Saturday, 13 October 2018

DAP, Why the Inconsistency in Adoption of Project Delivery Partner (PDP) in Infrastructure Projects?

Summary: 
Before GE14: 
PDP in projects awarded by BNNOT OK 
PDP in projects awarded by DAPOK 

After GE14: 
PDP in projects awarded by BN: NOT OK. Changed to turnkey format 
PDP in project awarded by DAPOK. No need to change 

In his media statement dated 13 Feb 2012Tony Pua was critical on the PDP structure in MRT project.  

According to him, a 6% project fee is almost unheard of in a project of this scale. Based on an estimate that the KVMRT-SBK is expected to cost RM18 billion, the fees to the PDP alone will be RM1.08 billion. This fee will only be reduced if the PDP wins the tender for the underground tunnelling works - in which case the value of the tunnelling works will be excluded from the calculation of the fee.” 

He added, the structure of the agreement is such that the overall cost of the project is incentivised to be inflated.” 

Ironically, in 2015, the DAP-led Penang State Government appointed SRS Consortium to be the PDP for Penang Transport Master Plan.  

According to Dr Lim Mah Hui, “the selection of SRS as the project delivery partner (PDP) to implement the PTMP was not based on an open tender system, but through a Request-for-Proposal (RFP). 

In an open tender, a client that calls for a tender defines the project with detailed specifications. Parties that submit tenders must then conform to the specifications so that the cheapest tender can be selected. 

However, in an RFP, the tenderers submit different proposals to the client. No two proposals submitted under an RFP are similar, and therefore they cannot be compared. The procurement and negotiation processes thus become more prone to rigging or abuse. 

Wasn’t the adoption of PDP structure in PTMP inconsistent with Tony Pua/ DAP’s stand on PDP format?  

The confusion does not end here. 

After the change in the government on 9 May 2018, the new government are converting the PDP structure in MRT2 and LRT3 into turnkey contracts 

According to Tony Pua“[In PDP] contracts, they get 6% of the cost of the project. The incentive is for the project manager to inflate the cost of the project because it gets 6% of whatever the cost of the project is. So this structure needs to change.”

However, the PTMP by DAP-led Penang State Government will continue to adopt the PDP format in PTMP. (Source) 

DAP, why the inconsistency in adoption of Project Delivery Partner (PDP) in infrastructure projects?

Tuesday, 2 October 2018

Vizione - Total Order Book vs Outstanding Order Book

I am not impressed how Vizione reported its order book in the latest annual report and quarterly results announcement, which I deem it as being misleading.

In the BFM interview today, Dato' Ng Aun Hooi, the Managing Director of Vizione said its order book of RM3.9b is about 7 times of its market cap.

For construction companies, the OUTSTANDING order book is a more common and appropriate number used to gauge the earnings visibility of a construction company, and not the "total order book" used by Vizione in its reporting.

An outstanding order book excludes revenue that has been recognised, reflecting only remaining revenue to be recognised from existing jobs in hand, whereas the total order book used by Vizione includes revenue that has been recognised previously.


The RM3.9b shown in FY18 annual report was total order book, and not OUTSTANDING order book. You get RM3.9b by summing up all the contract values shown in the diagram above.

WHY DIDN'T THE COMPANY REVEAL ITS OUTSTANDING ORDER BOOK, which is more meaningful, in its quarterly earnings announcements and annual report? 

Note that majority of the order book comes from private commercial projects. Vizione's investors should find out:

1. What are these projects?
2. Are all of them under implementation currently? Did the company include projects under planning in its order book?
3. Is it prudent to include projects that are still under planning and the implementation timelines are still uncertain?

WHAT IS THE ACTUAL OUTSTANDING ORDER BOOK OF THE COMPANY?

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