Sixty-third General Assembly

Fifth Committee

3^rd Meeting (AM)

BUDGET COMMITTEE TAKES UP FINANCING FOR CONSTRUCTION PROJECTS

AT UNITED NATIONS FACILITIES IN NAIROBI, ADDIS ABABA, VIENNA

Several members of the Fifth Committee (Administrative and Budgetary) this morning expressed concern over inadequacies in current arrangements for planning and managing the development of new facilities and major maintenance, which had been identified by the Advisory Committee on Administrative and Budgetary Questions (ACABQ) in connection with construction and modernization projects at United Nations facilities in Nairobi and Addis Ababa.

Introducing the Advisory Committee’s report on the subject, its Chair, Susan McLurg, expressed concern that, in the six and a half years since initiation of the project to construct additional office facilities at the Economic Commission for Africa (ECA), in Addis Ababa, very little real progress had been made.  The issues of leadership, responsibility and accountability must be dealt with immediately, to ensure that the new building would be ready for occupancy by mid-2011.  Lessons should be learned and applied from the flaws in implementing the project.

Concerning the construction and modernization projects in Nairobi, she said that following the issuance of the Secretary-General’s request for an approval of some $5.38 million for the updating of existing conference facilities and $25.25 million for the construction of additional space, the Advisory Committee had been informed that a reduced-scope modernization project was being proposed, estimated at about $3.48 million.  That proposal seriously curtailed changes originally envisioned, but, recognizing the urgent need to implement the project, the ACABQ recommended approval of the reduced-scope proposal.  As to the construction of additional office facilities in Nairobi, the Committee was concerned about the significant lack of management oversight and other problems that had affected the project both at United Nations Office at Nairobi (UNON) and in New York.

The representative of Antigua and Barbuda, who spoke on behalf of the “Group of 77” developing countries and China, trusted that both projects would be completed within the envisaged time frame.  In that connection, he shared the concern raised by the ACABQ regarding the delays, lack of coordination and insufficient guidance from Headquarters, as well as poor management of the two projects.  He regretted there had been a lack of internal controls and accountability.  Owing to that situation, the Organization was potentially exposed to significant risk, and that was unacceptable.

At the same time, the representative of France, speaking on behalf of the European Union, welcomed the progress made towards the completion of the third construction project under review today -- the building of additional conference facilities at the Vienna International Centre.

During an exchange at the end of this discussion, the representative of South Africa objected to the characterization of the delaysas having valid reasons, an assertion that had been made by Joan W. McDonald, Director of the Facilities and Commercial Services Division of the Department of Management, noting that the reasons were not valid, but elementary mistakes.  He also wanted to know whether Ms. McDonald could guarantee that the projects would be completed by 2010 or 2011.  In response, Ms. McDonald said that, in construction projects, things changed over time.  Design always required revisions.  She could not guarantee dates for the projects’ completion “because construction projects are construction projects”.  She did agree with all members, however, that the projects were taking too long.

Also this morning, as the Committee concluded its discussion on the scale of assessments, the representative of Venezuela requested a review of the 22 per cent ceiling that had been introduced in 2000, which he characterized as a measure that had distorted the implementation of the principle of capacity to pay.  That element of the scale had been unilaterally imposed by a Member State that had the highest contribution in nominal terms (in real terms, it had the lowest contribution).  He noted that it had been adopted on a pretext that that Member State would honour its debt to the Organization.  However, the financial position of that Member State with the Organization had not improved since then.

The representative of the United States, while supporting the requests of the seven nations seeking exemption under Article 19 of the Charter, praised those States paying through multi-year payment plans and urged other States to follow their lead.  On the scale methodology, she said that it should continue to be determined as measured by share of the global economy, taking into account debt burden, ceilings, low per capita income adjustment and other factors.

Also participating in the debate today were the representatives of Kuwait, Ethiopia and Costa Rica.  The reports before the Committee were introduced by Ms. McDonald, who also responded to questions and comments from the floor.

The Fifth Committee will meet at 10 a.m., Wednesday, 8 October 2008, to take action on the draft resolution concerning the scale of assessments and to take up a review of efficiency and accountability.

