Sixty-seventh General Assembly

Fifth Committee

5^th Meeting (AM)

Continuing Work of Substantive Session, Budget Committee Hears Status Report

on Construction Projects at United Nations Facilities in Ethiopia, Kenya

 

Despite “significant risks” posed by its contractor’s performance, the United Nations project team in Ethiopia had succeeded in containing construction costs for new office space at the Addis Ababa-based Economic Commission for Africa (ECA) and was expected to complete the project within budget, a senior management official told the Fifth Committee (Administrative and Budgetary) this morning as it considered the status of both that venture and a similar project at the United Nations Headquarters in Nairobi.

“Continued management focus is required in the final months of the planned schedule in order to keep the [ Addis Ababa] project on track,” said Warren Sachs, Assistant Secretary-General for Central Support Services of the Department of Management, as he introduced the Secretary-General’s reports on the two ventures.

In the past several months, the contractor’s inability to procure and deliver imported materials according to the project schedule, due in part to liquidity problems, had posed significant challenges, Mr. Sachs said of the work under way in Addis Ababa.  Moreover, last year, project team members had to carry out a second major value engineering exercise to recover contingency funds for future potential risks after the architect’s errors in contract documents had exhausted their contingency reserves.

Mr. Sachs said his Office was committed to ensuring the contractor completed the project as close to the 31 December 2012 target date as possible.  A bank guarantee method set up to pay global suppliers directly upon shipment of materials was working adequately, but could not fully compensate for the time lost.  He also noted significant progress in renovating and repairing roofing and outdated electrical infrastructure of Africa Hall — a modern conference facility and “modern monument to African history” within the ECA’s offices.  That project’s complete scope would be presented to Member States at the Assembly’s next session.

As for the completion on time and within budget of additional offices and improvements to conference facilities at the world body’s Nairobi Headquarters, he said that successful project was the result of excellent collaboration and the collective effort of the project team, the architect and contractor, he said.  The efficiently planned and executed building was an international example of best practices in sustainable design and construction.

Collen V. Kelapile, Chairman of the Advisory Committee on Administrative and Budgetary Questions (ACABQ), introduced the Advisory Committee’s report, which expressed that body’s views and recommendations on the Secretary-General’s reports on the construction projects.  Regarding the Addis Ababa project, the Advisory Committee was concerned about the contractor’s liquidity problems, which could indicate weaknesses in the vetting and selection process of potential vendors.

This, he continued, called for proactive project management and continued value engineering to maximize savings and effectively use resources for the project’s duration.  It also asked the Secretary-General to share the lessons learned from the United Nations Office at Nairobi construction project to ensure accurate assessments of budgetary needs for ongoing and future ventures.

Weighing in on the reports, delegates hailed the successful completion of the Nairobi offices on time and within budget, as well as the value engineering exercise that had slashed the cost of the ECA project by $522,100.

Algeria’s representative, speaking on behalf of the Group of 77 developing countries and China, noted the completion date for construction of the ECA facility had been repeatedly pushed back and commended the Secretary-General and host authorities for responding promptly to prevent additional postponements.  A three-month fit-out period meant the building would be occupied in April 2013.  He also urged the Secretary-General to move quickly on the renovation of Africa Hall.

Ethiopia’s representative assured the Committee of his Government’s continued cooperation with ECA to ensure all issues related to the timely and predictable delivery of needed construction materials, including cement, were addressed.  Ethiopia continued to provide ECA with value added tax-free status for the local purchase of goods and services.

The Committee will meet again at 10 a.m. on Thursday, 11 October, to discuss matters related to improving the financial situation of the United Nations.

Background

The Fifth Committee (Administrative and Budgetary) met this morning to consider overseas property management and construction as it related to the office of the Economic Commission for Africa (ECA) in Addis Ababa and the United Nations Office at Nairobi.

