In the report released by the Auditor-General's office on July 26, it is made known that the National Arts Council (NAC) which falls under the governance of Ministry of Community, Culture and Youth (MCCY) paid a considerable sum of consultation fees,$0.41 million on a bin centre that cost $0.47 million, without conducting a cost assessment to ascertain the reasonableness of the fee quoted.
In its audit for Financial Year 2015/2016, AGO carried out test checks on six contracts (total contract value of $139.17 million) for the redevelopment of Victoria Theatre and Victoria Concert Hall (VT/VCH) costing $142.86 million, and found two lapses in the management of contract variations.
Inadequate assessment on the reasonableness of the consultancy fee
AGO stated that there had been inadequate assessment on the reasonableness of the consultancy fee of $0.41 million quoted for the construction of a bin centre; the fee was exceptionally high at 87.2 per cent of the construction cost ($0.47 million). Hence, there was no assurance that the fee paid by NAC was reasonable.
AGO observed that NAC had directly engaged the VT/VCH consultants to provide additional consultancy services (amounting to $0.41 million) for the construction of a bin centre, without first conducting a cost assessment to ascertain the reasonableness of the fee quoted.
AGO is of the view that the consultancy fee, at 87.2 per cent of the construction cost of $0.47 million for the bin centre, was exceptionally high.
Based on the terms of reference for this project, NAC was responsible for seeking approval from its tender board for the engagement of consultants. Thereafter, NAC would seek approval for the drawdown of funds from its supervising ministry.
The project was started when NAC was under the then Ministry of Information, Communications and the Arts (MICA) and taken over by the Ministry of Culture, Community and Youth (MCCY) following a restructuring of MICA. AGO noted that when NAC sought approval for the engagement of consultants, it did not carry out due diligence to assess the reasonableness of the consultancy fee.
AGO’s further checks revealed that when approval was sought for the drawdown of funds, the assessment by the then MICA of the consultancy fee quoted was not robust. Instead of using the norm methodology (that is, percentage of the quoted fee over the construction cost of the works) to assess the reasonableness of the fee, MICA had benchmarked the fee for the construction of the bin centre against other more complex projects. Had the norm been used, it would have been clear that the consultancy fee quoted for the bin centre was exceptionally high.
NAC explained that it had worked with its supervising ministry on this project and relied on the ministry’s cost assessment. Going forward, NAC would ensure that the relevant cost assessments are included when seeking approval from its approving authorities for procurement.
MCCY informed AGO that the construction of the bin centre for this project was more complex and required significantly more design expertise, technical consultancy services and effort to coordinate with multiple parties and these were the reasons for the fee to be above the norm.
It acknowledged that the cost assessment could have been more robust.
However, AGO noted that these reasons were not cited in the approval paper for the drawdown of funds and that there was also no documentary evidence that these reasons were indeed considered at the material point in time.
MCCY also informed AGO that it would adopt the norm for cost assessment of consultancy fees for future development projects and provide justifications where there are good grounds for deviation from the norm.
No approval sought for variations (costing $4 million) under two construction contracts
AGO’s review of 164 variations (amounting to $8.73 million) under two construction contracts revealed 47 variations (estimated at $4 million) that were carried out before approvals were obtained.
The delays in obtaining approval ranged from 12 days to 3.5 years.
In addition, AGO noted that for 38 variations, the approval papers did not highlight that the works had already commenced or were already completed and that covering approvals were being sought. The large number of covering approvals indicated a breakdown in the controls put in place to ensure that variations were properly justified and approved before works commenced. The role of the approving authority was also undermined.
AGO states that the role of the approving authority must not be regarded as perfunctory. If alerted on a timely basis, the approving authority can implement cost control measures to ensure that financial prudence and discipline is maintained. It is therefore important to seek approval on a timely basis and to disclose pertinent facts for approving authorities to make informed decisions.
NAC explained that the lapses were due to the external consultants’ delays in submitting the requests for variation works for NAC’s approval.
Going forward, NAC would put in place measures to ensure that consultants comply with the requirement to obtain approvals before variation works are carried out.
AGO in its remarks on the lapse, noted to NAC that it is accountable for the public funds spent and is responsible for maintaining adequate oversight of the project, including its consultants.