Part I: Summary

The Commission of Audit (CA) conducted a special audit on planning and other preparatory works of the Light Rapid Transit System (hereafter abbreviated as LRT) carried out by the Transportation Infrastructure Office (GIT according to the Portuguese short form). The special audit, which has been conducted concurrently to the development of the project, focused on the “financial management” and on the “quality and cost control” performed by GIT, since its establishment. With the concurrent approach, CA expected to make possible for GIT to timely introduce measures improving its performance and increasing the efficiency of its works, based on the suggestions presented by CA, namely in the planning the application of public resources according to the principles of effectiveness and economy, with the ultimate objective of building and concluding the LRT in best conditions.

1.1 Audit findings

1.1.1 Financial management

1.1.1.1 Total investment of the project

The investment of 7.5 thousand million patacas for the first phase of the LRT announced by GIT only covers the “rolling stock and systems” and the “civil engineering works of the main body”. Works belonging to the first phase already awarded and totaled circa 260 million patacas have been excluded from the total above referred.

Without an amount for the whole project, GIT has no reference for controlling the costs of the works and to keep them within an overall budget. At the same time, the lack of this overall amount also impedes the Government to make forecasts on the needed financial resources and the respective financial arrangements.

GIT didn’t conserve the details relating to the five factors, and the respective amounts variations, which caused the initial estimate of 4.2 thousand million patacas to increase to 7.5 thousand million patacas. The fact shows that GIT doesn’t give much attention to keeping budgetary information crucial to financial management, with serious consequences to an efficient control of the LRT’s budget adjustments and also harming the transparency of its financial planning and control.

1.1.1.2 Preparing the yearly budget

Information relating to works managed by GIT from 2008 to first semester of 2011 under the Administration Investment and Development Plan (PIDDA according to the Portuguese short form) show that almost 90% of them had no money at all in their budget by the time when they were awarded. To solve the situation, GIT triggered 35 funds transfers. On the other hand, along that same period of almost three years, GIT requested a total of 1.179 thousand million patacas for the projects “urban mass transit system — works” and “urban mass transit system — equipment”. However, during that same period, only in 2008 that 2.05 million patacas had been invested, which means from a total budget of 1.179 thousand million patacas, only 0.17% was executed. GIT hasn’t been able to implement measures boosting the execution of PIDDA’s budget or carrying out effective monitoring, which caused large quantities of funds or resources sitting idle, without any application. Also, GIT hasn’t been able to compile a reasonable and prospective budget for PIDDA or keeping the execution of the budget within an acceptable deviation.

1.1.1.3 Spending must comply with law and regulations

With the procurements covered by PIDDA, GIT used to initiate the process of funds allocation after awarding the works, which is against the provisions of the “public finance administration regime”.

Another process adopted by GIT, whereby authorization for both the contract award and fund transfer is requested in the same proposal, amounts to a contract award without funds and that is against the law. CA is of the opinion that using only one proposal for requesting authorization for contract award and fund transfer should only be permitted in urgent situations and when no other alternative is available. The public departments should not in no way allowed to turn this exceptional process into a regular administrative procedure for funds transfers.

1.1.1.4 Applying exemption clauses of the Decree-Law no. 122/84/M

GIT made use of the exemption clauses the law provides to exempt around 90% of the works belonging to LRT’s first phase from the procedure of price asking, by writing; GIT simply negotiated directly with one supplier and awarded him the contract, ignoring whether there are more suppliers suitable for the service. This method excludes the participation of more bidders and, at the same time, throws away the possibility in obtaining the best project, the shortest period of work and the best price.

1.1.2 Costs and quality control

1.1.2.1 Monitoring the outsourced services

Examination of the approval procedure, to which all technical documents prepared by Consortium A are subjected, revealed that very often GIT has been forced to return the documents to be revised and updated. GIT carried out technical examination on the documents, identified technical faults and offered opinions for improvement; basing on these, the Consortium A introduced the corrections. In practice, what GIT has been doing is equivalent to a transfer of the responsibility for controlling the quality of the technical documents over to itself, and in the process it’s forced to invest a lot of administrative resources. On the other hand, only after Consortium A had delivered the documents for the “rolling stock and systems” tender that GIT proposed contracting a second consultancy company to review them. What happened shows that GIT didn’t clearly know about its own technical expertise and capability, therefore it could not act in anticipation to possible technical problems and to implement contingency measures in advance.

On the other hand, GIT had no precise control on how many technical documents the Consortium A had been submitting and didn’t know about the situation of these documents in the examination or approval procedures. Considering the importance of these documents, CA is of the opinion that GIT lacks a document management system, and because of this the monitoring of the Consortium A performance is impaired. In fact, as the LTR project develops, more and more technical documents will be produced, and no management based on human memory would be able to cope with the increase; besides, this kind of management is prone to errors and omissions.

1.1.2.2 Performance appraisal

GIT didn’t set up a mechanism whereby the overall performance of Consortium A is regularly assessed; either does it have a set of performance indicators to assess the consortium’s work. The fact poses difficulties to the competent entity in monitoring the global performance of Consortium A. The absence of a mechanism and norms for a regular assessment has also hampered the detection and typification of the problems, and the respective causes. Consequently, the identification of adequate therapies to the problems has also been hampered.

