There was high level collusion between CICO, Eutaw in Katosi road project - IGG

Sunday November 9 2014

MPs drive past a man carrying water on a motorcycle on the Mukono-Katosi road recently

MPs drive past a man carrying water on a motorcycle on the Mukono-Katosi road recently. Photos by GEOFFREY SSERUYANGE 

By Irene Mulyagonja

Investigation on alleged mismanagement in procurement and award of contract for construction of Mukono-Kyetume-Katosi-Nyenga road and fraudulent payment of Shs24,7 billion to Eutaw Construction Company Inc.

This refers to the ongoing investigation above by the Inspectorate of Government (IGG), the meeting held on September 4, at State House Nakasero, chaired by President Museveni and attended by the chairperson of the Uganda National Roads Authority (UNRA) board, the Secretary to the Treasury, the executive director Public Procurement and Disposal of Public Assets Authority (PPDA), the Deputy Attorney General and the undersigned and my letter to the chairperson of the UNRA board dated October 20.

At the meeting held on September 4, the minister of Works and Transport, Mr John Byabagambi, expressed the view that M/s Chongquing International Construction Corporation (CICO) be retained to complete the works since they had already mobilised, and according to the minister, were doing a good job. However, the President expressed the view that wrong doers should not be rewarded for their wrong doing.

Subsequently, the Deputy Attorney General issued an opinion in which he stated thus: “At this point, we cannot rule out the fact that CICO knowingly acquiesced in the illegalities by Eutaw. It should therefore not benefit from the alleged collusion in getting the subcontract. CICO is on the site illegally. It has no clean hands and it is therefore not prudent to retain them on site.”

Fresh procurement process
“As a way forward, our opinion is that UNRA should initiate a fresh procurement process under emergency situations provided under the law with a view of procuring another contractor to undertake the uncompleted scope of works.”

By letter dated October 15, the chairperson UNRA board of directors (BOD) requested the Inspectorate of Government to lift the order dated July 17 so that UNRA can implement the guidance given by the Attorney General on achieving conclusion of the works.

By letter dated October 20, I lifted the order without making mention of whether CICO should be considered in the new procurement or not. This is now to clarify the position of the IGG on the possibility of CICO being considered in the new procurement or being granted a substantive contract.

In the course of the ongoing investigation, Inspectorate officers interviewed employees of CICO and established that Eutaw and CICO set up a business relationship well before the signing of the contract for works on the Katosi road project.

The relationship which the Eutaw representative in Uganda, Apolo Senkeeto Kalyesubula, initiated commenced with a casual invitation to CICO to execute works on Mukono-Katosi road on Eutaw’s behalf.

The relationship, however, later grew into a partnership and ultimately what looked like a total takeover of not only the Katosi road project, but also Eutaw’s enterprise in Uganda.

There is also no doubt that over a period of nine months, the two companies developed a very intimate relationship from which one can safely deduce that they both knew what was going on even before UNRA paid Shs24.7 billion to Eutaw. In fact, CICO participated in the disbursement of part of the monies to Eutaw in its account in Florida.
The facts gathered so far from which this inference is drawn are as follows:

1. Sometime in November 2013, Apolo Senkeeto Kalyesubula, representative of Eutaw in Uganda, approached Niu Hong, then the country director of CICO in Uganda and asked him whether CICO would be interested in executing work on the Mukono-Katosi road.

2. According to Niu Hong, he first came to Uganda 20 years ago as a site inspector in Chinese company – China Sietco. Sietco was also involved in the construction of roads in Uganda. He was later employed as assistant manager of CICO from 1995 to 1999. In 1999, he was appointed the country manager of CICO.

3. Hong welcomed the idea of working on Katosi road since CICO’s work on Fort Portal-Bundibugyo road was about to be completed. Hong also knew about the works because though CICO bid for the project they were unsuccessful.

