KUALA LUMPUR (Oct 8): MMC-Gamuda KVMRT (T) Sdn Bhd, a 50-50 joint venture (JV) between MMC Corp Bhd and Gamuda Bhd, had offered a 24% cost reduction for the unfinished underground work of the Mass Rapid Transit Line 2 (MRT2) project.

“As progress achieved is now 40%, the balance of the uncompleted underground works is now valued at RM9.6 billion. MMC-Gamuda has offered a reduction of RM2.3 billion, which represents 24% of this value," it said in a four-page statement today.

MMC-Gamuda said the contract price for the underground works awarded to it was RM15.47 billion, which is lower than the RM16.71 billion figure given by Finance Minister Lim Guan Eng yesterday.

“The reduction is achieved through reducing the scope of works and lowering specifications for mechanical, electrical and architectural finishes of the stations.

"It was also achieved by reducing the number of entrances to stations and the number of active stations constructed. From a total number of 10 stations, four will currently be shelved,” it said.

However, Guan Eng announced yesterday that the Cabinet had decided to terminate the underground work contract of the MRT2 with MMC Gamuda after the two parties failed to reach an agreement relating to the construction cost.

theedgemarkets.com learnt that the government was seeking to have the construction cost for the underground works reduced by RM5 billion.

In today's statement, MMC-Gamuda said MoF’s belief that the JV company could offer more reduction for the underground works is premised upon the review by a local engineering consulting firm appointed by the Ministry.

“A significant part of the review findings was refuted by MMC-Gamuda on technical grounds as being too simplistic and arising from a lack of relevant experience. Ironically, Mass Rapid Transit Corp Sdn Bhd (MRT Corp), which has a huge staff of experienced technical experts, also issued their own report of the aforesaid consulting firm’s proposals on Aug 27, which carried similar views as MMC-Gamuda.

“Notwithstanding MMC-Gamuda’s disagreement, in order to bridge the gap MMC-Gamuda had on Aug 8, Aug 21 and Sept 24 urged the MoF to appoint an international engineering consulting firm with the relevant experience to carry out an objective review looking into all reasonable engineering and technical requirements,” the company said.

And though MoF has made known that the offered reduction of RM2.3 billion is still not adequate, to date it has not been conveyed to MMC-Gamuda an acceptable target figure that the Ministry has in mind, it added.

“If the target figure is made known together with the components of the savings as individual items, both parties would be placed in a better position to re-examine these components from where savings could be derived and narrow the differences.

“The appointment of an international engineering consulting firm as proposed by MMC-Gamuda would greatly facilitate this exercise,” the company said.

MMC-Gamuda said that it remains open to further discussion with the MoF in reaching an agreeable reduction.

“Our perception of the latest cost gap is that it is an amount which is not unbridgeable. MMC-Gamuda believes that the MoF’s aim of achieving savings is best done by both parties reaching an acceptable compromise instead of terminating the contract and re-tendering the remainder of the underground works,” it said.

The JV company went on to explain that there are two main factors that have a major influence on the price of underground works, namely employer’s requirements and safety requirements.

“In comparison with MRT Line 1 (MRT1), the employer’s requirements have increased the scope of works significantly, for example, larger floor space, a fivefold increase in the underground entrance and pedestrian walkways.

“As MRT2 geology is complex, the average depth of the diaphragm walls in MRT2 is 51m compared with MRT1 at 39m," it added.

During the initial tender process, MMC-Gamuda said it had submitted an alternative proposal with savings by reducing the prescriptive requirements without compromising the safety, performance and functionality of the operational railway.

"However, MRT Corp elected not to accept the alternative offered by MMC-Gamuda. The reductions currently on offer to the Ministry of Finance (MoF) include some of these alternatives, but only those applicable to the balance of the underground works,” it added.

MMC-Gamuda said MRT Corp had awarded the underground works to the JV company in 2016 following an international competitive tender that, due to the challenging ground conditions, had stringent pre-qualification requirements with only five contractors pre-qualified by MRT Corp to tender, of which MMC-Gamuda was the only local contractor.

MMC-Gamuda added that its bid had scored the highest technical score and offered the lowest price. “MMC-Gamuda’s price was lower than the pre-tender estimate prepared by reference design consultant Arup Singapore Pte Ltd."

As for the current progress of the underground works, MMC-Gamuda said this has been going on well and the company had not received any complaints from MRT Corp regarding the execution of the underground works.

“To date, all 19 sites are active with 40% of the works completed. Two of the tunnel-boring machines are already mining with the balance being assembled and ready to mine from next month onwards,” it said.

On consequences of the termination, MMC-Gamuda warned that it would result in immediate job losses to a workforce of over 20,000 personnel involved in the underground works from a supply chain of over 600 Malaysian companies.

"Of the 20,000, over 3,000 are made up of MMC-Gamuda JV staff, and of this, more than 60% are bumiputera. This will cause unnecessary hardship to a significant number of Malaysian work force in an already slowing market.

"In addition, the termination will unjustifiably expose MMC-Gamuda to a flood of lawsuits for compensation from terminated employees, sub-contractors, suppliers, manufacturers, et cetera whose contracts will similarly be terminated due to no fault of theirs," it added.

On the Government's move to retender all the unfinished underground work of the project through an international open tender process, MMC-Gamuda said unless MoF significantly lowers the requirements, only foreign contractors will be eligible.

"The award will invariably be given to a foreign contractor who in turn will use experienced staff from their own countries,” the company said.

Both MMC and Gamuda said so far, they have not received any notice from MRT Corp or the Government pertaining to the termination of the MRT2 underground contract.