At what cost shall SPAD defend the MRT contractual model? (Update #1)

TRANSIT members learned with interest of the SPAD CEO’s enlightening statements in response to criticism over the appointment of Gamuda-MMC as the project delivery partner (PDP) for the MRT project.

Advantages of PDP model for the Klang Valley MRT — Mohd Nur Kamal (Malaysian Insider)
March 28, 2011

MARCH 28 — I read with some interest the comments made on the appointment of the project delivery partner (PDP) for the MRT project. Allow me to clarify some points about the concept and role of the PDP.

It is currently a common practice around the world, for implementation of “big and complex” projects, to use experienced contractors as the project managers to ensure reliability of delivery and cost control. This is especially relevant for project owners who have not built up internal capabilities to manage large complex projects. Compared to the traditional practice of using an engineering consultant as the PMC (project management company), an experienced contractor such as a project manager can offer significant benefits, namely:

a) better competency in commercial procurement strategies;
b) highly developed skills interfacing and co-ordinating many different contractors;
c) strong tender management and award skills;
d) well-developed supply chain management skills;
e) sufficient balance sheet strength to take on the risk of cost overruns and delays;

Examples of where the project manager model had been adopted in many projects globally are:

  • The Crossrail Project (US$12 billion) Bechtel/Systra;
  • London Olympics (US$10 billion) Laing O’Rourke (UK);
  • Korea high-speed rail (US$16 billion) Bechtel/Hyundai; JV;
  • Channel Tunnel Rail Link (US$11 billlion) Bechtel (US);
  • Qatar Bahrain Causeway (US$6 billion) Vinci (France);
  • Moscow Airport (US$11 billion) Bovis Lend Lease (UK)

The size and complexity of the Klang Valley MRT (KVMRT) project carries with it significant risks of delays and cost overruns. To protect the public interest, the government has planned to take the delivery risk (time and cost) out of the project. The PDP concept is merely an enhancement of the project manager role with certain built-in incentives and penalties that are designed to align the interest of PDP with the government during project implementation.

[TRANSIT: We have to make the point that many of those PDPs are internationally recognized companies that have amazing track records in completing projects. While MMC-Gamuda has done some good work in tunneling projects (SMART in KL & the Kaohsiung MRT in Taiwan), their participation in the KL-Ipoh and Ipoh-Padang Besar Electrification & Double Tracking (EDT) projects leaves something to be desired.

It’s also worth mentioning that these projects above are not “overnight” projects. Crossrail, for example, was planned over the last 20 years with detailed public consultation & feedback.

And finally, how can we be TRANSIT unless we ask why these great international PDP exemplars were not invited to participate in the Klang Valley MRT project.]

In the case of the PDP, the risk of delays and cost over-runs is now borne by the PDP for a fee. [TRANSIT: And what is that fee? How was the fee negotiated?] The PDP provides a single point of accountability to deliver the entire project within agreed time and cost targets, or face financial penalties, something a pure engineering consultancy has no financial capacity or management capability to bear.

As risk takers, it is consistent and crucial that the PDP, as the party that is responsible for the overall health of the project, be vested with the necessary authority to carry out its responsibility of managing all aspects of the project including packaging of works, calling for tenders, evaluating the bids, recommending the contractors and jointly awarding of contracts and ensuring the performance of each and every contractor appointed, even the power to step in and take over delivery of contracts that are behind schedule where necessary to ensure targets are met. All these are done within agreed guidelines and in consultation with the government and the government’s appointed VMS (value management study) consultant who will scrutinise project plans and specifications to ensure optimum value and cost efficiency. The independent checking engineer (ICE) will then scrutinise and verify to ensure the work is delivered according to plans and specifications. Ultimately, the government will have the final say.

[TRANSIT: Another problem there – we want independent people who are ready to tell the government the best, most efficient way to run things – without fear or favour, as the popular phrase goes. We thought SPAD would be one able to do this but now we wonder; Is SPAD brave enough & ready to tell the government when they are wrong?]

