BASSETERRE, St. Kitts – ON the heels of CONTEC’s explanation for the incompleteness of the first 10 homes of the Social Security-funded Beacon Heights Project and the alleged advance of monies to the construction company by that institution, the Directors of the Social Security Board issued a statement and maintain that the lag in construction was due to “severe cash flow challenges” experienced by CONTEC.
“Around the middle of 2011, CONTEC experienced severe cash flow challenges as a result of the contraction in its main redimix concrete business and the failure to regain the insurance proceeds from the storm damage of 2010. The construction of the houses began to lag given CONTEC’s inability to secure project financing from its bankers and the severe economic conditions of 2010-2011,” the statement reads.
The statement also noted that since the commencement of the project, at no time was any member of the Social Security Board involved in the payment process, and that no member approves payments or signs cheques.
The following is the statement issued by the Directors of the Social Security Board in its entirety:
Statement of the Board of Directors of the Social Security Board on its Beacon Heights Project
In 2007 the Social Security Board invited proposals to develop its 44 acre project at Franklands from developers and construction companies. Construction Technologies Ltd (CONTEC) won the bid and proceeded to clear the land at Franklands. In discussing its findings about the Franklands development and the difficulties of developing the area, CONTEC made a proposal to the Board to do a joint venture on lands at Dewars Estate on which they had an option to purchase.
The Board looked at the proposal for a Joint Venture but decided against a Joint Venture. CONTEC agreed to waive its rights to the land in return for its assistance in developing the area. The Board and Management spent approximately one year examining and analyzing the costs and benefits of the development and then approved the project. The Board bought the land for EC$ 31,530,329.90 from the Government at the cost of EC$8 per sq ft.
CONTEC was asked to provide a costed Bill of Quantities by a Chartered Quantity Surveyor on the cost of the infrastructure for the project. This Bill of Quantities was further refined by our Technical Adviser/Engineer, Mr. Arthurlyn Belle, a Chartered Engineer with over 30 years practical experience. Once the figures were agreed by the proposed Developer and our Technical Adviser, a contract was offered to CONTEC to construct the necessary infrastructure. The contract provided for roads, electricity, water, two (2) one hundred thousand gallon reservoirs, pump houses, telephone and cable T.V. infrastructure among other infrastructural works. The Bill of Quantities was for an amount of EC$25,079,590.07. Work on the Project started at the end 2008.
GOVERNANCE AND MANAGEMENT OF THE BEACON HEIGHTS PROJECT
The Board set up two (2) sub-committees to manage the project. The first was the Beacon Heights Committee of nine persons, two of whom are members of the Board; chaired by the Board’s Chairman and including the top management of the Social Security Fund and the Technical Adviser. The other Committee is the Beacon Heights Technical Committee chaired by the Technical Adviser/Project Manager and includes the senior management of the Social Security Fund but does not contain any member of the Board. This Technical Committee examines the technical aspects of the work in accordance with the contract and makes recommendations to the Beacon Heights Committee.
The Beacon Heights Committee is a sub-Committee of the Investment Committee set up by Law under the Social Security Act and containing members representing the Private Sector and the Ministry of Finance. All decisions of the Beacon Heights Committee have to be approved by the Investment Committee.
On the completion of the Infrastructural work at the end of 2010 the housing component of the Project was started early in 2011. The Board decided to build a total of ten (10) houses to jump-start the Project and to help in its marketing. A detailed Bill of Quantities on the cost of the houses was done by CONTEC which was reviewed by the Project Manager/Technical Adviser. The Board approved a further analysis of the cost of the houses to be done by another local professional which satisfactorily confirmed the prices in CONTEC’s cost proposals to be eminently reasonable.
On approving the contract to construct the houses (191 houses, 6 acres of town houses/condominiums, a commercial area of 300,000 square feet of space) the Contractor requested an amount of US$2,721,325.84 (EC$ 7,393,570.17) to purchase itemized equipment and manufacturing systems to take advantage of economies of scale for roofing, steel, scaffolding and forming walls to be used over the eight (8) year life of the project. This ensured that the prices charged for the construction of the houses were much better than obtained locally. In addition an amount of EC$1.7 million was allocated to purchase materials to start the construction of the ten (10) houses. This came to a total of EC$9 million advanced and secured by a Surety Bond in the amount of EC$10 million secured by the assets of the company and its Directors. This amount is to be repaid over the construction of the first 153 houses. To date an amount of EC$301,489 has been repaid by CONTEC. The balance is being repaid from the Contractor’s claims during the construction of the houses.
CHALLENGES OF THE PROJECT
The first major challenge occurred during the unseasonable rains of July 2010. The major spine road was heavily damaged by rain caused by the loss of the thatch cover which was there for the last 300 years, coupled with the water from the nearby F.T. Williams Highway. The Development and Control Board of the Planning Unit and the Public Work Department insisted on modifications to the approved project drawings to include drainage leading down to the sea.
