Audit report on the Koror-Airai Sanitation Project (KASP) issued this month by the Office of Public Auditor cited lack of planning, lack of proper management among the eleven (11) findings cited to have caused delay and increased cost of the KASP project.
The project completion has been delayed by nearly 2.5 years and the delays have cost nearly $3 million dollars in contractor claims, reported the audit.
Office of Public Auditor was requested in March of 2019 by Senator Kuartei to conduct a performance audit of the KASP project to address the following concerns: “How much work has been completed, what work has been contracted for, when these contracts were in force, and which contracts have been completed.”
The eleven (11) findings cited included: Site Access Constraints, No KASP Project Plan, Loan Financing for KASP (4 years between initial cost estimates and actual implementation), Non-Compliance with House Joint Resolution, PPUC’s Capacity (lack of proper management over PPUC and the project), No Contract Manager, No Project Engineer, Response Time (slow response at critical decision-making junctures), Terms & Procedures of Payment (delays in processing of payment resulting in interest payment), Letter of Credit (Delayed issuance of Letter of Credit) and Changes to KASP Project Completion Dates (delays went as late as 2.5 years).
Koror-Airai Sanitation Projected funded with $28.8 million dollar loan from Asian Development Bank, divided up into three (3) different contracts, was to start construction at varying dates, as early as 2016 and completing by 2018. The project, due to extended delays, increased in cost, resulting in cutting of some its major components and now is expected to be completed this 2021, according to the audit report.
Report cites some of the reasons for delays including access restrains, shortage of materials on island, lack of proper land use rights, lack of public support on certain aspects of the project, lack of construction permits, revised plans, payment delays and others.
Palau Public Utilities Corporation (PPUC), an agency tasked with implementation of the project responded to the findings agreeing that delays did occur but these were due to number of factors outside of their control, including lack of available materials on island, resistant from “small interest group” opposing construction at Long Island, access constrain such national government delaying moving from its CIP office which was one of the main sites of construction among others.
Office of Public Auditor (OPA) said the main problem was the lack of Project Plan which serves as blueprint to guide implementation and administration of the project from planning to closeout, “to ensure the efficient and effective administration of KASP.”
Furthermore, it said that PPUC did not hire Contracts Manager and Construction Engineer from the start as “PPUC’s in-house experts” to work with project consultants to identify potential problems and provide solutions or alternatives or other measures to avoid delays.
OPA blames the delays on lack of proactive planning and lack of on-hand experts to ensure solutions, compliance and alternative measures are in place in case of contingencies.
OPA emphasized in its findings the lack of Contracts Manager which was called for under the Project Administration Manual. Contracts Manager is responsible for “administering contracts and ensuring contractors’ and PPUC’s compliance” and a vacancy in this position contributed to “constant and prolonged delays in construction work, payments to contractors, PPUC’s delayed response to contractors request for information, re-excavating completed works” and more.
OPA says there was no consistent managerial, technical and administrative capacities within PPUC to ensure effective administration of the project. PPUC did not have a permanent Chief Executive Officer (CEO) and Chief Financial Officer (CFO) during the “height of the KASP construction activities” when they were most needed which led to “prolonged delays, increases in project costs and constant extension of project completion dates.”
PPUC countered OPA’s assessment saying that it invested “considerable resources in order to immediately and aggressively hire a permanent CEO and CFO.”
PPUC in response agreed with OPA’s assessment of regarding PMU Contract Manager saying that they felt that the position required an external expertise and was able to add on a Contract Administration Engineer. OPA agreed this was important but too late a decision. The hiring occurred 3 years after the construction for ICB-01, ICB-02 and ICB-03 were already in progress.
Not only delays in construction but also delays in payments resulted in interest charges on late payments. An example cited was interest charges of $128,793 filed by a contractor for failure to pay on time.
Another is failure to obtain Letter of Credit per Contract Agreement, resulting in a 10 months delay and a claim for $796,286.00 by contractor for unproductive time. This, OPA stated, was a result of “lack of planning and preparation by the PPUC.”
OPA noted and cited the considerable delay between the project feasibility study and initial cost estimates in 2012 to loan execution in 2014 to KASP project implementation in 2017 and the impact of inflation on price of goods and services in the interim period eroding the purchasing power of the $28.8 million dollar loan.
The restructuring of PPUC, obtaining of the ADB loan and hiring of consultant to conduct “Inception Study, Network Design and Bid packages” led to the delay resulting in the revised cost going up to $38.24 million. As a result of the increase, Airai Sewage System was taken out of the KASP package. OPA cites this as violation of the House Joint Resolution which approved loan for the Koror and Airai sewer systems.
PPUC responded that ICB-04 Airai Sewer System had to be “shelved due to budget constrains” and that it would have been unreasonable to bid out the project knowing there were no sufficient funds for it.
OPA agrees that the project would have been financially undoable but this decision should not have been made unilaterally by the Steering Committee. It required an amendment to the House Resolution to remove Airai from KASP.
Essentially, OPA’s opinion is that all the “unforeseen” factors that contributed to the delays could have been avoided with better planning and preparation and hiring of PPUC’s own experts at the onset to “carry out and advance its interest with a completed KASP Project Plan. (By: L.N. Reklai)

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