26 November 2012

Rwanda: Fierce Pay Dispute Simmers Between RSSB and Thomas and Piron Gl

A pay dispute between the Rwanda Social Security Board and the construction firm Thomas & Piron Grands Lacs has been simmering since April this year following an invoice issued to RSSB for final work on Insurance Plaza, the RSSB's showcase high-rise in central Kigali.

On 18 April 2012, Julius Kibwage of Triad Architects, a Nairobi-based firm that was the supervising consultant on the building, issued penultimate certificate no. 41 to Thomas & Piron GL for work and material on the building valued at Rwf 7,033,692,011 (seven billion thirty three million six hundred ninety two thousand and eleven francs). What this meant was: the consultants had made their professional evaluation and determined that that sum - that seven billion thirty three million six hundred ninety two thousand eleven francs - was the final pay (pending a liability period of one year) that RSSB owed Thomas & Piron GL. When they (Thomas & Piron) wrote RSSB an invoice for that sum, they attached the penultimate payment certificate. That is the procedure. But then RSSB declined to pay the money and that is where the dispute started.

Senior officials of RSSB decided to inject themselves into the project by turning themselves into purchasing agents for several materials.

When this newspaper interviewed RSSB Managing Director Angelique Kantengwa Friday last week she emphasized "The need to settle the dispute and have Thomas & Piron GL paid any outstanding sums". "My responsibility is to be prudent with public money and to make sure all due diligence and procedures are carried out before RSSB pays out any amounts of money," the director said.

It has been seven months since Thomas & Piron GL issued its invoice however, and RSSB has so far paid them only Frw 609 million (leaving the outstanding bill currently at Rwf 6.9 billion), and even then it was after endless pleading by the firm's CEO, Coralie Piron, who kept reminding RSSB that her company was in danger of defaulting on payment to its banks, its suppliers and subcontractors, and other financial obligations. "Our company has a turnover of Frw 10 billion per year," Coralie Piron wrote in a letter to the RSSB director dated 19 September 2012. The letter continued, "It is impossible for a company like ours producing 10 billion per year to continue operations with an unpaid amount exceeding 60% of production."

But RSSB has declined to pay up even though Triad Architects, one of the most reputable firms in the region and which they themselves hired for the supervisory work after a rigorous and competitive bidding process, recommends they pay the contractor. According to RSSB, their objection is that if they paid the total of that final seven billion, the total sum spent on Insurance Plaza - according to Triad - would come to Rwf 22,741,737,242 (twenty two billion seven hundred forty one million seven hundred thirty seven thousand two hundred forty two francs), a figure that was way above the initial projected cost of Rwf 17,290,504,991 (seventeen billion two hundred ninety million five hundred four thousand nine hundred ninety one). The project had overshot its estimated cost by over Rwf 5.4 billion and RSSB was blaming Thomas & Piron GL for it. The latter on their part contend that not only is it unfair for RSSB to be blaming them, the institution is in severe breach of contract by declining to pay them, and pay in time.

It is a dispute that has dragged into it the Ministry of Finance, and the Ambassador of Belgium (Thomas & Piron Grands Lacs used to be a subsidiary of Thomas & Piron of Belgium until a few years ago when the two became separate entities), and it is a dispute the construction firm is considering taking into litigation.

The Rwanda Focus has been conducting an investigation into this controversy; we have interviewed top officials of both RSSB and Thomas & Piron GL; we have looked at several pages of contract copies, and correspondences between RSSB, Triad and Thomas & Piron GL; we have seen copies of payment certificates and other paperwork.

Suspicious purchasing procedures

What is more striking than anything else in the whole issue is the fact that at some point senior officials of RSSB (at the time Social Security Fund of Rwanda) decided to inject themselves into construction work on the project by turning themselves into purchasing agents for several materials and equipments. Among these: cement, granite, granito and ceramic tiles, steel beams, aluminum doors and windows, curtain walls, alucobond, lifts, escalators, almost every material consumed by the project.

Government staff turning themselves into purchasing agents on any construction project funded by public money is something that goes against all good governance procedures on the expenditure of public money. The Rwanda Focus has seen several emails from Fred Rwihunda, formerly the Estate Director for Social Security Fund of Rwanda talking of quotations for such materials as aluminum claddings, sanitary fittings, "Armstrong fittings", tiles and so on, and asking Thomas & Piron GL to request for payment for the materials.

