A Defence Ministry contract to build living quarters for married military personnel has not only incurred a bill of RM3.21 billion, but has seen the delivery of shoddy units.

The cost for the 38 projects comprising 9,455 units of quarters ranging from flats to bungalows was initially estimated at RM1.74 billion but ballooned to RM3.21 billion - an 84 percent cost overrun, the Auditor-General's Report 2011 notes.

The Auditor-General's Office had audited 12 of these projects, finding that these had contributed to RM1.3 billion of the cost overrun stemming from, among others, delays of up to 1,240 days for delivery.

It found that only one of the audited projects, which were part of the 9th Malaysia Plan, had been awarded through an open tender, while the rest were by direct negotiation, limited tender or by obtaining quotations. 

NONESix of these projects are located in the Klang Valley and were awarded to Syarikat SUL, a joint venture by the Finance Ministry-owned Syarikat Perumahan Negara Bhd and the Armed Forces Fund Board Sdn Bhd.

According to the audit report, SUL was found to be “inexperienced” and “technically incompetent” to complete the projects. 

It was fined RM87.12 million for the delays, but payment was later waived by the Finance Ministry following an application by the Defence Ministry. 

“The exemption of the fine ... caused losses and undermined the government's interests ...,” the audit report states.

“The Defence Ministry should not have accepted the final products as it had many construction faults and damages, forcing armed personnel to stay in poor quality dwellings.”

It also recommended that the contractor should be “blacklisted” for performance failure. 

NONEPhotographs appended to the audit report showed ceiling boards which had rotted through due to leaks in the roof. Leaks were also found in bungalows for higher ranking personnel. 

It also found that the office unit at the Jalan U Thant quarters in Kuala Lumpur had a “bad stench” due to a “leak in the sewerage system” .

Up to 2,085 complaints of damage were made for projects constructed by Syarikat USL, but the company did not address these.

“As such, the Defence Ministry had to appoint a third-party contractor to deal with it at an extra cost of RM1.84 million,” reads the report.
Of the 38 projects, only the one in Kinabatangan, Sabah has yet to be completed.
However, in December 2011, the audit staff found that the captain's quarters there was being inhabited by "foreign workers and their families". 

To this, the ministry responded that the contractor has been fined RM13,314.86 for each day's delay and that project is - as at April this year - 91 percent compete.

Past problems

The audit further noted that Syarikat USL-built airforce quarters in Subang that were completed in 2006 were in poor shape. Although the USL was responsible for repairs up to July 2008, these were not undertaken. 

NONEDespite this, the ministry had issued a ‘certificate of making good defects’ (CMGD) in February 2009, to indicate that repairs had been completed.

As at January last year, the ministry estimated the cost of repairs for the Subang quarters alone to be RM5 million.

“However, the bank guarantee of RM8.56 million by Syarikat USL to the ministry lapsed in January 2009,” reads the report.

“The ministry should have seized this bank guarantee as Syarikat USL had failed to fulfill its responsibilities.” 

Furniture provided was also of poor quality. Bed frames, chairs and tables were made of “easily-broken, low quality, thin plywood”, while some could not fit into the rooms as the items did not meet specifications.

A photograph of a “new unit” at the Kementah camp dated January 2012 showed furniture which could not be used due to “disintegration as these could not withstand a termite attack”. 
The furniture for 10 Klang Valley projects cost RM18.5 million, with the contract awarded through direct negotiation.
In its response to the Auditor-General's Office, the ministry said that Syarikat USL is footing the bill for repair works completed by a third- party contractor for the Klang Valley projects. 

It said Syarikat USL was issued 22 warning letters for the construction defects, and that the poor work quality was the fault of "incompetent" subcontractors. 

It added that the CMGD for the Subang project was issued after those living in the quarters confirmed that the repairs had been completed in July last year.