|
GB.271/PFA/3
| ||
|
| ||
|
Programme, Financial and Administrative Committee |
PFA |
|
| |
THIRD ITEM ON THE AGENDA
Report of the Building Subcommittee
1. The Building Subcommittee reviewed progress reports on the extension of the premises for the ILO Regional Office for Africa in Abidjan(1) and on the construction of the ILO premises in Islamabad.(2)
Progress report on the extension of the premises
for the ILO Regional Office for Africa in Abidjan
2. In line with the programme of work, provisional possession was taken of the annex at the end of February 1998. It was found that all work had been carried out in accordance with the architectural plans and technical specifications laid down by the ILO. It was expected that the new offices would be occupied in the third week of March 1998.
3. It was noted that the cost of constructing the annex remained within the budgetary limits allocated by the Governing Body, namely US$641,000. The building appeared to be an excellent investment in view of the increase in property values in Abidjan over the last 18 months. Local indications suggested that the new building would already have a value of two to three times its cost price.
Progress report on the construction
of the ILO premises in Islamabad
4. The Subcommittee had been informed at its previous meeting (November 1997) that at that point it was expected that the staff of the Islamabad Office would move into the new building by the end of 1997 and the project itself would be completed by May 1998. This information had been based primarily on progress reports provided to the ILO by the consultant.
5. The contract between the ILO and the consultant specifically provided that "the consultant shall ensure that all costs to be incurred are covered by the budget approved by the ILO ...". The ILO had made identical arrangements with architects in respect of its other building projects, with totally satisfactory results. In view of the initial delays that had occurred in the project and of the possibility that cost increases might have been incurred during the period in the price of steel, cement and labour, the Office repeatedly asked the consultant from April 1997 onwards for a full update of the total estimated cost of the building. Despite frequent reminders, no information had been provided regarding potential cost increases, and the Office was misled by the fact that the progress reports continued to be silent on the subject of cost increases.
6. It was not until the end of 1997 that the consultant informed the Office that there would be cost overruns in the project, but without providing sufficiently precise information to determine the amount of the overruns. This information coincided with the receipt by the Office of the latest bill of the contractor, which, if paid in full, would have exceeded the amount appropriated for the project. The Office had been virtually presented with a fait accompli. As most of the construction work had been carried out, the options available to the Office for cost- saving measures by reducing specifications were clearly limited, and it was also much more difficult to retroactively verify claimed cost increases than would have been the case if the Office had been alerted to cost overruns at a much earlier stage.
7. Under these circumstances, the Office had informed the contractor that it would be unable to make any further payments until the financial situation of the project was fully clarified. As a result of the non-payment of this bill, the contractor had stopped all work at the site.
8. As soon as these unexpected and unforeseen difficulties were encountered with the project, the Office immediately informed the External Auditor of the situation and requested that he undertake a complete audit of the project. In discussions with the staff of the External Auditor, it was agreed that it would be useful if a construction specialist could accompany them, not only to provide technical advice and information, but also to conduct an independent survey of the construction programme and progress. The services of Ove Arup & Partners, a reputable London-based firm of consulting engineers, which had in the past undertaken assignments for the National Audit Office of the United Kingdom, were engaged for this purpose.
9. The External Auditor would no doubt submit his main findings on this subject to the Governing Body in June 1998 in his Financial Report and Audited Statements for the Sixty-fifth Financial Period (1996-97).
10. In his preliminary findings, the External Auditor confirmed that the construction contract had been awarded in accordance with the procurement procedures of the ILO and that a proper competition had been conducted. He noted that the ILO had appointed a reputable architect to perform the detailed supervision and that this architect/consultant was contractually responsible for the detailed supervision of the project and for ensuring that all costs incurred were covered by the budget approved by the ILO. The Auditor confirmed that the consultant presented a partial and at times misleading picture of the overall status of the project and that the reporting arrangements therefore failed to alert the Office to the cost increases.
11. The Auditor also reported that the cost increases were due to understatements by the architect/consultant in the original Bill of Quantities which led to an underestimation of the original contract price. Increases also resulted from an escalation in the costs of certain materials and labour, which were allowed for in the contract, and also from some design changes.
12. The consulting engineer confirmed that the quality of the construction was generally reasonable and in accordance with the design documentation. Both the Auditor and the engineer expressed the view that, even though the total cost of the building would be in excess of the original contract price, the total cost would not necessarily be out of line with local costs of comparable buildings and that, when completed, the building would probably have a capital value well in excess of the overall cost.
13. The Chairman, summarising the events which had taken place since the previous meeting, said that the Office had acted correctly in refusing to pay the full amount of the last bill received from the contractor and in requesting an audit of the whole project. In the light of the information provided by the External Auditor regarding the cause of the cost overruns, he agreed with the Director-General's intention to seek a negotiated settlement with the contractor to complete the project.
14. Mr. Anand (Employer member) expressed regret that the consultant had not adhered to the terms of his contract with the ILO. Once the Office had become aware of cost overruns on the project it had acted correctly in requesting a complete audit, to be carried out by the External Auditor and a firm of consulting engineers. However, it was not surprising that the project suffered cost increases in view of the general escalation of construction costs in the region. He expressed the hope that local members of the Subcommittee would be able to exercise their influence and that negotiations to resolve the dispute would be completed as soon as possible.
15. Mr. Tabani (Employer member) expressed appreciation for the Office document, which described clearly and fully the sequence of events up to the end of 1997. From the report of the External Auditor it was clear that the consultant had failed to carry out his contractual responsibilities and if a formal complaint was lodged with his professional body he could well face disciplinary proceedings. He agreed with the Chairman that as a first step the Office should be authorized to continue negotiations with the present contractor to resolve the matter as quickly as possible. To improve control over the project it might be useful for the Office to develop monitoring procedures to ensure that this experience was not repeated.
16. The representative of the Government of the Islamic Republic of Iran agreed with the statements made by the previous speaker. The consultant was clearly in breach of his contractual duties by his failure to inform the Office of cost overruns. The Office should take a firm line in its negotiations with the consultant, even up to the point of threatening legal action. He expressed the hope that the issue would be satisfactorily resolved before the next meeting of the Governing Body.
17. Mr. Khurshid Ahmed (Worker member) regretted that the architect/consultant had not kept the ILO informed about escalating costs on the project as he was required to do under the terms of the contract. However, it was worth noting that the total construction costs of the project were still likely to be in line with those for similar buildings in the area. He agreed that the Office should be firm in its discussions with the contractor, whose work to the end of the contract should be monitored closely by the Office.
18. In conclusion, the Chairman emphasized that the subcommittee members unanimously supported the Director-General in his efforts to seek a satisfactory solution and to protect fully the interests of the Office. They hoped that an equitable compromise would be reached by the parties so as to avoid costly and time consuming litigation. The Chairman also requested the Office to keep the Committee informed of the results of these discussions.
Geneva, 17 March 1998.
1. GB.271/PFA/BS/1.
2. GB.271/PFA/BS/2.