This article first appeared in The Edge Malaysia Weekly on October 15, 2018 - October 21, 2018

THE government’s decision to retender the contract for underground works at the Klang Valley Mass Rapid Transit Line 2 (Sungai Buloh-Serdang-Putrajaya) (MRT2) came as a big surprise to many, especially the investing community and concerned citizens.

Some observers expressed concern that the way the government terminated the contract could cause foreign and domestic contractors to be wary of entering into any agreement with the government. Malaysia’s reputation as a business-friendly country could be at risk, they claim.

However, supporters of the government’s decision say the termination will send a strong signal to the corporate world that it will do whatever it takes to get the best value for money for the rakyat.

This is probably the first time a sitting government has taken the drastic step of annulling an agreed-upon contract in order to bring down a project’s total cost. It is also surprising that the contractor, whose business depends on government contracts, has fought back.

The termination announcement by Finance Minister Lim Guan Eng on Oct 7 divided people’s opinion and the response to it on social media put the Pakatan Harapan government in a bad light.

After the momentous 14th general election, which saw Pakatan Harapan take over from the long-ruling Barisan Nasional on May 9, the new government pledged to make good on its promise to review all big-ticket spending undertaken by the previous government.

It set up a council of advisers, called the Council of Eminent Persons, to convene and review the operations of federal government agencies, as well as big-ticket contracts undertaken by the previous government.

Of course, being the largest infrastructure investment in Malaysia to date, the Klang Valley Mass Rapid Transit (KVMRT) was one of the projects that the CEP, as the council is called, was keen to review.

It is an open secret in Malaysia that big-ticket investments are fertile grounds for corruption, wastage and leakage. Volumes of Auditor-General’s reports have noted the weaknesses of procurement processes and cost control when it comes to infrastructure projects.

In any case, on June 22, the CEP decided that the third line of the project, the Circle Line, would be put on hold indefinitely. Mass Rapid Transit Corp Sdn Bhd (MRT Corp), the project owner, would also be required to revise the entire contract for MRT2 to reduce the estimated cost of RM35 billion.

This includes the review of the biggest contract, the underground tunnelling contract worth RM15.5 billion, awarded to MMC Gamuda KVMRT (T) Sdn Bhd — a joint venture between MMC Corp Bhd and Gamuda Bhd.

Several meetings were held between MMC Gamuda and the Ministry of Finance to discuss the reduction of the costs. Apparently, a decision could not be made as both sides could not reach an agreement on the required price reduction.

On Oct 7, Lim announced that the underground contract awarded to MMC Gamuda had been terminated, and would be retendered through an open international tender. This announcement sparked a war of words between the contractor and the ministry.

The media campaign undertaken by MMC Gamuda played on the emotions of the people. It said in an Oct 8 statement that the termination would result in an immediate loss of 20,000 jobs.

Not long after, MMC Gamuda staff vented their frustration and expressed their anxiety on social media over the likelihood of losing their jobs. Of the 20,000 personnel involved in the underground works, 3,000 are employed directly by MMC Gamuda, the company says.

And of this number, 60% are bumiputera, it adds.

In the statement, MMC Gamuda listed the reasons why it could not further reduce the cost of the contract beyond the RM2.3 billion reduction it had offered the government on Sept 7.

MMC Gamuda also refuted a significant part of the findings of an independent engineering consultancy appointed by the government, which states that the cost of the underground project could be reduced further.

A petition through Change.org has been launched by concerned netizens, who urge the government not to terminate the contract and to save the 20,000 jobs at risk. Hashtag #savemrt2 has also been used whenever a netizen posts his or her support for the project.

As the social media campaign intensified, Tony Pua, the political secretary to the finance minister and member of parliament for Damansara, penned an open letter to MMC Gamuda in which he chided the company for playing on the emotions of the people.

Pua says the engineering consultancy appointed by the government had found that MRT Corp should expect total savings of between RM4.19 billion and RM5.79 billion for the estimated 60% of works yet to be completed.

Since MMC Gamuda has refuted a large part of the findings, Pua questions why the company refuses to share costing data with the independent consulting engineer to justify its costs and claims that these are trade secrets.

“Was it because the government-appointed independent consulting engineer exposed the frequently expounded lie that the cost of MRT1 and MRT2 is well below the average cost of construction of various Asian metros because no one was actually able to substantiate the data provided?

“Should we instead question why MMC Gamuda had initially agreed to, but subsequently refused to share costing data with the independent consulting engineer to justify its cost, claiming ‘trade secrets’?” Pua writes.

After the war of words, Prime Minister Tun Dr Mahathir Mohamad said last Wednesday that the Cabinet would review the decision to cancel the contract.

On the one hand, the government has to honour contracts and agreements entered into by its predecessor, albeit from a different coalition. On the other hand, a responsible government must ensure that public funds are well spent and leakage is eliminated. Every single sen has to be accounted for and justified, and unnecessary spending should not be allowed.

For the private sector, while companies have a duty to answer to their shareholders, they should also be good corporate citizens and be mindful that public funds belong to the rakyat and should be spent wisely.

So, how will this stalemate between MMC Gamuda and the government be broken? For starters, the JV should cooperate with the government and reveal its costing data and margins from the underground contract. Meanwhile, the government must take into account all relevant factors before deciding to terminate and retender the contract.

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