Statement by the Honourable Minister of Health Jerry Narace on the Judgement of the Appeals of the Third Partial Award in the Scarborough Arbitration Issued by the High Court on October 21, 2009.

Minister of Health Jerry Narace

Statement by the Honourable Minister of Health Jerry Narace on the Judgement of the Appeals of the Third Partial Award in the Scarborough Arbitration Issued by the High Court on October 21, 2009. 

Mr. Speaker, I am authorized by Cabinet to make the following statement on the status and outcome of the appeals of the Arbitrator’s Third Partial Award between the National Insurance Property Development Company Limited (“NIPDEC”), the agent for the Government of Trinidad and Tobago, and NH International (Caribbean) Limited (NHIC) with respect to the construction of the Scarborough Hospital. This matter arose out of a dispute between the Parties which was referred to Arbitration.

Mr. Speaker, it will be useful for Honourable Members to recall the circumstances surrounding this matter, since yet another judgment in this matter was delivered only recently, referred to as the Judgment of the Appeals of the Third Partial Award. Moreover, because of the history of this project, and its importance to the national community it was considered necessary to report to Parliament.
 
Mr. Speaker, as you would recall, in May 2002, NIPDEC’s Tenders Committee selected NH International (Caribbean) Limited to undertake the construction of the Scarborough Hospital at the contracted price of TT $135.9 million for completion in just over two (2) years.

I wish to state that this contract was not based on a fixed price or a design/build model concept but using a traditional design and tender approach. The facts surrounding this project will show that from the outset NHIC’s actions could not have resulted in delivering value for money in the construction of a much needed hospital for the people of Tobago.

NHIC commenced work on March 17, 2003 and from as early as November 2003, began raising a number of issues including: variations in the initial soils investigation and site survey; re-location of the building; realignment of the perimeter access road; construction of 2-tier retaining walls and importation of fill material. NHIC further flagged disputes in respect of the suitability of designs and drawings submitted by the Stantec Consultant, as well as the lack of utilities at the site.

As a result of the contractor’s unco-operative approach, the project progressed slowly and the resulting delay formed the basis on which NHIC made claims for increased costs.  An impartial observer would conclude that the contractor was not interested in working amicably with its client nor was it concerned with the successful completion of the project.

Consequently, and you may recall, Mr. Speaker, on a previous occasion I informed this Honourable House that on August 24, 2004, NHIC wrote to the International Court of Arbitration requesting arbitration for various disputes between itself and NIPDEC.

Mr. Speaker, you would further recall, that in 2003, the original estimated cost of the project was TT$135.9 million, with a completion date of March 2005.  In 2005, NHIC submitted a revised figure of TT$ 222.2 million and in 2006, NHIC submitted a further revised figure of TT$ 474.2 million for the said project.  Mr. Speaker, it is interesting to note that NHIC’s estimate for completion of the project in 2006 was TT$ 338 million more than the initial contract sum of TT$135.9 million.

Mr. Speaker, NHIC suspended works on the project on September 17, 2005, accusing NIPDEC of continuously failing to satisfy the requirements pursuant to clause 2.4 of the FIDIC General Conditions of Contract, in particular that NHIC was not satisfied with an indication of the availability of funds by the Permanent Secretary of the Ministry of Health. NIPDEC expressed its disagreement with the position taken by NHIC because all the necessary funding was approved by the relevant authorities. As a consequence, arbitration was initiated between NIPDEC and NH International (Caribbean) Limited in December 2005 by an Arbitral Tribunal appointed in accordance with the governing law and the International Court of Arbitration rules. This was less than a year and a half of the life of the contract.

Mr. Speaker, NHIC made a claim of TT$ 283 million in the Arbitration for work done on the Project.  However, permit me to inform this Honourable House once again that during the arbitration, an Independent Quantity Surveyor was appointed by the Arbitrator. The Independent Quantity Surveyor reported that the value of NHIC’s entitlement was only TT$153.6 million, which is approximately TT$130 million less than the figure claimed in the Arbitration by NHIC. The Arbitrator in his Third Partial Award, which was handed down on November 07, 2008, confirmed that the entitlement was even less.

Mr. Speaker, allow me to place on the record once again for the benefit of Honourable members that NHIC’s percentage profit margin calculated at bid was twelve and half percent (12½ %).  However, the percentage profit submitted by NHIC in its claim to the Arbitrator was more than three hundred percent (300%). More than 300%, Mr. Speaker.

