Deloitte airport review is damning
In March, Deloitte was contracted by the Bermuda Government and the British Government to conduct an independent assessment of the procurement method used for the LF Wade International Airport Development Project.
Deloitte was tasked with making its evaluation using HM Treasury’s Green Book guidelines based on a full business case (FBC).
On May 8, Deloitte released its 200-page analysis highlighting key gaps using the FBC five-case model:
1, Strategic Case — “Government may want to be clear that it owns its own strategy for the airport and ongoing evaluation of the strategy.”
2, Economic Case — “Key, integral steps are not present in the case. These gaps make it difficult to assess that the most economically advantageous solution has been selected. This is particularly significant in satisfying Government that the optimal solution for Bermuda has been selected prior to engaging with potential suppliers.”
3, Commercial Case — “... there is no robust evidence indicating that a sole-source PPP would offer more VFM (value for money) than a competitive procurement strategy for a similar concession. There is therefore a potential gap in the evidence to support the sole-source procurement strategy opted for from June 2014, as compared to previous evidence suggesting a competed PPP procurement process could be viable.”
4, Financial Case — “Many of the key studies and models were developed by the prospective supplier rather than Government.”
Even more troublesome, Deloitte stated that “CCC’s affordability components fail to encapsulate all costs to be borne by the Government during and after the project”.
5, Management Case — “One point in the management case which could add significant value to the Bermuda Government at the present time is a contingency plan should the current proposed deal with CCC fall through.”
In addition, the Deloitte Report made some shocking revelations:
• While both Canadian Commercial Corporation (CCC) and the Government have repeatedly cited “lack of investor interest” as their justification for sole-source procurement, Deloitte noted that “there was also early indication from various sources that while the market may have been challenging, there was private sector appetite and bankability for airport deals, and the Bermuda airport was considered a possible candidate for a PPP and private financing”.
• The Base Case is calculated on the condition that air traffic will increase 1.6 per cent per annum until 2045. This begs two important questions:
a, What happens if air arrivals do NOT increase at this rate? Will this mean there will be additional increases in passenger taxes to make up for the shortfall?
b, Will there be a cap placed on the amount of profit Aecon can make on this deal? Any increase in profit margin that is generated beyond this 1.6 per cent should be funnelled to the taxpayer via the government purse
• The Government’s letter of agreement and the memorandum of understanding with CCC included financial penalties if Bermuda withdrew from the arrangement. The Government must be made to reveal the dollar value of these penalties, along with any additional penalties linked to the agreement signed on August 24.
• The source of funds outlined that there is a “9 per cent funding gap covered by the Bermuda Government”. This appears to be a direct contradiction to Bob Richards’s stance that there will be no costs to the Government for this deal.
• “The documentation ... does not set out how CCC selected Aecon, how their process follows best practices, or how competitive tension in the supply chain between Aecon and its competed subcontractors would benefit the Government of Bermuda.”
Another government justification for sole-sourcing was that it was both cheaper and faster than traditional tendering practices. However, in July, the British Government issued a revised letter of entrustment requiring that:
1, “UK Government and the Government of Bermuda must agree on what measures are required to address the deficiencies that are identified by Deloitte in their assessment report[s]”.
2, “The Government of Bermuda must publish a written and evidence-based assurance that the required measures have been taken before the contract can be concluded.”
This leaves us with another vital question: Would it have been cheaper, more expedient and better governance to have had this contract put out to tender two years ago?