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Gov’t risks losing billions through advances to foreign companies

By Vision Reporter

Added 24th July 2014 07:08 PM

A new wave of ethical and professional misconduct has hit Uganda’s construction industry, exposing government to risks of losing billions of funds as contractors connive with employees of banks and insurance companies to obtain fake bid securities and financial guarantees

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By Joel Ogwang

A new wave of ethical and professional misconduct has hit Uganda’s construction industry, exposing government to risks of losing billions of funds as contractors connive with employees of banks and insurance companies to obtain fake bid securities and financial guarantees.

Roads sub-sector vulnerable

With the government’s continued prioritisation of roads transport infrastructure development, resulting in a growth in budgetary allocation from sh2.4 trillion in the 2013/ 14 FY to over sh2.5 trillion in the current 2014/ 15 FY, about sh2.3 trillion is available under the development budget, rendering the roads sub-sector a prime target.

Even in the face of continuous due-diligence on bidders, the Uganda National Roads Authority (UNRA), the biggest employer in the local construction industry has, on many occasions, been exposed when unscrupulous contractors tender forged documents.

This, experts say, exposes government to fleecing in the event that these companies disappear.

And, whilst this unprofessionalism was, in the past, associated with local contractors, their international counterparts seem to have learnt from them.

“We continue to receive forged bid securities from State-wide Insurance and fake financial securities from Housing Finance Bank,” says a source.

“We are investigating these cases, but what we have discovered is that some mid-level workers connive with these companies without knowledge of their supervisors!”

PPDA cracks whip

The revelations come in the wake of the procurement regulator, PPDA’s suspension of 34 more companies for between one to five-years, a period within which they are exempted from bidding for any public works.

The charges against the firms range from submitting forged bid bonds/ securities, income tax clearance certificates, certificates of registration, bank financial and shoddy works, amongst others.

“Bid securities and financial guarantees are forged a lot,” notes Dan Alinange, the UNRA head of corporate communications.

“The demands from banks force some contractors to resort to forgeries but, for us, that is not an excuse not to blacklist a contractor.”

Ironically, even foreign companies that, by their stature and resource availability, are able to get bonds and securities locally and abroad are also engaging in illegalities.

“There are many cases we are investigating from local and international companies where we have discovered questionable securities,” says Alinange.

“We have had situations where we receive a security from a bank but when we cross-check with them again through our audits, they (banks) deny them!”

Works and transport minister, Eng. Abraham Byandaala notes that ministries and other government departments are, by aw, required to forward lists of contractors that flout professional and legal procedures to gain unfair competitive advantages over others to PPDA for punishment.

“It is unfortunate we have to do this (recommend punishment of contractors), but there is no easier way to handle them,” he says.

“As government, we are going to punish unprofessional conduct because it will help us to build a credible construction industry with serious and straight-forward contractors.”

Because it advertises many development tenders, UNRA is most susceptible to risks of exposure to these forgeries, explaining why due-diligence is done even to reputable international firms.

Evaluating foreign firms is tough

Auditing bid securities and financial guarantees from international companies, unlike the local ones, is even harder, notes Alinange.

“Some companies bring guarantees from China so you may have to travel there to do due-diligence on some documents written not in English, but Chinese,” he says.

“The (due-diligence) process ends up taking a long time and finances yet we lack the (financial and human resource)) capacity. If we can’t find enough resources to do due-diligence on local companies, how about those from China and Europe?”

Often, UNRA advances 20% of the total contract fee to a contractor at the outset of civil works. These are monies a contractor uses to set camp, procure equipment and manpower.

The advance is akin to an interest-free loan recoverable during the term of construction.

At every stage of works, UNRA deducts monies advanced to a contractor to recover its advance which, in itself, is a risk where a contractor to flee from the site with the monies.

“The advance rages from 10% for small contracts to between 15% to 20% for big projects,” says Alinange. “But these companies expose us a lot; what would we do if we advanced sh20b to a contractor only for them to disappear? We would be risking taxpayers’ money!”

In the 2013/ 14 FY, UNRA sent names of over 20 companies for blacklisting to PPDA. Some of them, including Prime contractors Ltd who gave wrong information when bidding for bridge repairs in Kanungu, are among the 34 suspended in July 2014.

Considering that the newly amended PPDA law recommends allocation of 20% of all public works to local contractors and 30% of consultancy works to local firms, the unprofessionalism amongst mostly local companies is a set-back to this end.

“We have that provision, but none of the local companies can do the big development projects,” says Byandaala. “Many are trying to partner with established foreign companies, but they are not strong enough. They start and break-up partnerships, leaving us stuck (with implementing the law).”

Eng. David Luyimbazi, the UNRA director of planning commended PPDA for the ‘bold move’ “We have to spare the rod and spoil the child. What PPDA did (in suspending contractors over forgeries) is good for the industry. If we don’t do that, we will breed complacence,” he says.

“They will know that non-performance will not be tolerated. That is the only way to grow the industry and reward those who perform. It is also good in confidence of the public knowing public goods will be delivered in good quality and timely.”

How UNRA handles fake securities

When UNRA advances monies to contractors only to unearth forged guarantees and securities, the obvious option is to recover the finances.

“But if we discover there were forgeries when construction work has started, we ask them to come good (correct anomalies),” says Alinange. “This, however, doesn’t stop that contractor from being backlisted from bidding for future projects.”

Gov’t risks losing billions through advances to foreign companies

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