Mr. Speaker, against this backdrop the Government of Trinidad and Tobago has been aggressively pursuing the arbitration as it is this administration’s intention to get value for money.

It should be noted that to date, the Arbitrator issued a First Partial Award in February 2006, in which he ruled that the Dispute Adjudication Board had not been validly appointed under the Contract. Further, in his Second Partial Award issued in April 2007, he held that NHIC was entitled to suspend the Work and terminate the Contract. This decision was appealed by the Government in January, 2008, by filing a claim in the High Court. Although the Court did not set aside the Arbitrator’s decision on this issue, it confirmed that the “Arbitrator never found that Cabinet Approval was necessary to satisfy Clause 2.4 of the FIDIC General Conditions of Contract.” Mr. Speaker, the Government was therefore successful in confirming that there is no requirement for a State entity to provide a Contractor with proof of Cabinet approval of financial arrangements, where the FIDIC Conditions of Contract apply. This is an essential and integral principle for continued good governance and was only achieved due to the resolve and determination of this Government. This is a legal victory for the State and ensures both for this case and future cases that this contractor and any other like-minded contractors will be unable to claim any precedent of a need for Cabinet approval in circumstances, such as this. 

The Arbitrator in his Third Partial Award issued on November 07, 2008 indicated that the claim of TT$ 283.0 million submitted by NHIC in the Arbitration was rejected and the actual cost of the work completed was valued at TT$ 133.2 million. It is important to note that the Government has already paid NHIC TT$135.9 million for work done on the project. As a result of the Third Partial Award, NIPDEC was granted the amount of TT$9.1 million exclusive of interest and costs. Had it not been for the pursuit of this matter, the Government could have been forced to pay NHIC’s claim which was $150.0 million more than the actual value of work done by NHIC on the project.

In light of the Third Partial Award, NIPDEC’s Attorneys invited NHIC to enter into discussions with a view to reaching an amicable settlement of all outstanding matters at the arbitration. This overture was rejected by NHIC, which filed its own appeal as did the Government. 

Having heard the submissions of both parties, the High Court on October 21, 2009 delivered judgment of the appeals of the third partial award, and both appeals were dismissed. Mr. Speaker, this ruling is a considerable victory for the Government of Trinidad and Tobago, since it reaffirmed the Third Partial Award decision. This is so, Mr. Speaker, because this decision re-directs both parties towards the Third Partial Award and reinforces and approves the Arbitrator’s decision that the sum of $ 283.0 million claimed by NHIC in the Arbitration was grossly inflated and that the actual cost of work completed by NHIC was only $ 133.2 million.

At this point Mr. Speaker, the Government awaits the Fourth Partial Award as the arbitration proceedings move to completion.
 
Mr. Speaker, permit me to give an update on the Scarborough Hospital, as it stands today.

Mr. Speaker, as you would recall, as a matter of urgency, NIPDEC re-invited tenders using a Modified Design-Build Contract for the Scarborough Hospital Project and the supply of medical and other equipment with a fixed price clause. A tender was awarded to the only pre-qualified bidder, China Railway Construction Corporation Limited in June 2008 in the sum of TT$209,864,356.00 for construction works.

Mr. Speaker, I wish to reiterate that the estimated costs as submitted by NHIC at the arbitration in 2006 for the construction of the hospital ALONE was TT$ 474.2 million as compared to that of the new Contractor in the sum of TT$209.9 million for the completion of the originally designed hospital, construction of two new additional buildings forming part of the hospital, and the execution of all remedial works.

It is also very important to note that the new Contractor has also accepted liability for the remedial works arising from the defective work executed by NHIC. The new Contractor commenced construction in November 2008 to be completed and fully functional by the third quarter of 2010.

Mr. Speaker, a delegation led by the Honourable Prime Minister visited the Scarborough Hospital Site on Thursday October 22, 2009, together with the media and we were able to confirm that the Scarborough Hospital project is on track for third quarter commissioning. Further ongoing discussions and regular site visits are being held with public utilities, such as WASA and T&TEC to ensure that all requirements in relation to these matters are being met.

I am pleased to inform you, Mr. Speaker that the Scarborough Hospital is 65% complete and the quality of work executed by the new Contractor is impeccable and of a superior quality and standard. Further, the new Contractor’s labour force consists of approximately 45% of locals.

The Scarborough Hospital project is a clear demonstration of what the Government has been saying about the unacceptable practices of some local contractors and hence our determination to change the way public construction projects are implemented.