4. After sometime, Hong called up Senkeeto to follow up the matter and they met at the offices of CICO at Plot 85 Jinja Road. At the meeting, Senkeeto produced an award letter from UNRA. With the letter of award in hand, Hong believed Senkeeto was serious about offering them the job. He therefore discussed his company profile with him to show that CICO was capable of carrying out the works. He also gave him a document with the company profile for Senkeeto to discuss with his bosses.

5. At a later date in November, Senkeeto invited Hong to meet his bosses from Eutaw. They met at the Kampala Serena Hotel and Senkeeto introduced an American called Tim (McCoy) to Hong. The latter did his best to convince Tim that CICO had the capacity to do the job. At the end of the meeting, Hong was asked to wait until Eutaw finalises the contracting.

6. On November 15, 2013, UNRA signed a contract with Eutaw for the upgrading of Mukono-Katosi/Kisoga-Nyenga road from gravel to paved (bitumen) standard.
7. After about one day from the previous meeting, Senkeeto again asked Hong to meet him at Serena Hotel. At the meeting, they discussed details of a sub-contract. Eutaw also needed to know how long it would take CICO to mobilise for the works upon which he assured them that they could start immediately. They also needed to establish whether CICO would need an advance payment to which Hong answered in the positive.

Introduced to an American
8. After sometime, around the January 6, 2014, Senkeeto again met with Hong at the Serena Hotel. At that meeting, he introduced him to an American called Mike (Michael Olvey) whom he said was the company secretary Eutaw. During the meeting, Mike asked Hong to mobilise equipment on site. Although Hong was willing to do so, he required some money to be paid to CICO. However, he did not know whether Eutaw had been paid any money by UNRA or not. All the same, he insisted that CICO be paid half of the advance payment from UNRA when received.

9. Niu Hong also insisted that Eutaw should add him to their account as a signatory. This was to ensure that the money when received would be transferred to the CICO account. He undertook to have his rights as signatory withdrawn as soon as part of the advance payment from UNRA was transferred to the CICO account.

10. Subsequently, the three – Senkeeto, Olvey and Hong met at Housing Finance Bank (HFB) in Kololo to complete the arrangement to open the account/add Hong as a signatory. Apollo Senkeeto made the contact and asked Hong to go to the bank with his passport, a photograph and a copy of his work permit.

11. Documents retrieved from Housing Finance Bank showed that on December 23, 2013, an account was opened in Housing Finance Bank in the names of Eutaw Construction Co. International. The signatories to the account were named as: Michael Olvey, Niu Hong and Apollo Senkeeto

12. According to Hong, he ensured that all the three of them would have to sign cheques together till he got the advance payment.

13. The registered physical address of Eutaw Construction was stated in the bank account opening documents to be Plot 85 Jinja Road Kampala. This was confirmed from the Registry of Companies where Company Form A22 filed in the Eutaw file also stated that the physical address of the company in Uganda is Plot 85 Jinja Road. It was also stated by Hong that the physical address of CICO, where he first met Senkeeto, was Plot 85 Jinja Road.

14. According to Hong, sometime after opening the account, Senkeeto called him to go to the bank to transfer half of the advance payment to the CICO account. He went to the bank and the transaction was effected. Statements retrieved from HFB showed that on January 28, Shs24.7 billion was transferred to the Eutaw account in HFB.

15. On the February 3, Shs12 billion was debited from that account as payment for construction equipment and documents retrieved from Standard Chartered Bank in Kampala in relation to the CICO account showed that it was paid to CICO.

16. On the same day, Shs4.6 billion was debited on account of “mobilisation of road” and transferred to PNC National Bank, Vero Beach Florida, for the benefit of someone at 622 Beachland Boulevard, Vero Beach, Florida. This was also the address of Eutaw stated in the contract. The two transactions were effected by Michael Olvey, Apolo Senkeeto and Niu Hong.