Background

The Fifth Committee (Administrative and Budgetary) met this morning to continue its consideration of the scale of assessments for the United Nations budget (for background information, see Press Release GA/AB/3861 of 6 October) and take up the construction of United Nations facilities in Nairobi, Vienna and Addis Ababa.

The Secretary-General’s report on improving and modernizing the conference facilities and construction of additional facilities at the United Nations Office at Nairobi (UNON) (document A/62/794) seeks the Assembly’s approval of recent revised cost estimates, which are now anticipated to total some $5.38 million for the updating of existing conference facilities, and $25.25 million for the construction of additional space.  Based on the fund and interest balance in the construction-in-progress account as of 31 December 2007, a commitment authority of $987,000 is requested for upgrades to the conference facilities in Nairobi, to be detailed in the second performance report for the biennium 2008-2009.  Together with projected rental income in the amount of $798,200, from 2008 to 2012, the Assembly is being asked to approve the use of interest income generated by accumulated rental income in the construction-in-progress account for construction of the additional office facilities at the United Nations Office at Nairobi.

The Secretary-General’s report on construction of additional conference facilities at the Vienna International Centre and construction of additional office facilities at the Economic Commission for Africa (ECA) in Addis Ababa (document A/63/303) details progress on those two projects.

Construction of the new facility in Vienna, known as the M building, will be completed in the second half of 2008, the report states.  All meeting activities, including conference-servicing equipment, will be moved to the new building during the period of asbestos removal in the C building, scheduled for 2008.  As this move will take place during the busy conference season, some inconvenience for participants can be anticipated.  As one of the four resident organizations, the United Nations Office at Vienna will pay a contribution, based on cost-sharing ratios, for use of the facility amounting to €100,000.  The M building has many cost-saving features which will benefit all who pay for the use of the Centre, since the conference capacity will be taken as a combined whole.

Due to unforeseen delays, the construction of additional office facilities in Addis Ababa is now expected to be completed in November instead of January 2010.  An addendum to the host-country agreement for that project gives ECA rights to duty-free and tax-free import of services and materials.  The host country recently announced that customs duties and related value added taxes are to be paid up front and subsequently reimbursed.  The ECA is currently negotiating with the local authorities to waive this requirement.  Work has not yet begun on construction of an alternate public access road near the site.  If the current road is not relocated prior to the start of construction, ECA will have to build a temporary road at additional cost to the United Nations.

According to a related report of the Advisory Committee on Administrative and Budgetary Questions (ACABQ) (document A/63/465), from the reports on ECA and UNON, it is clear that the arrangements for planning, managing and monitoring of the construction of new facilities and major maintenance are neither adequate nor well implemented.  While the Overseas Properties Management and Information Exchange Network (OPMIEN) “may be a useful mechanism for coordination and exchange of expertise, it does not provide for the required leadership”.  There should be an Organization-wide perspective on the needs and priorities for such developments and for ensuring adequate support for duty stations involved in such work.  The Advisory Committee recommends that the Secretary-General ensure that, through the Assistant Secretary-General for Central Support Services, these responsibilities are discharged.

The ACABQ also believes that present procedures for approval of such projects do not provide for sufficient involvement of the Assembly.  The Secretary-General should be requested to review current procedures and make proposals to improve them.  An annual progress report should be a requirement for all ongoing projects.

The Advisory Committee is concerned that, six and a half years since the construction in Addis Ababa was initiated, very little progress has been made.  The project has not been well managed locally or adequately supported from Headquarters.  There have been numerous technical flaws in the design and repeated revisions to the construction documents, entailing delays and cost escalation.  Numerous factors and inadequacies that have hampered the project should be analysed to improve the management of similar undertakings throughout the Organization.  The Advisory Committee is disappointed by the lack of accountability in managing this project.

Pointing out that distribution of responsibilities between Headquarters and ECA is not clear, the Advisory Committee stresses the need to improve the entire process and to deal comprehensively with leadership, responsibility and accountability issues.  Management arrangements for the ECA project should be clarified and improved immediately, to ensure that the new ECA office building becomes available for occupancy by mid-2011, as planned.  The Secretary-General should be requested to address any unresolved issues that could further impact on the project, including the host-country addendum for duty-free and tax-free status and site works.