There have been different opinions that the PDP could have an unfair advantage in bidding for the tunnelling work. It is the intention of the government that all work packages will be subject to competitive bidding. All bidders will be given the same project information and evaluated on the same basis, i.e. technical, track record and financial terms.

[TRANSIT: And no competitive bidding in Malaysia has ever been questioned for lack of openness & transparency? We know what the record is like (on and off) for projects in Malaysia.]

It is also important to note for the tunnelling work, the overall project management, design, evaluation and recommendation of the bids will be done by an independent project manager and the government. If the PDP bids, it cannot be part of the evaluation committee. The PDP would have the opportunity to bid as it is the only Malaysian group with the expertise and track record to do so. To bar the PDP from bidding, though it has the capability, would mean that only foreign contractors will be involved, which is not necessarily in our national interest.

[TRANSIT: And why is this not necessarily in our national interest? Is it not in our national interest to get the best MRT, most efficient MRT with the lowest amount of cost overruns possible? Why should it matter if foreigners are involved if we get the best MRT?]

Allow me to reiterate the government’s commitment to closely scrutinise the costs and delivery of this crucial national infrastructure project for the benefit of the Malaysian public. Any feedback can be emailed to feedback@kvmrt.com.my.

[TRANSIT: Here’s some feedback – you have not carefully scrutinised the planning yet – we still do not know why certain routes were chosen, station locations were identified etc. for the Sg. Buloh – Kajang MRT – and that is a project that has been planned for some years. What about the other MRT lines? When will SPAD be open with their planning & public consultation?]
* Mohd Nur Kamal is the chief executive officer of SPAD (Land Public Transport Commission).

TRANSIT Says:

We want to congratulate Mohd Nur Kamal for being very responsive to criticism launched against SPAD over Gamuda-MMC’s overarching role in the nation’s biggest infrastructural undertaking ever. In fact, we wonder why it is that SPAD (the regulator) is doing most of the talking with respect to the project, while PDP MMC-Gamuda & asset owner Prasarana are saying almost nothing.

It is also important to note that the ‘successful’ examples given for the PDP contractual model are largely irrelevant to urban public transportation (which nature differs very much from inter-border travel, logistics and sports-based industries, where the issue of competition between private and public sectors is less of an issue), with the exception of Transport for London’s Crossrail Project. And as we said above, Crossrail has been planned for decades!

It is more important to note that there are rooms for fees to be cut, depending on the government’s schedule and budget expectation.

Bechtel and CH2M Hill face Crossrail fee cuts (Icon Review)

The value of the Bechtel and Transcend contracts are thought to be £400m and £100m respectively, Building reported, but the source said their fees would fall. It is possible to amend the arrangements as Transcend and Bechtel were taken on using yearly rolling contracts.

Our biggest concern is on whether the approach will be sufficient to meet the expectation of a full-fledged MRT system with working support systems and seamless integration with other transit ‘backbones’ (Komuter, LRT, BRT?), that should require more holistic planning and more segmentation of consulting contracts.

TRANSIT is sure the MRT project still has plenty of missing puzzles. (Taken from Germany's GTZ guide on transit planning)

For example, pre-feasibility and feasibility studies came from Gamuda, when international standards say that other local or international experts which should be independent from other consultants should undertake the contract for these studies.

Local firms together with consortium of international experts can provide demand modeling which leads credence towards establishment of a holistic masterplan (not only MRT but all other transit ‘backbones’ such as LRT and BRT, and not only ‘backbones’ but supporting ‘nerves’ such as local and neighborhood circulators, bike lanes and last mile strategy using electric-bike) as well as pedestrian, taxi & private vehicle modes.

With no regulatory plan or business structure model laid out, no financing plan, and no thorough socioeconomic impact evaluation, we have to wonder how the MRT project got its green light. These plans must be laid out before a PDP model can be even considered.

When one party seeks to eat a major part of the transit opportunity pie, and the that other practical transit approach such as BRT or last mile electric bike approach were merely dessert hinging at the edges of the dinner table, and no other diners are accepted except those in the higher echelon of the corridor of power (where’s the local councils, where are the state excos, where are the NGOs in early planning?), no wonder criticisms keep flowing in for Gamuda-MMC’s and McKinsey’s sole appointment among other things.

