We are yet to see the Ernst and Young Report of 2007 titled "FNFP Special Investigation - Internal Report". Now, Coupfourpointfive has been informed the Report has not been made public by Aiyaz Sayed Khaiyum because a section of it is highly critical of the Tappoos, to whom Khaiyum, through his private company Latifa Investments Ltd, had sold his Berry Road property at a grossly obscene price. Our regular contributor, VICTOR LAL, has been examining the Report and has filed Part Three of his investigation.
In or around March 2006, according to FNFP Board Minutes, Tappoos requested the transfer of their property to Penina Ltd for the purpose of the Tappoocity Project development be deferred as they were enjoying tax benefits by way of accelerated depreciation on their building on that site.
This proposition was put to the FNPF Board. It was proposed by Tappoos that the construction of the Project building be divided into two phases. In the first phase construction would be confined to the FNPF side of the plot (at a cost of $18million).
Upon completion of this phase, Tappoos would shift into the building as tenant and the Tappoos land would be transferred to Penina Ltd with both titles amalgamated and the second phase of construction (at a total cost of $14miilion) would commence. The FNFP Board approved the deferral of construction on Tappoos part of the Project site on 6 April 2006.
Appointment of Contractors for the Project
The FNFP Board approved the appointment of ASA Naidu Architects as the architect of this Project and William Associates as the Quality Surveyors in December 2003. In Fiji National Provident Fund Investment Ltd (FIL) Board Paper No 005, entitled “Tappoocity Project – Appointment of Project Consultancy Team” and dated 16 December 2004, it was recommended that Spruce Ltd be appointed as the Project Manager; William & Associates as Quanity Surveyor; H L Jacobs as Structural Engineer: and ASA Naida/Jasmax as architect.
FIL Board Paper No 13 titled “Ratification of Appointment of Project Consultancy Team (Flying BP 005) noted that favourable responses had been received in regarding these recommendations. Following in-depth analysis, Neo Fiji Ltd bid was viewed as the most favourable to Penina Ltd in a commercial sense, including because it: was within the construction budget; contained a Guaranteed Maximum Price provision; contained a bank guarantee of $2,500,000 in favour of Penina Ltd.
It was recommended to the Board of Penina Ltd that Neo Fiji Ltd be approved as the main contractor; the contract sum of $28,507,489.91 be accepted; the original budget of $31million be retained in the event of any variation arising. Neo was subsequently awarded the construction contract on 24 November 2005.
Ernst and Young Report noted: “Neo Fiji is a construction firm which is fully owned by Tappoos. It was formed as a Joint Venture with a Singaporean construction firm in 2000 for the Nadi Airport Refurbishment project; however Tappoos acquired 100% of the Company in or around early 2006.” We will return to the company, its foundation, shareholders etc later on.
Revised construction cost and project cost
In June 2006 Neo Fiji Ltd requested a review of the construction sum, due, it claimed, to an increase in construction materials/costs. (N.B. Despite Neo having initially agreed to enter in a Guaranteed Maximum Price contract).
On 27 July 2006, the Penina Board approved this requested increase, following advice received from the PCG (which Ernst & Young understands to be the Project Committee Group), and revised construction cost to $34,428,995.
On 20 October 2006, a Board Paper titled “Main Contractors Request for Revision of Contract Sum – Assessment & Recommendation by the Project Architect & project QS” was presented by the Project Architect, Addish Naidu, of Yellow Architects to the Board of FIL. In this paper it was noted that: Neo Fiji had notified management of their intention to apply to the Penina Board for an increase of their contyract to $34,428,995.10
The project consultancy team viewed Neo Fiji Ltd’s variation contract sum request as fair, in that losing tenders had quoted higher sums than this request, and it reflected current prices in today’s market (N. B. E & Y however noted that its understanding was that the bid of Abbco Builders was lower than the revised bid of Neo Fiji Ltd);
The project consultancy team viewed the variation request by Neo Fiji Ltd as genuine and believed there was no “hidden agenda” or “malice” associated with this request;
It was no necessary to re-tender the contract;
Tappoos had declared their interest in this matter as 100% owner of Neo Fiji lTd and clarified that they had purchased this company outright to enable it to tender for the “Tappoocity” contract and to build it at the lowest possible cost. Therefore, there was “hardly any profit margin” in Neo Fiji Ltd’s variation contract sum (N. B. No documents were produced to E & Y to explain or clarify what Neo’s profit margin was pursuant to the terms of the construction contract);
Tappoos confirmed that as the sole tenant of the complex, they would accept an increase in the rent payable by them as a result of this increased construction cost.
On 27 July 2006, the Board of Penina Ltd resolved that the building contract remained as Guaranteed Maximum Price contract; Neo’s variation sum, an increase of over $5million, would be accepted; a full Bill of Qualities must be provided at Neo’s cost; no further adjustment of the contract sum would be considered; all sub-contracts must be approved by the Board; a detailed programme of the construction would be submitted; Deloitte would be retained to investigate alternative financing options.
As a result of this construction cost increase, the total Project cost position in 2007 stood at $44,028,995.10. Based upon this increased construction cost, it was proposed that a further $4million would be required to finance the project, which it was expected to be loaned from FIL.
Project construction project
Penina Ltd Board Paper No 105 dated 4 April 2007 noted that the initial construction program had commenced on 26 June 2006 and the project was scheduled for completion in December 2008. An e-mail from Hanfakaga dated 26 January 2007 titled “Update on the FNFP Investment Please urgent” had noted issues with the Project which may have slowed it down, including that the building contractor was slightly behind schedule and the obtaining of the requisite building permit from the Suva City Council had taken more than six months.
On 27 February 2007, Tappoos wrote to FNPF proposing to downsize the project, principally in light of the dictator, Frank Bainimarama’s December coup, which Tappoos claimed, may have the effect of limiting Tappoos ability to source tenants for offices within the complex. On 9 March 2007 Tappoos again wrote to FNFP in relation to downsizing the project, and offering to buyout FNPF’s shares in Penina Ltd.
On 9 March 2007, Addish Naidu, for Yellow Architects noted in his e-mail that, “We really need to meet with Penina Board to ascertain the revised scope of work. While the suggestion by Tappoo Group is to delete levels 5 and 6 we still need an instruction to go down that park. I am also told by Vinod [Tappoo] that there is some suggestion that they might even do only three levels now”. Information received by E&Y was that no decision had been made regarding whether the project would be downsized or FNPF’s interest sold to Tappoos.
At the time of the compilation of the E&Y Report in 2007, approximately $73,000 had been spent on the Project, of which $4million was equity funds provided by the shareholders and the balance had been drawn down on the loan from FIL.
TO BE CONTINUED