The mess at CUC

Editor’s Note: The following letter is being published as a series due to its length.

Fourth of a five-part series

At the same time, CUC had received other proposals on hand since August 8, 2007, notably one from JET Consulting (Juan Santiago, the former chairman of CDA, with whom I have some significant difference in opinions and personalities). JET, in conjunction with some world-class professionals including consulting experts to ABB (the world largest power distribution company) and SMEC (a top 100 internal engineering consulting firm), forewarned CUC that detailed testing and inspections of the engines and determination of parts are critical for successful scheduling and completion of the rehabilitation of Power Plant I. I was provided a copy of their submission for review. Juan Santiago’s team was concerned that CUC was rushing into a critical job without sufficient planning.

It also appeared that JET’s team knew that there was a critical need for the cooling systems to be repaired first so that any rehabilitated engine would not be subsequently damaged by the debilitated cooling system, and that parts needed have not been identified and would take time to procure. JET offered to manage the rehabilitation process, and in my mind, their proposal would have worked and CUC would not be in such a mess today.

CUC executed a contract with DCM despite having documentation that would question (1) DCM’s claims that they have available parts when the original manufacturer, Mitsubishi, has submitted in writing that they won’t be available for 200 days, (2) the significant difference in Mitsubishi’s recommendations versus that of DCM (3) the need for the cooling system to be in working order as a priority as detailed by JET (4) and the questionable listing of parts required as itemized by DCM where the parts costs are similar for the engines with the same capacity (5) and DCM’s lack of qualifications and experience versus other offerors (5) and the clearly dissimilar approach offered by JET and Mitsubishi.

The contract with DCM is very specific. In the contract, DCM claimed that they have readily available all necessary personnel, resources, tools and parts necessary to execute the contract as described in this excerpt of Section 1 of the Agreement:

1. Scope of Services. The Commonwealth Utilities Corporation requires the expeditious completion of the following scope of work which the contractor understands and represents that it has readily available, the necessary expertise, training, knowledge, parts, materials and equipment, manpower, and capacity to performance for the fee stated. See “Exhibit A”.

The contract required DCM to furnish parts (OEM) and specialized services to complete Engines No 7, 2, 3, 4, 6 and 5 in 90 days, in Phase (A). Also in the contract with DCM, the penalties for non-performance, are as follows:

* For each engine: Units 1 – 4—$91.03 per kW of capacity not achieved

Where the agreed capacity to be achieved is 6.543 MW.

* For each engine: Units 5 – 8—$66.68 per kW of capacity not achieved.

Where the agreed capacity to be achieved is 11.736MW.

My question is whether Mr. Muna has been correctly reported that there are no penalty clauses in the DCM contract Perhaps Mr. Muna chose to interpret that such penalties are only due after the completion of overhaul. However, in my opinion, DCM’s timeline for completion is long passed, and overhauls should have been completed and penalties applied for non-performance. As of June 23, 2008, the only engines operating at Power Plant I are Engine No. 2 and Engine No. 3. It is simple mathematics—the penalties payable is $4,000,753.79

The only sensible way out is to terminate the contract for default. Hence, on this front, Mr. Muna has taken that initiative. It remains to be seen whether the penalties stipulated in the contract will be imposed. The difficulty in imposing the penalty, in my opinion, is not a question of legality, it is a question of will. Now, if CUC is so willing to forego $4,000,753.79 against an overseas contractor who did not perform according to the contract, why is CUC so diligent in cutting off the power of our residents when some of the bills are less than $100? On top of that, CUC paid them $410,000 in April when it was clear there was no progress in the performance of their contract, and default was inevitable.

There is another highly suspect contract, reported by Greg Cruz of Tao Tao Tano. I was also provided a copy of such document which demonstrates a sole source contract for CISCO, executed in May 2006 and mobilization paid, but until today no parts have been delivered for Power Plant II. Why no default has been issued for such delayed work remains a mystery. As to why Secretary Inos asked me in December 2007 to submit a proposal for Power Plant II when they already had a contract executed with CISCO is also a mystery to me.