The ACABQ also recommends that efforts be made to utilize locally available expertise and reiterates its recommendation on the conclusion of the discussions on the access road so as not to further delay construction.  The cooperation of the host country will be critical for the completion of this project.  On the reimbursement of customs duties and related value added tax (VAT), the Advisory Committee urges all concerned parties to make every effort to address pending procedures.  Further discussions on this matter should be held at a high level, and the Secretary-General should be requested to ensure that they are concluded in a timely manner.

In connection with Nairobi, the Advisory Committee is concerned about significant management and other problems, both at UNON and in New York.  The delays have contributed to losses, both in terms of time and resources.  Strict internal control measures should be put in place and competent leadership should be assigned to the project.

According to the document, subsequent to the issuance of the Secretary-General’s report, in a letter dated 29 August, the Advisory Committee was informed that the time frame to undertake the modernization project was limited due to the need to use the facilities for scheduled conferences.  This left, according to the Secretariat, two alternatives:  to implement a reduced-scope modernization during the period from September to December 2008; or delay the project again until at least late 2009.

Recognizing the need for urgent measures, the Advisory Committee recommends approval of the reduced-scope modernization project estimated at about $3.48 million, but regrets that it will provide a lesser degree of improvements of the facilities than originally envisaged.

In view of the importance of the project, the Advisory Committee also recommends approval of the revised total estimated cost of $25.25 million for the construction of additional office facilities in Nairobi, as well as the use of interest income of $798,200 as at 31 December 2007.  As the bidding process scheduled for October 2008 may affect requirements, however, the Advisory Committee recommends that updated estimates be submitted to the Assembly at the time of its consideration of the issue.  Progress reports on the construction project at UNON should be submitted annually.  Updated estimates to be submitted on the security arrangements should demonstrate a close link between security requirements and the construction schedule.

On Vienna, the Advisory Committee welcomes progress made and the support of the host country to the project.  It recommends that the Assembly take note of the Secretary-General’s report on the matter.

Statements on Scale of Assessments

ZIYAD MONAYAIR ( Kuwait) said that the item before the Committee was one of the most important ones, in view of its impact on the financing of the Organization.  He supported the position of the “Group of 77” developing countries.  The vital role played by the United Nations required guaranteed financial flows commensurate with the mandates and activities.  The principle of capacity to pay remained essential in determining the shares of Member States.  The elements of the methodology used in determining that capacity should continue to be developed, so that the shares of Member States were determined in a just, transparent and flexible manner, particularly in view of recent changes in the world.  Any changes in the shares of developing countries to replace a reduction of shares developed countries were unacceptable.

Continuing, he commended the multi-year payment plans, which demonstrated the Member States’ will to fulfil their obligations to the United Nations.  He also supported the recommendations regarding granting exemption from sanctions to seven countries under Article 19 of the Charter.

The political will of Member States to make payments in full, on time and without conditions was one of the main priorities for the Organization, he said.  His country fulfilled its commitments in full and on time.  He hoped that the Committee on Contributions would continue developing the current methodology and not recommend excessive increases for the shares of developing countries, which would make them unable to fulfil their obligations.  The Committee on Contributions had ample time to analyse the elements of methodology and apply all relevant resolutions in that regard.  Member States should assist the Committee on Contributions by laying down the guidelines needed for its work.

ALOYAN KANAFANI ( Venezuela) fully endorsed the position of the Group of 77 and China and said that the scale of assessments was a question of great importance to his delegation.  While there were positions that were difficult to reconcile, it was important to find a methodology that would be in line with the spirit of the United Nations Charter and relevant rules.  Accordingly, he stressed the need for elements of the scale methodology to be based on the principle of capacity to pay.

The current methodology had a number of elements that had been included over the years, he continued.  The backbone of that methodology was the gross national income of countries.  There were also elements that sought to correct the differences in level of development, which were the result of an economic model that did not pay attention to just distribution of world income.  Those included the debt burden and low per capita income adjustments, which were particularly important for developing countries.  One element, however, distorted the implementation of the principle of capacity to pay.  Unilaterally imposed by a Member State that had the highest contribution in nominal terms (in real terms, it had the lowest contribution), the 22 per cent ceiling had been adopted on a pretext that that Member State would honour its debt to the Organization.  However, the financial position of that Member State with the Organization had not improved since then.  Thus, it was not acceptable that all Member States subsidize the highest nominal contributor.  Now was the time to revise that element of the methodology.