The Committee had before it the Secretary-General’s report on progress in the construction of additional office facilities at the Economic Commission for Africa in Addis Ababa (document A/67/216) which gives an update on the current status of construction and the use of consultants, as well as an overview in progress in carrying out urgently needed repair and renovation work of Africa Hall, which is located in the ECA facilities.  An annex to the report gives a detailed breakdown of the overall project’s cost, which remains at $15.33 million.  Project expenditures as of 31 December 2011 were $9.74 million.  Total 2012 expenditures are estimated at $5.59 million.  According to the report, which the Assembly is asked to take note of, the building is set to be reoccupied in April 2013.

The Secretary-General’s report on progress in the construction of additional office facilities at the United Nations Office at Nairobi (document A/67/217) gives the outcomes of a post-completion review of the construction which aimed to assess the project’s implementation, including a comparison between actual and forecast costs and benefits, an analysis of planned versus actual space utilization of the facilities, a review of the assumptions formulated at the project’s outset and the adaptations made over the implementation period, as well as an assessment of the procedures used to ensure the project’s successful completion.  The post-completion review is intended to give the Organization useful lessons and input as it plans to expand office facilities at other duty stations in the context of current construction and renovation projects.

The report also responds to the request by the Advisory Committee on Administrative and Budgetary Questions (ACABQ) that the Secretary-General state the reasons that prevented some United Nations offices in Nairobi from relocating to the United Nations Gigiri compound as envisaged.  The construction concluded by the 31 December 2010 completion date.  The final cost of the entire project is estimated at $23.96 million, which is $1.29 million less than the approved budget of $25.25 million.  Annex I to the report gives the detailed breakdown of the final cost plan; Annex II provides the space analysis of planned versus actual use of the Nairobi complex.

In the report on construction of additional office facilities at the Economic Commission for Africa in Addis Ababa and at the United Nations Office at Nairobi (document A/67/484), ACABQ weighs in on the above-mentioned constructions projects.  The Advisory Committee asks the Assembly to take note of the Secretary-General’s reports on the projects, taking into account the Advisory Committee’s own views and recommendations.

Regarding the Addis Ababa project, the Advisory Committee is concerned about the contractor’s liquidity problems, which put the overall project at risk and could be a result of weaknesses in vetting and selecting potential vendors, which should be corrected in future.  It welcomes the Ethiopian Government’s support and encourages ECA to continue coordinating with that host country to mitigate logistical challenges to the project’s timely completion.  Stressing that value engineering could maximize savings and the cost-effective use of resources, it encourages the Secretary-General to continue to rigorously strive to contain costs and ensure the project is completed within the approved budget and scope.  Compensatory reductions identified elsewhere through efficiency measures should be used to fund cost overruns to the extent possible.  Implementation of “hot-desking”, which allows staff to carry out tasks at any workstation, merited serious consideration.

Concerning the Nairobi project, the Advisory Committee asks that in future progress reports on major construction projects, the Secretary-General present the total net expenditure of budgeted contingency provisions, making a clear distinction between contingencies and actual savings.  His move to attribute the increase in the construction cost requirements and the architect’s fees to “currency fluctuations” does not indicate the magnitude of that increase due to inflation, and fails to describe the full impact of the savings attributable to the depreciation of the shilling prior to signing the construction contract.  Therefore, the report could have benefited from greater transparency in justifying the increased requirements.

The Advisory Committee adds that the Secretary-General should share lessons learned from the project to ensure that ongoing and future projects are based on an accurate assessment of requirements.  He should also obtain firm commitments from all United Nations system offices operating in the same location before breaking ground on major construction or renovation projects for common premises.

Introduction of Reports

As the Committee began its work today, WARREN SACHS, Assistant Secretary-General for Central Support Services, Department of Management, introduced the Secretary-General’s reports on construction of the additional office facilities at ECA in Addis Ababa (document A/67/216) and at the United Nations Office at Nairobi (document A/67/217).

He said the construction phase of the Nairobi project was completed on schedule and under budget in December 2010.  While savings might have been greater due to the devaluation of the Kenyan shilling during the bidding phase, they were offset by a sharp rise of between 25 per cent and 30 per cent in construction inflation rates.  The total project savings, as well as rental income above and beyond the project costs, would be returned to income Section 2 of the regular budget, “General Income”.

