NSW State Rail

Anyone living in NSW, Australia would probably be aware of the current catastrophe that is our rail "station upgrade". More than just an example of what can go wrong when the tender process does not have the right checks and balances in place, it also shows how important it is to have a full understanding of exactly 'who' is doing the work on projects.

It is alleged that at least two state rail project managers were able to become involved in the tendering process. Having prior knowledge of the budget allocation for each project, these two were able to submit their own bids which, not surprisingly, came in just under the budgeted limit. Naturally, their bids were subsequently accepted. The work was then subcontracted out for around 50-60% of the tendered amount - a profit margin in the order of 40-50%. Thirty projects and $1.7 million (in gross profit to the project managers) later and someone blew the whistle.

So where did the system break down? First, the actual budgeted amount for each project should have been a confidential figure. Knowing this figure was the critical plank in orchestrating the con, allowing the managers to almost guarantee winning each job. Somewhere there was an information leak that facilitated the whole thing to move forward.

Second, the project managers apparently set up "paper" companies to sign off on the deal. However, they apparently used false names as directors in order to hide their own involvment. A rudimentary check (such as a phone call) to the bidding companies would have revealed this instantly. Due diligence anyone?

Third, the bid process did not moniter winning bids in respect of 'patterns' - if bids continually come in at or on the budgeted amount this should automatically flagged. It is an instant notification that something is not right. Whether it is automated or actual eyeballs on the figures, someone needs to monitor this.

In the world of construction subcontracting is 'just part of doing business'. However the opportunities presented by bringing in a highly a specialised contractor skillset needs to be weighed against the pitfalls associated with the potential for an orchestrated con - something which is not a new concept to the industry.

However, the fact that such high profile organisations continue to be 'rorted' because of poor monitoring systems and lack of attention to detail shows just how constant vigilance needs to be. A key point to be made is that if a management system had been used that identified all stakeholders involved in each project, which also had performed the necessary due diligence checks, then this situation would have been entirely averted: you can never have too much of the right information about the contractors you use.

These systems do exist. Do we have the will to implement them? Can we afford not to?

Cheers
Steve Day