The report of the Committee on Contributions referred to a number of proposals raised in the debate this summer, he continued.  His delegation was open-minded on ideas to improve the current methodology.  The Committee must concentrate on that goal and not be diverted by the elements that had been previously discussed.

On the request for exemption under Article 19, he supported the recommendations regarding those countries that were unable to pay due to circumstances beyond their control.

Ms. PHAM ( United States ) supported the requests of the seven nations seeking exemption under Article 19 of the Charter and expressed appreciation to those States paying through multi-year payment plans.  She also urged other States to undertake such measures to meet their obligations.  Further, on the scale methodology, she said that it should continue to be determined as measured by share of the global economy, taking into account debt burden, ceilings, low per capita income adjustment and other mitigating factors.

BERNARDO GREIVER, Chairman of the Committee on Contributions, in a concluding statement, said that it was very important for the Committee on Contributions to have heard delegations’ comments and questions.  Those concerns would be shared with all members of the Committee.  Questions raised would be addressed in Committee meetings, noting that many of them had been discussed and that there were documents available on those issues.  He looked forward to answering questions and addressing concerns in informal meetings.

Introduction of Documents

JOAN W. MCDONALD, Director of the Facilities and Commercial Services Division, introduced the report of the Secretary General on construction of additional conference facilities at the Vienna International Centre and construction of additional office facilities at ECA in Addis Ababa (document A/63/303), and on improving and modernizing the conference facilities and construction of additional office facilities at the United Nations Office at Nairobi (document A/62/794).

Since 2000, the Facilities Management Service at United Nations Headquarters had been directed to provide overall advice and guidance to all aspects of facilities management, including overseas construction projects, she said.  In view of the difficulties encountered in the current projects, the Secretary-General would review the lessons learned and the overall leadership and management of the overseas construction and maintenance projects and present proposals for the proposed programme budget for 2010-2011 to ensure clear lines of responsibility and accountability.

Regarding project governance, she noted that the Facilities Management Service at Headquarters, the Programme Planning and Budget Division and the Procurement Division, together with ECA, developed an agreement, approved 11 March 2008 by the Controller, entitled “UNECA New Office Facilities Administration and Coordination Arrangements for the Construction Phase”, which details the responsibilities of United Nations Headquarters and ECA and includes the hire of an independent Quantity Surveyor service, reporting directly to Headquarters to monitor the construction progress and review invoices and change orders.  That document provided a clear understanding of the distribution of responsibilities between Headquarters and ECA, and would contain costs.

Concerning construction of additional office facilities at the United Nations Office in Nairobi, delays were due to the termination of the original architectural firm, which failed to deliver final design documents, despite having been given multiple opportunities to do so.

Further, in 2001, the requirement for additional space was 11,045 square metres, but a new survey in 2007 identified additional space requirements of 17,413 square metres.  A new three-storey office building comprising 16,500 square metres of usable office space was proposed, with the difference of 913 square metres being met through further rationalization of overall office space.  As that report was not available for consideration earlier, the revised timeline would have bidding completed and a contract awarded by the end of 2008 and construction begun in January 2009, to be completed at the end of 2010.

SUSAN MCLURG, Chairman of the Advisory Committee on Administrative and Budgetary Questions (ACABQ), introduced a related report, A/63/465.  Noting concerns regarding management of the construction projects at the Economic Commission for Africa (ECA) and the United Nations Office in Nairobi, she nonetheless recommended that work continue on those projects.

GREGORY CAZALET (France), speaking on behalf of the European Union, expressed appreciation to the host Governments, Austria, Ethiopia and Kenya, for their continued support and cooperation with the Secretary-General.  The European Union reiterated its gratitude to the Government of Austria for taking upon itself the major part of the financial burden related to the construction project in Vienna, as well as for assuming responsibility and costs of asbestos removal, which would help to improve the working conditions in the Vienna International Centre.  The Union welcomed the progress made towards the completion of the construction of additional conference facilities, as well as the asbestos removal project in Vienna.

He added that the Union shared the concerns raised by the Advisory Committee in its report and would welcome every proposal on improving the oversight and governance of United Nations construction projects.