TRANSIT is not questioning the concept of MRT, or the concept of PDP, or the concept of VMS, SPAD, ETP, GTP, NKRA, etc – but we are ready to question the government on how and why decisions towards the implementation of the MRT were made.

We have the right to know because we are among the public and our money will fund the bulk of this project – either now or in the future.

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5 thoughts on “At what cost shall SPAD defend the MRT contractual model? (Update #1)”

  1. our nationalism shall override all other aspects. Give contracts blindly to local companies, because it is nationalistic to do so. Otherwise, you are labelled as traitor!
    Since it is a foregone conclusion that kvmrt is going to ahead, we have to pray and hope that it turns out OK, not great, but OK. Government knows best is still alive and kicking!!!

  2. @Jerping
    You are absolutely correct!! It’s must fully based on merits and fair appointment regardless of the origin (country) of the contractor/company. It is a total absolute useless and idiotic to emphasize on nationalistic and insist on a local company/contractor if they really can’t do it. There is no such thing as “let them try first” we believe”Malaysia Boleh” after that the whole project “Boleh” (can) go to hell and billions of ringgit of our taxpayers’ money went to Hades pocket!! There is totally no space/room at all for trials and errors in this kind of gigantic constructions project, but our lousy BN government is too blind to see it. There is no room for compromising and tolerating for any failure or mismanaged, mistakes, errors in MRT project!!!

  3. Good topic for debate. But we can’t blame the gomen for not having alternative choice. I just can’t believed there isn’t any other local tunneling, underground eng structure expertise, project mgmt & consltn that will put MMC-Gamuda in hot seat. This is typical scenario of ‘monopoly’ or ‘no-competitor’ business environment all over the world. i.e. Microsoft..

    In 90’s when Proton is the only local mfgr, they sell 1.6cc car (wira) at RM58K but now when there are many domestic mfgrs, they sell similar 1.6cc specs car (Gen2/Persona) at RM44K.

    Btw, do anyone know, the cost of boring and constructing 5.6m diameter tunnel per km in other country? I think, TBM, itself , is not that expensive. There is hearsay the cost is US$100-200m per km in US, S$100-200m per km in singapore and RMB100-200m per km in China, depending on the soil/rock. And if we use this formula, taking account our vast cheap indon and bangla construction workers, it will be RM100-200million per km in M’sia! Ha3. It is even cheaper than our elevated cost at RM250m/km!!

    The MRT project itself is cheap but MMCGamuda make it expensive… or probably loopholes in gomen procurement and tendering system.. or in the name of local expertise, patriotic and Made in Malaysia etc..

    2nd btw, is it true, underground construction use slightly less concrete and steel vs elevated structure (guideway + pillar)? The 2 main expensive materials.. Any QS or civil engineer?

  4. The pertinent issue here is that public opinion does not matter, as long as I am in power I will just Bulldoze this project through in the name of “providing for the needs of the klang valley solution to the traffic jams”.

    The issue here is from what angle are you looking at this issue. If you are looking from the gov side, lets get the plan out, choose the contractor, get the project out which in this case its more like a ” design as you built concept” rather than a thorough design and built concept.
    As has been pointed out by Transit there is not much of an evidence of a study on the integration part of the whole infrastructure done.

    As we are well aware this project cost is hugh and normally such hugh expenditure would require a thorough and balance approach to it taking into considerations of socio economic impact . Has there been a report to date that an independent professional body is looking into?

    What everyone is more concern is the way the contract for this project is being awarded.?

    We know that the gov. more so the ruling party wants to get this project to move, to show to the rakyat that, hey we are doing something good for you all. But at the same time are the actions taken to carry out the project, “Bersih , Cekap, Amanah”
    the motto once championed by the then Tun Mahathir.

    Looking at the way this mega costing project is being carried out it doesnt look that way. Unless the opposition party pressure the gov to table the whole thing in parliament. If that’s remotely possible.

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