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Constructing Tobago – Part II

By T Williamson James

As stated in Part I, the THA is the biggest client in the construction industry in Tobago, with a capital expenditure/development budget for each of the last four years of over $300M TT.

All the data suggest that this represents above 90% of the total expenditure in the sector. The THA, as any other client will want to get the greatest value for money from its expenditure in the construction sector. Therefore the question is whether the contracting process can be used to transfer direct benefits to the Tobago community? This chapter will not only detail the advantages and disadvantages of the various contracting methods as indicated in the Part I, but will also touch on the question of direct benefits through contracting.

In part I it was suggested that there are several contracting methods available to clients when deciding to design and construct a facility. These were grouped into two categories, namely, Sequential Contracting and Single Point Contracting. It was suggested that, generally, the level of risk the client thinks he can manage or more probably wants to manage, determines the choice of method. There are however specific advantages and disadvantages that are inherent in the various methods.

Sequential contracting as the name implies, refers to all methods that have processes being carried out in series, meaning that you do not start an activity before its predecessor is complete. For the purposes of these articles, let us limit our discussions to two of these methods:-The Traditional Contracting and the Management Contracting. The Traditional Method is the most common and its advantages in the Tobago context are as follows:

• It has been used for many years. Clients understand it and know how to manage it. In the case of projects that are managed in-house by the THA, it represents an easy process to follow.

• The scope of works/design and specifications are defined before construction starts. For smaller Tobago contractors, this presents the opportunity to tender on a specific detailed scope.

• There is one main or general contractor who is responsible for carrying out all the works. S/he may subcontract to others but is not usually required to.

Over the years many disadvantages to this method have been identified, the most critical being the association with variations, which result in, increased cost. This is as a result of the contractor having no part in the design. Also, for larger projects, it is difficult to guarantee work for the 'smaller' Tobago firms.

For example, the first contract for the construction of the New Scarborough General Hospital used a sequential method that resulted in millions of dollars in variations and no work for Tobago contractors.

In the context of the Tobago industry, Management Contracting presents a greater possibility of smaller firms participating in the process. The subdivision of the works into smaller packages guarantees this. There is increased supervision and coordination cost, but having smaller contracts to administer compensates this for. Given the wider local involvement, the Tobago economy benefits from the multiplier effect of local expenditure. The Magdalena Grand Resort was successfully repaired using this method, employing several small Tobago and Trinidad contractors.

In many circles, Single Point Responsibility Contracting has been touted as the panacea for the failures of Sequential Contracting. The awarding of the design and construction to one firm reduces the risk of variations and allows for a shorter delivery process as construction can start before the design is completed. However, it achieves little else. It is also probably more expensive as there is duplication of recourses, as the contractor has to then have his own design team throughout the process and the client has to engage similar resources in approving the contractor's designs.

In the history of Trinidad and Tobago there has been less than 50 State contracts of this type, whether larger or small. It is difficult to manage and is not suited for smaller economies such as Tobago. In the last few months, the THA has tendered for a few of its larger projects using this contracting method; to date no Tobago contractor has received an award of this type.

Once a decision is taken on using the specific contracting method, the next step is to determine the process to be used in realising the acquisition of the particular built asset. Should it be open or selective tender? What standard form of contract will be adopted and what particular conditions are to be inserted therein? It is assumed that the THA has a policy on this and it is not left to the vagaries of individual coordinators in the various departments to write their own contract document.

What are the objectives to be derived during the design and construction period? Answers to these questions and others will inform the process.

For most public sector clients around the world, the maximisation of benefits at the various stages of the project lifecycle is of paramount importance.

It usually flows from a policy decision. For example, when the state of Trinidad and Tobago was granted a loan from the multilateral bank, the IADB, for the construction of the Scarborough Hospital (the first contract, there are two) it came with two specific conditions.

One was that the design consultancy had to be a firm from one of the bank's donor countries. Hence STANTEC of Canada got the job. The other condition was that a local (Trinidad and Tobago) company had to be awarded the construction contract. Most of us will know that the project was awarded to NH International. What we may not know is that the award was challenged because NH International was registered in the Cayman Islands. The Bank therefore dictated, by policy decision, who got its money.

The THA, if it so chooses, can do the same, that is, decide that Tobago contractors must be awarded all or a significant percentages of its work.

This is the only sure way to transfer direct benefits to the Tobago community from construction expenditure. This is especially so given that the THA Act Section 43 says that in determining the budget for Tobago "…..Cabinet shall give due consideration to the financial and developmental needs of Tobago ……..and shall allocate financial resources to Tobago as fairly as is practicable…." Cabinet shall also consider that in Tobago there:

(b) is isolation from the principal growth centres

(c) is the absence of the multiplier effect of expenditures ……. in Trinidad

(d) are restricted opportunities for employment and career fulfilment"

Part III will discuss capacity and local content clauses in contracts.

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