The arrangement (which Thomas & Piron objected to but which they were contractually obliged to honor since they only were the builders and RSSB the client) was a bit complicated. RSSB would make payments for materials Fred Rwihunda and others of his team identified, and whose purchase he authorized. RSSB (at the time Social Security Fund of Rwanda) then would transfer payment to the suppliers' accounts (in this case mostly to firms in China that Rwihunda sourced materials and equipments from, again and again). But then the bill would be reflected on the contractual fee for Thomas & Piron GL.

If one were not careful in reading the documents, one would think all this money went to Thomas & Piron, when in fact only part of it did. The truth is that should RSSB pay Thomas & Piron GL the outstanding Rwf 6.9 billion, the total amount the contractor will have received is Rwf 16,143,717,428. According to the figures we have seen from all the documents, the fact that the contract's price jumped from the estimated Rwf 17.29 billion to over 22 billion has a lot to do with the procurement and purchasing activities of the RSSB's Fred Rwihunda and his team. They would be taking trips to China and Malaysia and visit their suppliers for whatever materials or equipments were wanted, and they would be flying all over this region purchasing cement and other goods. The contractor would be informing them if the materials they bought were defective in any way, or if it was overpriced Thomas & Piron GL would not at all be held responsible. The Rwanda Focus has seen several letters to this effect.

Some of the firms nominated by Social Security Fund of Rwanda as suppliers (subcontractors) that this newspaper can verify are:

Guangdong Dongfang Import and Export Co. Ltd of China. They supplied, among other things, aluminum PVC sheets; weatherproof sealing gel; re-enforcing square bars; toilets and accessories, and so on. Another is Malaysian Mosaic Berhad which supplied marble, granito and ceramic tiles among other things.

These are only two of the many companies Messrs Rwihunda and others were dealing with. Thomas & Piron GL Technical Director Ebenezer Odom told The Rwanda Focus they never were informed of any procurement procedures by which the Rwanda Social Security Fund people went about selecting these suppliers or subcontractors. And they (Thomas & Piron) were always careful to record their objections in writing in case anything defective was found in these materials.

The proper procedure when a client contracts a builder is to leave the work between that contractor and the supervising firm. These normally know best what materials to use, how, where or when. They stand liable should they produce shoddy work, which they do their best to avoid because shoddy work is a very negative mark on any firm aiming to build a good reputation.

RSSB staff justify their subcontracting, regardless of the contractor's objections, as something they did for two reasons, a) that for Fred Rwihunda and his team to get involved it was because they would ensure good quality control and, b) Social Security Fund of Rwanda buying these materials would mean the institution would be exempted from import duties on goods and equipment going into a public building.

Both these justifications are totally false.

First, instead of ensuring quality control, the team of Rwihunda actually bought very poor quality goods. They would buy lifts that, upon reaching Kigali, would be found to be defective, and had to be replaced. That would mean thousands and thousands of public dollars down the drain. A piece of equipment called a dumbwaiter - a sort of lift that is meant to carry bulky goods from the basement to lower floors, where shops or supermarkets may be found - that they bought from Malaysia could not fit in the space meant for it. More money wasted. The cleaning cradle - used by cleaning crews on the externalities of a building - immediately broke down. The aluminum handles on the doors are already breaking apart. And so on.

The total of money spent by SSFR staff on the Asian and other subcontractors comes to about Rwf 6.8 billion. Those costs, according to construction experts we have talked with, would have been much lower if they had let the builder do their work without interference.

The justification that importing material themselves exempted the former SSFR from import duties too does not stand scrutiny. All a big construction firm like Thomas & Piron has to do is import those materials, offering proof where they are destined, and they too would be exempt from import duties.

It may seem that RSSB boss Angelique Kantengwa inherited a complex situation that she still is wrapping her head around. She is cautious, and her caution may explain some of the delays in paying the contractor, but she expresses "my desire to deal with the issue expeditiously, going forward."

But even as she grapples with the problem, Thomas & Piron GL is reeling from serious financial pressures from a situation that is not their fault.

There is more to this story that we still are investigating, and we will bring forth more details soon.

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