Originally the runoff from water was to be drained into the nearby ghauts. The extensive drainage work including a new intersection road on the F. T. Williams Highway cost an additional EC$4,039,198.08. The provision of the new intersection and drainage corrected the run off problems and since December 2010, there has been no problem relating to the drainage.
Unfortunately however CONTEC’s claim to their insurers for storm damage in the amount of about EC$3 million was rejected and rather than having the project languish awaiting arbitration in the Courts, the Board decided to advance an amount of EC$1.3 million to reinstate the project and rectify the damage to the project. This advance has since been repaid by CONTEC while still awaiting arbitration on its insurance claims.
Around the middle of 2011, CONTEC experienced severe cash flow challenges as a result of the contraction in its main redimix concrete business and the failure to regain the insurance proceeds from the storm damage of 2010. The construction of the houses began to lag given CONTEC’s inability to secure project financing from its bankers and the severe economic conditions of 2010-2011.
In order to complete the ten (10) houses, the Board took the decision to put in place a system to pay directly for the materials for the project and to pay the sub-contractors who were delivering the 10 houses.
PAYMENT SYSTEM FOR THE PROJECT
The system for the payment of claims by the Contractor (CONTEC) is as follows:
(1) A claim is made for the work done covering materials, labour and contractor’s profit;
(2) This claim is investigated and thoroughly scrutinized by the Technical Adviser/Project Manager who makes adjustments and corrections to the claim where necessary;
(3) After the claim is adjusted and approved, the Project Manager sends the claim to the Deputy Director of Social Security;
(4) The Deputy Director scrutinizes the advice to pay the claim and discusses the claim with the Project Manager and the Director;
(5) The Deputy Director certifies the claim for payment and sends the approved claim to the Finance Department for payment.
(6) The Finance Department makes adjustments to the claim to account for the payment of Social Security and Housing and Social Development Levy along with other deductions for money advanced to the Contractor.
At no time is any member of the Social Security Board involved in the payment process. No member approves payments or signs cheques.
MEMO FROM THE DIRECTOR, SOCIAL SECURITY BOARD
The Director, SSB wrote a memo to the Chairman, copied to all members of the Board at its monthly meeting on the 28th July 2011 seeking the approval of the Board to terminate the Housing Contract given to CONTEC. The Board discussed the matter and accepted the recommendations of both the Beacon Heights Committee and the Investment Committee to manage the Project directly and to pay for all materials and wages incurred in the construction of the 10 houses.
The Board felt that terminating the contract of the Contractor at this time would lead to litigation and a halt to the project while it is removing the Contractor from the site and engaging in the employment of another contractor. The Board felt that the corrective steps it had made in taking over the project and paying for the materials and labour directly would lead to the speedy completion of the ten (10) houses. It is still of that view.
SOUNDNESS OF THE SOCIAL SECURITY FUND
The Social Security Fund is soundly and properly managed and reports to Parliament on a regular basis. Every year the Social Security Board is audited by External Auditors and proper accounts are presented to the Minister responsible for Social Security and the National Assembly. The audited accounts for the Year Ended 31st December 2010 have already been presented to the Hon. Minister to be laid in the National Assembly. In addition every three years, there is an Actuarial Review of the Fund done by a qualified Actuary which goes into tremendous detail on the soundness of the Social Security Fund and its ability to pay its beneficiaries. The last Actuarial Report was done for the Year Ended 31st December 2008 and was laid in the National Assembly. This Actuarial Report has given a resounding vote of confidence on the soundness of the Social Security Fund and its ability to meet the needs of its beneficiaries to the year 2043. The Actuary has to look at the projections at a finite point in time and the Directors and Management are supposed to look at his recommendations in order to improve the sustainability of the Social Security Fund. The next Actuarial Report will examine the Social Security Fund at the 31st December 2011 where we confidently expect our usual good ratings.
As at 31st December 2010, Total Investments owned by the Social Security Fund were just over one billion dollars (EC$1,078,697,965) with Cash at the Banks being over half a billion dollars (EC$606,881,711) and other securities being just under another half of a billion dollars (EC$ 477,594,741).
The Fund is healthy and strong. The total Income produced by the Social Security Fund in 2010 was over one hundred million dollars (EC$135,644,950) with a healthy surplus for the year after paying Benefits and Administrative Expenses of over eighty million dollars (EC$ 80,604,899). We are confident that the long term value of the Project which is estimated at over three hundred million dollars (EC$ 300,000,000) will redound to the benefit of the Social Security Fund and help it to meet its long term commitments to the people of St. Kitts and Nevis.
The Beacon Heights project will provide good profits and value to the Social Security Fund and will create good and lasting benefits to the people of St. Kitts and Nevis as well as stimulating the economy and providing good and permanent jobs for the people. To date we have obtained firm deposits for three (3) of the houses and confidently expect to sell the remaining houses before the New Year. All of the houses under construction will be completed and landscaped by January/February 2012. Some of the houses will be completed by the end of November 2011. The Social Security Board is still very enthusiastic about its upscale project at Beacon Heights and expects great things of it.
