Part I Summary
The Commission of Audit (CA) conducted a special audit on the cost estimation for Macau University’s new campus on Hengqin Island (hereinafter referred to as new campus) presented by the Infrastructure Development Office (hereinafter referred to as GDI, according to its Portuguese initials) with the objective to verify whether it was prepared in such a way that it could adequately and appropriately control the expenditure of the project.
1.1 Audit results
1.1.1 Cost estimate and its evolution
To determine the acquisition cost of the architectural design of the project of Macau University’s new campus, GDI presented in April 2010 a proposal according to which all the building works that would be included in the design totalled 5.800 million patacas. The same proposal eventually became the only official document referring to the new campus costs.
In order to control the expenditure with the construction of the new campus, the Government of Macau signed in November 2011 the Additional Agreement of Cooperation with the People’s Government of Guangdong, in which both sides agreed to cap the budget at 9.800 million patacas.
However, in March 2012, the total investment in the new campus already exceeded 10.200 million patacas, albeit including the expenses with consultancy service, laying of infrastructures, supervision and quality control.
1.1.2 Totality of the expenditure
The estimate of 5.800 million patacas presented by GDI only included building works. Fifty seven works associated with the construction, totalling 1.200 million patacas, were not accounted.
From the fifty-seven associated works three have been later integrated into the capped budget, meaning that 54 remained as independent works, totalling more than 400 million.
1.1.3 Campus cost estimate
Although the project was localized on the mainland and the payments would be made in renminbi, GDI did not apply the costs and other indicators valid on the mainland; on the contrary, standards and prices of Macau were used. GDI justified the option by the fact that the premises, once concluded, would be reverted to Macau and administered under Macau law. Because of this understanding of GDI, the unit prices of the various types of buildings projected for the campus were calculated with reference to standards and prices of the public housing and to the building of the Court of Final Appeal of Macau.
1.1.4 Underwater tunnel cost estimate
GDI knew since August 2009 that Shizimen Channel would function as a backup naviga-tional channel for ships up to three thousand tonnes. Nevertheless, GDI considered necessary to seek more information from the relevant departments of the mainland on how it would be effectively implemented so that it could assess the compatibility of the tunnel design and construction methods; and, if there were incompatibilities, GDI would initiate contacts with the competent authorities on the mainland in order to adjust the implementation of the backup navigational channel. Consequently, when GDI proceeded to draft its cost estimate, in April 2010, it simply multiplied the unit cost by the distance between the two margins, and ignored factors that could significantly influence the costs such as the navigational channel. As a result, the estimate was put at 500 million patacas.
1.1.5 Reviewing and updating the cost estimate
By basing the estimation on the acquisition of the architectural design, GDI did not add in works not included in the design, applied lower construction standards and disregarded inflation and fluctuations of the exchange rates. As a result, the amount presented by the estimation was lower than the market price.
Considering the schedule for the construction very tight, GDI immediately began with the detailed drawings as soon as the initial estimate has been concluded, without any revision to make it more consistent with the real circumstances; and, for the same reason, that amount remained as indicator for cost control.
On the other hand, as the execution of the project advanced, GDI was getting more and more accurate information that showed the disparity between the estimated costs and the amounts of the awarded contracts, on exchange rates and on inflation as well as on the accuracy of the estimate, preliminary budget and final budget. In other words, GDI could have revised the estimate completely, but it did not, even possessing enough information for that effect.
1.1.6 Audit suggestions
The International Federation of Consulting Engineers (FIDIC) advocates the estimate of a building project should include all the works necessary for its complete conclusion. To this purpose, all quantitative data should be collected and analysed so the estimate could be as close as possible to the reality. Furthermore, as soon as the undetermined factors become clear, the estimate should immediately be reviewed and updated. The audit found that the estimation for the new campus presented the deficiencies elaborated in the next paragraphs.
(1) The estimation did not include all the works necessary for the conclusion of the project
The 5.800 million patacas estimated by GDI for the new campus project did not include fifty-seven related works which were essential for the execution of the building works. Later on, three of these fifty-seven associated works were integrated into the capped budget, which amounted to 9.800 million patacas. In relation to the total investment for the whole project, over 10.200 million patacas, the initial estimate was underevaluated at 4.400 million patacas, while the capped budget was 400 million patacas short. The deviations show the estimate was incomplete.
(2) Costs factors applied to the initial estimation and subsequent reviews
(i) Scientific evaluation
The unit price references used by GDI to estimate the funds needed to build the new campus were unsuitable by two reasons. On the one hand, the functions of the buildings selected as reference did not match with the functions of those projected for the campus. On the other hand, the prices applied were not from the region where the new campus is located and the calculation did not follow the methodology of dynamic investment. In other words, GDI did not evaluate scientifically the references used to perform the estimation, and consequently the results could not reflect the real market conditions.
(ii) Revising and updating the estimate
GDI prepared the estimate mainly for acquiring the architectural design. However, the audit findings showed that after the acquisition of the design, GDI kept on using that inaccurate estimate as reference for cost control. Even in possession of more accurate information and being aware that the estimate could no longer be used as a control reference, GDI did not proceed to update it, to bring it closer to the market prices.
Considering the expounded in the above paragraphs and following the point of view of project management and decision making methodology, an uncomplete estimate impedes the competent entity to take the most adequate decision based on the knowledge of all financial implications. GDI presented an estimate that could not be used as expenditure control, that difficulted the judging on the reasonableness of the costs alterations and one that caused the mismatch between the forecasted and effective expenditure. Under the perspective of global public resources management, the financial adjustments resulting from a deficient estimate also jeopardizes an effective allocation of Macau’s public resources.
1.1.7 Audit suggestions
(1) When drafting an estimate for a project, all expenses should be considered, including not only those necessary for the building works but also such expenses as for supervision, quality control and acquisition of equipment. In other words, the estimate should take into account the complete execution of the whole project. In the process, all works and respective expenses should be listed in order that the competent entity could have full knowledge of the involved financial resources and, consequently, take the most adequate decision.
(2) For the execution of the project, all data should be collected and all factors relevant to the characteristics and standards of the project should be analysed. The cost estimation should be conducted in accordance with the dynamic investment methodology and the resulting estimate should play the role of expenditure control.
(3) Throughout the successive phases of the execution, the costs should be timely reviewed, updated and detailed in order to ensure the accuracy of the budget and its effectiveness in costs control.
