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 email@example.com.
[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).
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.
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.