In practical terms, he continued, the project was the result of excellent collaboration and the collective effort of the project team, the architect and contractor.  The three-story building, harmoniously incorporated into the existing complex in Nairobi, was a practical example of how the Organization’s programmatic objectives could be embodied in daily operations.  The building was efficiently planned and executed and was an international example of best practices in the field of sustainable design and construction, he added.

As for work in Addis Ababa, he said that that project was expected to be completed within the total allocated budgetary resources.  Following the initial value engineering efforts made before the contract was awarded in 2010, the project contingency resources were largely depleted last year after the architect made errors in the contract documents.  The project team carried out a second major value engineering exercise aimed at recovering enough contingency to cover future potential risks.  It yielded positive results, but the project was remained exposed to several risks.

He said that change orders were foreseen considering the project’s scale and duration, which were accommodated using the budget contingency fund.  Cost containment was the main goal.  The greatest risk to the project in the past several months was the contractor’s inability to procure and deliver imported materials according to the project schedule.  Despite the best efforts and cooperation of the project management team and all project constituents, tangible progress in the field had lagged.

He said his Office was committed to ensuring that the contractor made good on his commitment to complete the project as close to schedule as possible.  Contract performance issues had caused an additional four-month delay; liquidity issues facing the contractor could cause the schedule to slip further behind.  To avoid significant delays, a bank guarantee method had been set up to pay global suppliers directly upon shipment of materials.  That mechanism was working adequately, but could not fully compensate for the time lost.

His Office had requested legal advice regarding the Organization’s rights and remedies per the contract terms, while keeping options open so as not to compromise its negotiating position or to adversely affect the project’s overall successful completion.  During the past reporting cycle, the design of ancillary projects, such as landscaping, parking, information and communications technology, back up generators and other site work, which had been budgeted for but were not part of the original new office facility design, had been completed.  In an effort to contain costs, the United Nations would award only those contracts that were part of the base scope of the project, and necessary for occupancy of the building, he sad.

In terms of administrative arrangements and project management, the ECA project team continued to work collaboratively with all project constituents, particularly the Ethiopian Ministry of Foreign Affairs, on issues of construction material importation, value-added tax-free status, and the provision of site utilities and access roads.  The Independent Technical Advisor continued to give advice to the Director of Administration on verification of the project scope and costs.  He said that the ECA Safety and Security Section continued to give ongoing support for the project, especially related to installation of closed circuit television cameras and access control devices.  His Office continued providing the necessary technical guidance, advice and support for the project, including weekly conference calls, monthly videoconferences, and three missions to Addis Ababa during the reporting cycle.

Continuing, he noted significant progress in carrying out much-needed repairs to the roofing and outdated electrical infrastructure of Africa Hall.  More work was needed to restore that facility to its original state as a modern, functioning conference hall, and a significant monument to modern African history.  Critical waterproofing on the roof terrace was completed in July.  Critical electrical works were scheduled for completion next year.  A complete work up of the required repairs and renovations was being developed and would be presented to Member States at the Assembly’s sixty-eighth session.

Despite some positive progress, the project was still exposed to significant risks related to the contractor’s performance.  “Notwithstanding the risks posed by the contractor’s performance, thanks to the diligence of the project team, costs have been contained and the project is expected to be completed on budget,” he said, adding that “continued management focus is required in the final months of the planned schedule in order to keep the project on track.”

Following that presentation, COLLEN V. KELAPILE, Chairman of ACABQ, introduced the Advisory Committee’s report (document A/67/484) that gives its views and conclusions on the Secretary-General’s reports Progress in the construction of additional office facilities at the Economic Commission for Africa in Addis Ababa (document A/67/216) and the United Nations Office at Nairobi (A/67/217).

Regarding the Addis Ababa project, he said the Advisory Committee was concerned about the contractor’s liquidity problems, which created a risk for the project and could indicate weaknesses in the vetting and selection process of potential vendors.  The Advisory Committee emphasized that all issues should be addressed through proactive project management and it expected the Commission would carefully monitor progress towards the project’s completion.

