After spending $780 million, NGC board considering legal options with SIS in Beetham Waste Water contract

Friday, November 27, 2015 - 00:00

The newly-appointed board of the National Gas Company (NGC) is now deliberating on its next course of action with regards the decision by SIS to cease work on the Beetham Waste Water Plant.

Minister of State in the Ministry of the Attorney General, Stuart Young told the Parliament today that although SIS has been paid $780 million by the NGC so far, only 40-45% of the work had been completed before it indicated it could no longer do the work.

The Minister says the NGC board is considering the next legal decision, to recover some of the costs expended.

The following is the Minister's full statement to Parliament.

"As a citizen of the Republic of Trinidad and Tobago I rise here today charged with the responsibility and task of informing my fellow citizens of this beloved twin island state of a very serious matter that is affecting us.

The population was made aware sometime early last year of the award of a contract by the National Gas Company of Trinidad and Tobago (“NGC”) to Super Industrial Services Limited (“SIS”) for the Design and Build of the Beetham Water Recycling Plant together with the associated pipelines and water storage facilities. This project is commonly known as the Beetham Waste Water project.

We were told that the purpose of this project was to recycle output water from WASA’s existing wastewater treatment plant to industrial water quality standard and to take the pipe treated water from Beetham to the Pt Lisas Industrial Estate using newly built pipeline infrastructure. The water would then be stored at water tank facilities and delivered to WASA.

The stated intention was to provide about 50,000 m3 of industrial quality (potable) water to the Pt Lisas Industrial Estate using about 65,000 m3 of feedstock from WASA’s existing wastewater treatment plant.

The RFP for this project was issued on December 10th 2013 and the last Administration, awarded this Design/ Build project to SIS, via a contract dated March 10th, 2014 in the sum of approximately TT$1,037,154,560.00 (USD$162,055,319).

It is noteworthy that SIS was not the lowest bidder on this project. In fact, SIS’s bid was TT$464,196,390 (USD$72,530,686) more than the other bidder.

The contract awarded is a FIDIC Plant and Design-Build for electrical and mechanical plant and engineering works designed the Contractor type contract. The responsibility and onus for designing and building the water recycling plant together with the associated pipelines and water storage facilities was that of SIS. The completion date for the design and build out of the wastewater plant, associated pipelines and storage facilities was October 21st, 2015.

It is noteworthy, that the last Administration, paid a 20% mobilisation to SIS. It is not usual to have as high as a 20% mobilisation fee. In this case, NGC made an advance payment to SIS which was TT$207,430,810.00 (USD$32,411,064). Madame Speaker, a mobilisation fee is usually worked back through the life of a contract, with appropriate credit or repayment being given to the employer as the contract is performed. To date, none of this mobilisation/ advance payment of some, TT$207,430,810.00 has been repaid (or credited) to NGC by SIS.

Furthermore, Madame Speaker, to date NGC has paid SIS the sum of approximately TT$780,000,000.00 (USD$121,745,121.64), with

the last payment certificate certified by NGC being for work done in May 2015.

Madame Speaker, on October 8th, 2014, SIS was awarded a further contract by NGC for the Operation and Management of the Beetham Water Recycling Plant for a 5-year period with a value of approximately TTD$56,424,369.98. This contract was only for the Beetham plant and not the pipeline to Pt Lisas nor the storage at Pt Lisas.

Madame Speaker, the question is why was NGC utilised as the entity to contract SIS for the Design/ Build of this water provision facility as opposed to WASA. WASA is the statutory body charged with the responsibility for water supply in Trinidad and Tobago. The question asked is, “Why did the former administration undertake this $1Billion project under the National Gas Company of Trinidad and Tobago as opposed to WASA?”

It has also been discovered, Madame Speaker, that to date, there is no “off take contract” entered into for the final water product from this project.

Therefore, NGC, whose mandate, was not and is not, the provision of water, entered into this contract for over TT$1Billion dollars, paying out over TT$780Million to SIS to date, and only approximately 40-45% of the project work is completed, when over 75% of the full cost of the project has already been expended from the cash coffers of NGC.

Madame Speaker, the newly appointed board of NGC is having an independent assessment done of the works performed, to, inter alia, ascertain the quantum and percentage of work actually performed. This is an essential and prudent step to take in the circumstances that I shall now outline.