CONROD HUNTE (Antigua and Barbuda), speaking on behalf of the Group of 77 and China, said that the resources requested by the Secretary-General and approved by the Assembly for the ECA facilities were essential in addressing the additional requirements relating to safety and security, positioning of the elevators and electrical work, design change and cost escalation.  The Group would like to emphasize the need for strict adherence to the project budget and timeline of 2010 for the completion of the project.  He trusted that ECA would be able to accomplish the essential construction work on time and within the approved resource levels of $14.3 million.

He further noted that, in recent times, the construction at ECA had faced such challenges as the status of the contract with the architect, duty-free and tax-free status and the building of an alternate access road.  Those issues needed to be resolved as a matter of urgency.  The Group trusted that both projects would be completed within the envisaged time frame.  In that connection, he shared the concern raised by the ACABQ regarding the delays, lack of coordination and insufficient guidance from Headquarters, as well as poor management of the two projects.  He regretted there had been a lack of internal controls and accountability.  Owing to that situation, the Organization was potentially exposed to significant risk.  That was unacceptable.

He also noted the progress report on the construction of additional conference facilities at the Vienna International Centre.  The Group acknowledged the invaluable contributions made by the Governments of Austria, Ethiopia and Kenya as the host countries.

ELIAS MELAKU FELEKE ( Ethiopia) associated his delegation with the statements made by the Group of 77 and China and the African Group.  He addressed the reports of the Secretary-General (document A/63/303) and the recommendations of the ACABQ.  He agreed that the difficulties on the construction project started from initial delays in hiring the architect, to repeated need for reviews and revisions and needed to be addressed.  He concurred with the ACABQ recommendation that efforts should be made to use locally available expertise and that the Secretariat should expedite the hiring of a part-time local surveyor to monitor progress of the construction.

Regarding timely construction of an alternate public access road by the Addis Ababa municipality, he reported that measures had been undertaken by the Government of Ethiopia to speed the process since the Committee had had its last discussions on the issue.  Addressing the issue of duty-free and tax-free status in the host country, he noted that Government Directive No. 24/2008 simply instituted a reimbursement mechanism, which ECA could make use of once customs declarations and clearances had been duly processed.  He suggested that concerned authorities of the host Government and the Office of Legal Assistance meet prior to discussions at the highest level, as recommended by the ACABQ.

Responding to the questions raised, Ms. MCDONALD said she had briefly addressed the issues of management and oversight in her introductory statement.  A change in how the Headquarters managed and oversaw overseas construction had been made in 2000.  Prior to that, a whole unit used to be responsible for overseas construction projects, but in 2000 that had changed to having one Professional and support staff member.  At the time, there were no large projects.  From some of the lessons learned in last several years, there were valid reasons for the delays, but it was important to see how things could be done better.  She also referred to the differences in the administration of ECA and UNON projects, with Headquarters responsible for the funding of ECA.

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“It looks like doom and gloom when reading the reports”, she said, but there were reasons for the changes.  Different things had happened in various projects.  She also recalled that she had provided some information regarding the value added tax and access road issues, and the representative of Ethiopia had given a short update.  She would address detailed questions in informals.

MANUELA URENA ( Costa Rica) asked several questions on the implementation and cost estimates for safety and security standards in construction projects under way, in particular concerning access to the facilities.

JOSIEL MOTUMISI TAWANA ( South Africa) found Ms. McDonald’s assertion, that there had been valid reasons for the delays, troubling.  He said that the reasons were not valid, but that elementary mistakes had been made.  The ACABQ had come up with good recommendations.  Saying the reasons were valid made it seem as if those recommendations might not be necessary.  He wanted to know if guarantees could be provided that the projects would be completed by 2010 or 2011.

In responding, Ms. MCDONALD said that safety and security standards and guidelines for access had been taken into consideration during planning.  Her use of the phrase “valid reasons for delays” was possibly just a poor use of English.  She noted that in construction projects things changed over time.  When design was involved, revisions were also always involved.  Regarding the use of local expertise, she said that, at the time of the bidding, there was no one able to do the initial design.  She agreed that oversight and review must be considered further and endorsed ACABQ’s recommendations to put in clear lines or accountability.

On guarantees of timely completion, she could not say categorically that all projects would be finished on time because “construction projects are construction projects”.  She did agree, however, with all members that the projects were taking too long.

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For information media • not an official record