17. On the same day, February 3, a resolution of Eutaw was signed by Senkeeto, Hong and Michael stating that Apolo Senkeeto was to remain the sole signatory to the HFB account of Eutaw Construction. Hong and Michael would be removed as signatories. The resolution was filed with the Registrar of Companies on the February 4.

18. According to Hong, immediately after payment he began to mobilise at the site. There was no written sub-contract signed yet. CICO began work around March.

19. It was also established that by letter dated February 25, Richard Pratt, director in Eutaw, wrote to the project director Arab Consulting Engineers, Mostafa Elsibai, to introduce Niu Hong as the “registered country representative” of Eutaw in Uganda.

20. It was also established that Eutaw Construction Co. Inc was registered in Uganda on December 18, 2013, under Instrument F.2477. According to Company Form A21, the persons resident in Uganda authorised to receive service are Niu Hong of Plot 85 Jinja Road, Kampala and Apolo Senkeeto of P. O. Box 363 Kampala Uganda.

21. It was also established that on February 3, the day on which the monies were paid to CICO, Eutaw issued powers of attorney to Niu Hong to act as its representative in Uganda and, among others, to:

a. Present the company and the branches towards authorities, public and private bodies, public and private administrators, companies, firms, individuals, in relation to the performance of the duties;

b. To negotiate and finalise with public or private administrations and corporate bodies, companies, physical or juridical persons … contracts, supply agreements and provisions of service agreements in general;

c. To present the company and the branches vis-à-vis employers and/or work supervisors, to approve and enter into contract agreements and transaction in connection with the works awarded;

d. To sign work progress reports and other documents which may be requested by the employers and/or work supervisors in relation to periodical progress of the works;

Paid its part of the loot
22. In effect therefore, Eutaw had been paid its part of the loot, having taken care of the alleged subcontractor’s needs to enable them to commence work. Eutaw had also “legally” satisfied the condition in clause 4.2 of the General Conditions of Contract.

The contractor had appointed the contractor’s representative and given him all the necessary authority to act on the contractor’s behalf in the contract. The Eutaw representatives from America could now conveniently fade out of the picture giving the impression that all was well and work would continue.

23. However, on March 17, Niu Hong retired from CICO. He handed over to Wang Yibo. He asked Wang Yibo to ensure that a sub-contract is quickly signed and that he mobilises more equipment for the works. There was no evidence to show that Hong ceased to be the official representative of Eutaw in Uganda.

24. According to Wang Yibo, Hong handed over to him between March 17 and June 10. When he was handing over, he introduced Apolo Senkeeto to him. The works on Mukono-Katosi road were already in progress.

25. By then all the equipment and human resource on site belonged to CICO, except the project manager, Mr Grant of British origin, and Michael, an overseer said to be from Eutaw. There was still no written sub-contract but Niu Hong had assured Yibo that Shs12.2 billion had been paid to enable CICO to mobilise.

26. Inquiries carried out in Uganda Revenue Authority confirmed that by September 2014, all the equipment on site belonged to CICO. Tax information received by the Inspectorate about CICO showed that Hong was registered for tax purposes as a director in CICO and Eutaw.

Employed on several projects

Works minister John Byabagambi

Works minister John Byabagambi. He on September 4 said CICO be retained because they were doing a good job

27. It was established that CICO had been employed on several projects by UNRA: viz. Strengthening of Olwiyo to Pakwach road; Strengthening of Fort Portal to Hima road; Upgrading of Matugga-Semuto-Kapeka road to paved (Bitumen) standard and upgrading of Fort Portal-Bundibugyo-Lamia road to paved (Bitumen) standard.

28. CICO managers, especially Niu Hong who had been in the road sector in Uganda for about 20 years, were no doubt familiar with the General Conditions of Contract in such projects and the essential requirements for sub-contracting (i.e. the requirement of assessment of the sub-contractor by the consultant and permission of the employer to sub-contract, and the prohibition from subcontracting the whole of the works). Hong therefore knew that what he did with Eutaw on this project was totally illegal and fraudulent.