Today, Madame Speaker, the situation is this there is a billion dollar project entered into with no contract for the end product, $780million paid out from NGC’s cash flow and reserves, (that sum paid out is approximately 75% of the total cost of the project) and the project is only 40-45% complete.

With that contractual and factual background as the setting, Madame Speaker, I crave your indulgence to state the most recent facts.

SIS began slowing down works prior to the general elections and this slow down of work became even more apparent after the September 7th, 2015 general elections. Madame Speaker, after the elections, NGC received several reports from the sub-contractors of SIS as to non-payment of monies due to them by SIS.

On September 14th, 2015 (exactly one week after the general elections), SIS wrote to NGC in an attempt to extricate itself from its contractual obligations (after having already been paid $780MM and only completing 40-45% of the works), by saying inter alia, that, “...people now holding high office in the Government of Trinidad and Tobago …have made serious allegations about the Project and the conduct of officials of NGC and SIS.” And as a result, SIS, “… is reasonably certain that steps would now be taken by the State to stop

or frustrate SIS in the successful execution of this project.” SIS used this as one of its reasons for slowing down works and eventually refusing to continue the project.

There was no evidence to support this position that the new Government would have stopped or frustrated SIS from completing the project. Madame Speaker, NGC responded to this denying any allegations of State interference and stating that NGC was committed to enforcement of the Contract and that it expected SIS to continue to deliver all contractual obligations in a responsible and timely manner.

There then ensued an exchange of correspondence and communications between SIS and NGC wherein, SIS claimed, inter alia, that it had underbid on the project at the tender stage and it was unable to continue the works without a review of the contract price and project schedule and that it could no longer fund the works. This even though SIS’ price for the project was TT$464million more than the next bidder.

SIS also suddenly claimed, Madame Speaker, that it had safety and security threats and it used this as its excuse to begin the withdrawal of construction resources, manpower and equipment from the sites on October 8th, 2015.

By letter dated October 15th, SIS wrote to NGC stating, inter alia, “we regret to advise that we are unable to continue with the Works under the current circumstances and current conditions of contract.” By this time, SIS had stopped the vast majority of the work being done and it had begun vacating the sites.

NGC responded by letter dated October 17th, stating that, “NGC is alarmed and deeply disturbed that SIS which is contractually obligated to complete the works by 31st (sic.) October 2015 can simply write a letter advising NGC of its inability to complete two (2) weeks before the completion date. [Madame Speaker, the completion date was actually October 21st, 2015.] We regard this as a fundamental breach of contract. Please be assured that NGC is committed to completing this project, having paid SIS US$121,745,121.64 to date, the bulk of the contract price.” This letter also noted that on Saturday 17th October, 2015 truckloads of material were removed from the site and SIS was requested to ensure that no equipment or materials were removed off site until the parties were able to meet.

At a subsequent meeting on October 19th, 2015, between NGC and SIS, SIS indicated, inter alia, that, (i) there were three problematic areas: engineering design challenges, financial challenges and safety and security challenges; (ii) the absence of front end engineering design resulted in significant underestimations of the project parameters; (iii) SIS erred in providing adequate contingencies in its bid; (iv) SIS is unable to overcome the current challenges faced and can therefore no longer continue the works; (v) there were major cost overruns in the areas of engineering, pipeline, Hyfux (the design sub-contractor), Point Lisas storage tank installation; (vi) approximately US$30million in cost overruns had accumulated and SIS’s credit facility with Scotiabank was withdrawn due to the bank’s discomfort with the project’s risk; (vii) SIS had been consuming its internal resources for a long time and could no longer continue to do so; (viii) maintaining adequate site security and safety continued to be a great challenge

and resulted in increased difficulties in retaining project staff and hiring new staff; (ix) despite the difficulties encountered with financing the works in the absence of credit facilities and those encountered with its sub-contractors, SIS could only proceed with the works after an in-depth review and revision with NGC of the contract price, the programme of works, payment schedule and the resolution of on-going safety and security threats; and (x) SIS was unable to continue without a review of the contract price, project schedule, payment schedule and security threats.

Madame Speaker, in response to these matters raised by SIS, NGC stated that it would continue to pursue the successful completion of the project.

