Fresh hiccup on Phalombe road

Completion of the stalled Zomba-Jali-Phalombe-Chitakale Road is set to delay further after the Roads Authority (RA) rejected a Lebanon bank guarantee presented by the contractor of the $107 million road project, The Nation has established.

This piles more misery on the project after the contractor, M.A Al-Kharafi and Sons, recently wrote the Malawi Government, threatening to suspend works over payments disagreements.

But even in the absence of an authentic bank letter of guarantee, government through the Roads Fund Administration (RFA), is already paying the contractor, with an advance payment of $23 million (about K8.5 billion) already committed.

RA has confirmed that the performance guarantee from Byblos Bank presented by the contractor was referred to the Ministry of Justice and Constitutional Affairs for legal opinion after it failed to meet its standards. The authority has also confirmed that government was paying the contractor.

The road project, which was initially expected to cost $57.09 million (about K19.98 billion), is now costing $107 million (about K40 billion at the current official exchange rate of K375) because of suspension of works on the road in the 2011/12 financial year.

Sources familiar with the project said it was surprising that government was taking a risk by paying the contractor when RA rejected the bank guarantee and the matter was not yet resolved.

“In the absence of the recognised bank guarantee, it is very risky on the part of government because if the contractor abandons the work, there is no guarantee that the money which has already been paid can be recovered. To make matters worse, government has committed an advance payment of $23 million,” said the source close to the project.

Another source said the renewal of the contract was hurried and wondered how government could consider the deal sealed in the absence of an accepted bank guarantee.

In a written response to a questionnaire, RFA procurement and public relations officer Masauko Mngwaluko confirmed that government and the contractor entered into an agreement of an advance payment of $23 million which he said at the moment lacked proper bank backing.

He said: “The government signed an agreement with the contractor for payment of this amount [$23 million]. There is no specific guarantor like is the case with any other advance. The Roads Authority as project managers would be in a better position to clarify on this.”

Mngwaluko also said RA was better placed to explain why the contractor was being paid retention money amounting to $1 495 240.32 when the road was not completed.

“It’s true [that retention money was being paid back to the contractor] but Roads Authority and consultant can explain better the rationale for this,” he said.

Expired performance guarantee

RA public relations officer Portia Kajanga confirmed in a questionnaire response that the performance guarantee which was submitted at the resumption of the new contract had a clause which was different from the standard format.

Said Kajanga: “At the onset of the contract, the contractor submitted a performance guarantee which expired during the suspension of the project and another one had to be submitted at the resumption of the works. This was done with a guarantee issued by Byblos Bank.”

She said the performance guarantee was important because in the event that the contractor fails to fulfil contractual obligations, the guarantee is used to pay back the client for any damages caused.

Kajanga said the payments which have been made so far are in line with agreements between the Malawi Government and the contractor.

Attorney General Anthony Kamanga confirmed in an interview on Wednesday that the issue of guarantee presented by the contractor of the road was referred to the ministry for legal opinion.

“I am aware of the matter. I have not cleared the bank guarantee,” said Kamanga.

Kajanga said although the contractor is bringing in some issues which were not in the new agreement, the RA was responding to them according to contractual provisions and that the construction of the road which recommenced on October 5 2012 was expected to finish on June 30, 2014.

Retention money

She said the actual outstanding payment due to the contractor was $5 068 672.39 which includes current measured works, works done prior to suspension and interest claim because of late payments.

Kajanga denied that the contractor was being paid retention money.

Malawi Institution of Engineers immediate-past president Matthews Mtumbuka said retention money is withheld by a client for a certain period which is expected to be used if there are defects on the road.

He said defects on a road refer to any part of a road or highway that does not meet the specific standards and that a road design is to stand for certain duration without showing any defect and the duration is dependent on the size of the project; normally the minimum is one year.

“During this period the contactor is obliged to correct all the defects [on his costs] and the period is called the retention period. Hence to safeguard this, a percentage of the project cost [usually a percentage of 10] is retained by the client and handed to the contractor at the end of defects correction period only when the contractor has met the standards in other ways corrected all the defects,” said Mtumbuka.

A report from Romana Consulting Engineers dated July 25 2013 signed by project director engineer Trevor Hiwa, who are the consultants of the project, says the net amount due to be paid to the contractor for current measured works and reversal of over-deducted retention was $1 721 759.12.

According to the consultants, the contractor was, as of the date of the report, supposed to be paid $226 518.80 for certified current measured works and $1 495 240.32 shared among the financing agents: KFAED $658 572.86, Badea $301 307.85, Opec fund $303 201.78 and Malawi Government was to pay $200 412.76 and K95.5 million.

However, according to communication from A. Fattah Motaleb of M.A Al-Karafi and Sons dated July 26 2013 to RFA, the money due for payment to the contractor is pegged at $5 392 693.93.

It reads in part: “IPC 15 full amount due is $5 392 693.93 [Malawi Government share is $4 176 889.82 and it is payable as follows $760 300.86 payable in MK & $4 176 889.82 payable in USD].”

Media blackout

Office manager for Romana Consulting Engineers, Hazeldine Jali, declined to comment saying their contract with government does not allow them to give information to the media.

On the value of the project which has jumped from $57 million which was the initial cost before the contractor left the site after $37 million from the three international financiers had been exhausted to $107 million, Mngwaluko also pushed it to RA.

Kajanga said the budget has moved with that wide margin because of price increases in construction materials, site conditions, weather conditions, scarcity of bituminous materials and diesel and weather conditions.

The contractor of the multi-billion road had threatened in a letter to government to withdraw services from the project site for the second time over payment disagreements.

The road is of huge economic importance as it would provide the shortcut for connecting from Zomba to Phalombe and Mulanje instead of the current scenario where people travel to Phalombe or Mulanje through Blantyre.

Chairperson of the Budget and Finance Committee of Parliament Francis Kasaila told Weekend Nation two weeks ago that the contractor had confirmed to them that he had written government on his intention to abandon the project.