29. In spite of that, after the handover of CICO to Wang Yibo by Hong, Yibo went ahead to enter into a written contract with Eutaw. Negotiations were held between Yibo and Senkeeto and it was agreed that the price for the sub-contract would be Shs155 billion.

30. On July 15, Eutaw and CICO purported to sign a sub-contract for civil works for upgrading of Mukono-Kyetume-Katosi/Kisoga-Nyenga road (74 km) from gravel to paved (bituminous) standard. This illegal contract was signed by Wang Yibo for CICO and Timothy L. McCoy for Eutaw.

31. By the alleged sub-contract, Eutaw contracted the whole of the works to CICO without notice and the authority of the employer contrary to Clause 4.4 of the General Conditions of the Contract. This actually amounts to an assignment of the contract but it was also done contrary to the provisions of Clause 1.7 of the same conditions.

IGG’s Recommendations

In conclusion, there is no doubt at all in my mind that there was a high level of collusion between CICO and Eutaw in the transactions that led to Eutaw defrauding the government of Uganda of a substantial amount of money for the Mukono-Katosi road construction project.

It is emphasised that at the meeting chaired by the President at State House Nakasero on October 4 on this matter, His Excellency expressed the view that government should not reward wrong doers. It is also my view that if government grants a substantive contract for the project to CICO it would be validating the illegal/fraudulent acts that they knowingly perpetrated to support Eutaw in executing the fraud, and which they (CICO) clearly benefited from.

Wrong message
A decision to retain CICO in spite of the glaring facts above would send the wrong message. It would appear as though we are endorsing corrupt practices in procurement. It would validate the perceptions of the citizens of Uganda, and our partners in development, that government is not doing enough to punish offenders for the grand corruption that has been reported within its institutions.

In addition, the illegal presence of CICO on site has given it an undue advantage over other contractors that have the capacity to implement this project. Any procurement process that CICO is involved in shall be contrary to the principles of transparency, fairness and competition stated in sections 45 and 46 of the PPDA Act.

A direct or any procurement of CICO is certainly out of the question because of the deceitful manner in which they procured their alleged sub-contract and accessed the site.

It has also been established from your organisation that the works so far carried out by CICO are stable and will not be affected during the procurement which will be carried out in a short time since it will be an emergency procurement. Loss to government on account of deterioration of works has been ruled out.

Finally, in view of the deceitful/fraudulent manner in which CICO came to be on site, CICO does not have good grounds for bringing an action against government for any losses incurred from refusal to recognise the illegal subcontract.

We are also reliably informed that UNRA has not in any way validated their stay on site, save for efforts to enter into a sub-contract, which the Inspectorate of Government thwarted before some members of the UNRA management team was interdicted. The possibility of loss due to a suit for recovery of damages is therefore also ruled out.

I therefore affirm the recommendation in my letter to the chairperson of the UNRA BOD dated October 20 that a new procurement process should begin for completion of the works on Mukono-Kyetume-Katosi/Kisoga-Nyenga road, strictly following the appropriate provisions of the PPDA Act and Regulations.

Article 230 (2) of the Constitution of the Republic of Uganda and Section 14 (6) of the Inspectorate of Government Act provide for some of the special powers of the Inspector General of Government as follows:

“The Inspector-General may, during the course of his or her duties or as a consequence of his or her findings, make such orders and give such directions as are necessary and appropriate in the circumstances.”

Order
This is therefore to order and direct the accounting officer UNRA and the UNRA Procurement and Disposal Unit NOT to entertain any bid by CICO for the works for upgrading Mukono-Kyetume-Katosi/Kisoga-Nyenga road in the recommended new procurement.

It is also hereby ordered that no payments should be made to either CICO or Eutaw in respect of the works until further orders from this office or until conclusion of the Inspectorate of Government investigation.

The writer is the Inspector General of Government.

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