Subsequently, Madame Speaker, on October 21st, 2015, SIS’ Operations Manager stated that SIS had underbid on the project at the tender stage and was unable to continue the works without a review of the contract price and the project schedule. SIS also indicated that it could no longer fund the works since the withdrawal of its credit facility with Scotiabank and that the reviewed contract price must include the costs associated with clearing outstanding sums owed to the SIS sub-contractors. These matters being raised by SIS after it had been paid TT$780million some 75% of the total cost of the project with only approximately 40-45% of the works being completed. Not forgetting that SIS’ bid was TT$464million more than the next tenderer.

On October 28th, 2015, SIS stated that there would be no resumption of construction activities until NGC came to terms with SIS, with respect to a way forward for the project. NGC requested, inter alia, a

master list of all equipment, materials and fittings (a) required for the project, (b) procured thus far and (c) received. It was also drawn to SIS’ attention that its performance bond in the sum of TT$51,857,702 (US$8,102,765.94) had expired since September 11th and it also had insurance policies, such as professional indemnity, public liability/ general liability and workmen’s compensation/ employer’s liability insurance policies that needed to be renewed. NGC requested that these be renewed forthwith. SIS responded that they had already indicated that they couldn’t meet the project obligations, they could not continue with the project and they would not extend the bond and insurances.

On November 2nd, SIS sent NGC a letter in which they referred to statements made by the Prime Minister reported in a newspaper on November 1st, alleging corruption in relation to the contract and other issues related to the project. SIS went on to state that it did not expect NGC would give fair consideration to the merits of completing the project with SIS.

NGC denied the contents of the SIS letter by its letter of November 3rd and stated that the contract was with it, NGC, and that, it, NGC, had done and continued to use its best efforts to ensure fulfilment of the contract. Madame Speaker, NGC went on to state that the lists that it had requested had not been provided and access to the sites for NGC to view the equipment and materials that it had paid for was being denied by SIS. NGC requested SIS’ cooperation in allowing it access to the sites.

Despite the exchange of correspondence and discussions between the parties, SIS refused to renew the performance payment bond and the insurance coverage that it was contractually obligated to renew, this left NGC exposed. And ultimately, SIS indicated that it would only complete the project on new terms and conditions including a new project schedule all whilst, it withdrew from the project sites.

As a result of these developments, NGC, under the direction of its newly appointed board of directors, sought and obtained, independent legal advice and moved quickly to protect NGC’s position (and the position of the citizens of Trinidad and Tobago) with some $780million having already been expended.

On Friday 20th November, 2015, after due and proper consideration of the facts, failed attempts to discuss the way forward and the advice obtained, NGC gave SIS written notice of its intention to terminate the Design/ Build contract.

NGC recapped SIS’ positions that it was unable to continue with the works under the current circumstances and current conditions of the Contract, that it had underbid on the project at the tender stage and was unable to continue the works without a review of the contract price and project schedule. NGC also stated that SIS had commenced the withdrawal of construction resources, manpower and equipment from the project sites and that it was only providing security and protection services for the works, which in the clearest possible terms demonstrated that SIS had abandoned the works or alternatively did not intend to continue performance of its obligations under the Contract. NGC recapped that SIS refused to renew its bond and

insurance obligations as well in breach of the Contract and that SIS had for sometime not been achieving the level of progress required without any reasonable excuse for same. In light of these matters, NGC pursuant to sub-clause 15.2(a), (b) and (c) of the General Conditions of the Contract gave fourteen days notice of its intention to terminate the Contract with such termination to take effect from December 4th, 2015.

In this letter NGC further indicated its intention to recover from SIS the costs of completing the works and any other losses and damages incurred as a result of SIS’ breaches, including, without limitation any overpayments made. NGC reserved its rights under the contract.

Additionally on November 20th, 2015 NGC also terminated the operations and maintenance contract with SIS.

This Madame Speaker is the updated position with respect to the Beetham Waste Water project. This Government felt it necessary to inform the public of these facts surrounding the award of a billion dollar project to SIS, and to update you on the pending termination of the said contractor after it was paid $780million.

An assessment is being conducted by the newly appointed board of NGC to decide what are the next steps to be taken with respect to this project that has cost over $780million. The options include the commencement of arbitration proceedings to recover damages incurred and the costs associated with the completion of the project.

When a decision is taken with respect to the future progress of this project we shall inform the public.

I thank you Madame Speaker and members for the opportunity to address you."