1.1.2.3 Evaluating the bids

The first evaluation report on the bids for the “project management and technical assistance” was returned by the competent entity with order to repeat the evaluation, because the evaluation commission had not examined all the questions raised by the claimant in his request of review or verified whether the bid had matters conflicting with the tender programme.

1.1.2.4 Open tenders should be launched according to law

The procedure adopted by GIT whereby the draft of the contract is sent to the selected bidder after the award decision is contrary to the relevant legal provisions. From the point of view of fairness, GIT should not follow that procedure, which is against the law, just because the local bidders usually don’t present any objection. Furthermore, the law provides no exceptional circumstances under which GIT could have had exempted itself from the compliance.

1.1.2.5 Provisions for contingent situations

Without a budget for the whole project or an upper limit on the overall expenditure, the Government cannot guarantee all the funds needed for the completion of the LRT project. GIT should promote the inclusion in the PIDDA’s yearly budget a provision based on the total budget for the whole project in order to meet any urgent situations and by this way dropping the recourse to funds allocated to other planned works.

1.1.2.6 Preparing management plans and written instructions

The 13 management plans required for building the LRT are being prepared for more than a year, but still are in the drafting phase. The situation reveals that GIT is not duly discharging its supervisory duty, since it has been unable to provide for the formulation of plans that meet the required quality and, consequently, unable to provide for an overall management of the project which is according to sound criteria.

GIT has no contingency plans to meet any critical situations, such as a possible cessation of the Consortium A as provider of the management service or an overall delay of the project.

GIT has no written instructions on costs control, which makes difficult the transmission of clear information on the objectives pursued and the standardization of works and procedures. On the other hand, to convey objectives and procedures using only words of mouth would lead to errors and omissions. Therefore, GIT must implement written instructions to eliminate the shortcomings of the oral transmission.

1.2 Audit suggestions

1.2.1 All resources, present and future, necessary to the building of LRT should be reasonably and completely estimated and the competent entity should be informed thereof, so it could, together with other relevant factors, make a complete and thorough assessment of the project.

1.2.2 The estimated total expenditure for the project should be taken as the upper limit of the overall budget, and the control over the budget execution should be strengthened. GIT should periodically assess the budget execution by taking into account the expenses already incurred and revising the estimates of future works in order to avoid any overspending. All expenses should be based on real needs and follow the principles of economy.

1.2.3 Updated information on the overall budget execution should be regularly released to the public to safeguard transparency and monitoring.

1.2.4 The annual works programme should be reasonable, proactive and take into account all possible contingencies.

1.2.5 Any budgetary estimation should base on enough, true and factual information and should be calculated scientifically and adequately.

1.2.6 GIT should examine the reasons of the frequent funds transfers and introduce rectifying measures; implement effective measures monitoring budget execution in order to assure that works could proceed as planned.

1.2.7 GIT should comply strictly with laws and regulations applicable to public finance management, perform spending according to law and ensure that internal instructions are followed effectively and consistently.

1.2.8 GIT should follow rigorously the administrative procedure applicable to funds transfers and ensure that any expenditure authorization is made only after the needed fund has been allocated.

1.2.9 GIT should comply rigorously with the legal provisions on contract awarding, adopt the most adequate methodology to select the best supplier and register clearly the analysis and arguments which lead to the decision on the award, in order to ensure rigour and fairness with budget execution.

1.2.10 GIT should strengthen the monitoring over the Consortium A and make clear the responsibilities of both parts, namely:

• Consortium A should deliver the technical documents with the expected quality and within the set deadlines;

• It’s the duty of Consortium A to assure the quality control, eliminate and rectify errors and omissions as well as address to shortcomings.

1.2.11 GIT should as fast as possible set up a mechanism to assess the Consortium A’s performance on a periodic basis and, with its participation, lay down a set of assessment criteria as well as measures to monitor assessment and improvement of the consortium’s performance. At the same time, all notifications, suggestions for improvement, warnings and penalties applied should be registered in detail.

1.2.12 GIT should improve the management of the documents in order to gain a precise picture and control over the documents received, their distribution by types, the results of their examination and the dates of their presentation, with the purpose of better monitoring and controlling the Consortium A’s performance.

1.2.13 GIT should rigorously comply with the legal provisions on launching open tenders and assure equal treatment towards all bidders.

1.2.14 Clearer instructions should be laid down in order to clarify that the evaluation commission should look at matters from a broader horizon when assessing the bids. These instructions should not in any way reduce the autonomy of the commission.

1.2.15 GIT should promote the establishment of a provision in each year’s PIDDA to secure needed funds for any unforeseen expense.

1.2.16 GIT should make sure that necessary actions and measures are taken to conclude the management plans and to finish drafting the needed instructions so that all entities involved in the LRT could have rules to follow when discharging their duties.

1.2.17 Contingency plans should be prepared in advance for assuring the completion in time of the first phase of the LRT. Considering the technical limitations of its personnel, GIT should do everything to assure that they would be able to pick up all the works and perform according to the procedures.