He said that the Advisory Committee noted the value engineering project, undertaken to address concerns expressed by the Assembly in resolution 66/247 and to partially offset an estimated expenditure of $734,000 from the contingency provision.  The Committee stressed that value engineering should be continually pursued as a best practice to maximize savings and effectively use resources.  It had also recommended that the Assembly ask the Secretary-General to implement the use of flexible office space for ongoing and future construction projects, he added.

Turning to the Nairobi project, he said that the Advisory Committee noted that 11 United Nations entities that had not originally expressed interest had, in fact, moved into the new office facility, in place of 8 United Nations entities that decided against the move.  While noting that full occupancy had been achieved, the Committee urged the Secretary-General to obtain firm commitments from all United Nations system offices operating in the same location, before breaking ground on major construction or renovation projects for common premises, he said.

The Advisory Committee asked the Secretary-General to share the lessons learned from the United Nations Office at Nairobi construction project to ensure accurate assessments of budgetary needs for ongoing and future projects, he concluded.

Statements

Speaking on behalf of the “Group of 77” and China, MOURAD BENMEHIDI (Algeria), said the Group believed the proper management of the Organization’s property portfolio and its construction projects was very important.  It supported the creation of proper mechanisms and management structures to oversee the effective implementation of Organization construction projects.

Noting the repeated postponement of the completion date for construction of the new office facilities at ECA in Addis Ababa, the Group commended the Secretary-General and host authorities for responding promptly and preventing additional postponements.  Initially slated for the end of February 2012, construction was now scheduled to end 31 December 2012.  A three-month fit-out period meant the building would be occupied in April 2013, he said.

He said that his delegation also commended the Secretariat, Commission and project management team for the value engineering exercise that reduced costs by $522,100, primarily by making the electromechanical systems more efficient, he said.  The Group also urged the Secretary-General to move quickly on the renovation of Africa Hall.

Turning to the project in Nairobi, he said the project’s early completion and savings of $1.29 million below the approved budget of $25.25 million was commendable.  He noted that Headquarters had begun playing a greater role in the coordination and support of overseas property management and construction projects only after the Assembly’s intervention in 2008.  Another result of those efforts was that 69 per cent of the Nairobi project’s approved contingency fund of $1.87 million would remain unused once the final payments were made.  The Group commended the host authorities, the contractors and United Nations staff who had worked together to deliver the project well within schedule and budget.

The Group also noted that the new office facility was occupied at capacity and 102 per cent of the space required and projected at the project’s inception was being used.  He said that occupancy rate had been achieved even though some United Nations entities had decided against their earlier decisions to move into the building.  He commended the Secretariat and the Nairobi office management.  The Group hoped the Organization would use the lessons learned during this project in future construction projects.

NEGASH KIBRET ( Ethiopia) aligned his statement with that made on behalf of the “Group of 77”, and noted the significant progress made in the construction of additional office facilities for ECA since the last report.  As noted in paragraph 6 of the Secretary-General’s report (A/66/351), an important milestone had been reached with the substantial completion of the building superstructure.  That was celebrated in a topping-out ceremony on 9 February 2012, he added.

Ethiopia’s commitment to the Commission was shown with the provision of Africa Hall in 1958.  He said the voucher system for value added tax-free status for the local purchase of goods and services continued to be implemented.  The Ethiopian Government worked closely with ECA to ensure all issues related to the timely and predictable delivery of needed construction materials, including cement, were addressed.  He assured the Committee that Ethiopia’s cooperation would continue.  He commended the project management team for its value engineering exercise, which had reduced costs by some $522,100.

He went on to commend ECA, in collaboration with the United Nations Educational, Scientific and Cultural Organization (UNESCO) and the African Union, for launching the renovation of Africa Hall to make it a “monument to modern African history”.  Ethiopia would like to see the historic hall made into a modern conference facility that incorporated exhibition and museum spaces, and preserved the building’s historical and cultural values, he said.

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For information media • not an official record