171 variation orders and 126 contract price adjustments, all resulting in cost increases of RM447.4mil.

In 2017, Bank Negara Malaysia acquired government land for RM2.07bil, well over the market price.

Such poor procurement practices in government projects are a recurring theme every year in the Auditor-General and the Public Accounts Committee reports.

So often, we hear of “white elephant” and “sick projects”. Delays, cost overruns, inflated bills, and projects being given to contractors who are not financially sound all seem to be par for the course.

These are then almost invariably followed by government bailouts or additional funds being pumped into problematic projects.

It has to stop. It is important to rein in irregularities and corruption on all levels, as every sen of public funds must be accounted for.

The numbers tell a nightmarish story.

In 2018, then deputy prime minister Datuk Seri Dr Wan Azizah Wan Ismail revealed a shocking statistic – Malaysia lost RM47bil in gross domestic product value to corruption in 2017 alone.

That is a lot of money which could have been spent on the betterment of the nation.

In 2020, Auditor-General Datuk Seri Nik Azman Nik Abdul Majid said that poor financial management practices led to RM1.299bil in irregular payments, RM11.45mil in loss of public funds and a waste of RM8.87mil.

Now, the declassified report on the hotly-debated littoral combat ship (LCS) scandal has opened up a new can of worms – with weaknesses in procurement again being a major issue.

Boustead Naval Shipyard Sdn Bhd (BNS) and the Defence Ministry held negotiations four times between Oct 15, 2012 and July 10, 2013.

BNS had quoted RM10.524bil as the original cost and the negotiated quotation was RM9.472bil at the first meeting.

The ceiling cost was eventually capped at RM9bil with some changes to proposed specifications at the fourth meeting.

The report said BNS’ offers were “unrealistic”. The shipbuilder had provided two quotations between Oct 15 and Oct 16, 2012 with a difference of RM224.59mil – a huge change in just a day!

The quotation in the second meeting was RM9.67bil, which was RM203mil more than the negotiated cost of RM9.472bil.

These meetings were happening in 2012 while the original Letter of Award was issued on Dec 16, 2011. Cost negotiations should have been finalised before the letter was issued.

“This practice is irregular,” the Special Investigative Committee on Procurement, Governance and Finance said.

Variations also pushed up procurement bills and, coupled with the delays, the cost of the project increased. The investigating committee estimated the cost to complete the six ships to balloon to a staggering RM11.145bil.

“According to a letter by Boustead Naval Shipyard dated July 16, 2019, following the changes of main equipment and Implementation Schedule, an additional cost which is estimated to be RM1.42bil, comprising RM58.41mil in direct cost and indirect cost of RM1.36bil, was needed to complete the six ships,” the report said.

With the LCS scandal joining the long list of problematic procurement, one thing is clear – an effective oversight is needed for government projects.

The government’s fiscal burden could be even higher if “good money is thrown after bad money”, to rescue these sick projects, says Dr Yeah Kim Leng, Professor of Economics at Sunway University Business School.

“Project delays and cost overruns have a cascading impact on public finance and the government’s fiscal position. They not only divert resources from other development spending but also from important issues like poverty alleviation, healthcare and entrepreneurship schemes,” he said.

To rein in sick projects, economist and academic Prof Dr Edmund Terence Gomez said an independent body should conduct a complete review of the procurement system.

“The focus must be on the award and implementation processes because all the relevant legislation and procedures appear to be in place. There has to be full disclosure of all projects awarded,” says the former member of the MACC’s Consultation and Corruption Prevention Panel.

There has to be proper monitoring of the implementation of projects, with swift action taken when projects fail.

“Institutions such as the MACC (Malaysian Anti-Corruption Commission) and AG (Attorney General) have to be independent of the Cabinet,” he added.

In March, the government revealed that there were 160 development projects that have been categorised as “sick” projects, with 92 of them being monitored by the Implementation Coordination Unit of the Prime Minister’s Department.

Of these, 41 were successfully restored while 51 are under rehabilitation.

A project is considered “sick’ when physical work progress is at least 20% behind schedule.

Dr Shankaran Nambiar, senior fellow at the Malaysian Institute of Economic Research, also called for clear processes and oversight.

“The monitoring process should be clear and enforcement stringent. There has to be well-designated points of checking and accountability. Building projects of high value have had cost and time overruns.

“There seems to be no accountability, no review of purchases and no transparency.”

He said Malaysia would not achieve its economic goals unless more efficient practices are put in place.

It is not only the LCS project that requires further investigation, but the whole process of undertaking government projects – from the point of advertising for tenders, the tender appraisal process, the award of projects, monitoring of progress, right up to assessing the completion of projects, he added.

For projects like LCS, former senior naval officers say delays have “indirect” implications as well.

Combat ships are important assets that are needed to guard Malaysian waters and our maritime borders.

As far as the LCS is concerned, the ship has long sailed for initial delivery.

The focus now is on getting the project off the ground.