GOVERNMENTS changing their minds after an award of a contract is not as rare as it is made out to be. Over the years, there have been notable episodes where contract awards that were made were suddenly retracted with there being little recourse to the government.

       Previous cancellations or threats of doing so, however, say little repercussions given that many of the companies that saw their contracts being withdrawn were locally-owned corporations.

       The most famous of the cancellation of projects happened some two decades ago when then prime minister Tun Abdullah Ahmad Badawi spectacularly canned the award of the double-tracking project to the Gamuda-MMC consortium.

       It was Malaysia’s biggest construction project at that time and the decision to sideline the project was said to be already rife with political considerations.

       “Not many people know that the contract was cancelled and then re-awarded prior to Pak Lah coming in,” says an executive.

       The cancellations of those contracts were sensitive at that point because it is said to involve Indian and Chinese contractors.

       “The deals were also tied to the purchase of palm oil,” says the executive.

       In about six months after the contract was awarded to the MMC-Gamuda consortium, it was spectacularly postponed.

       The government had given a letter of award to the MMC-Gamuda consortium to undertake the RM14.5bil project, which would have seen the consortium involved in the double tracking of 350km railway line in the northern and southern sectors.

       It was reported in December 2003 that the award of the project to MMC-Gamuda ran into a controversy as Chinese Railway Engineering Corp of China and Ircon International Ltd of India had originally been given letters of intent to undertake the work but their proposals were more costly.

       “There were also concerns that bilateral relations with China and India would be soured because of the new consortium chosen,” the report says.

       It was not, however, the only time contracts were reviewed or cancelled.

       When Pakatan Harapan came into power, there was a widespread review of projects that were awarded.

       One big project fell on the crosshairs of the government at that time and that was the East Coast Rail Link (ECRL). There were representations to cancel the project that many felt was over priced at that time.

       Again, there were concerns of upsetting China as the ECRL was part of the larger Belt and Road Initiative. The project involves the construction of a rail link between the west and east coasts of Peninsular Malaysia and after a series of tough negotiations, the overall cost of the project was cut by RM22bil.

       “It was important that the negotiations did not upset the Chinese government, given the importance it has to their overall plans,” says an executive.

       Finally, after much negotiation, a supplementary agreement was signed where the cost of the project was cut by about a third to RM44bil.

       There is also the unilateral decision to terminate the contract Prestariang Bhd had with its SKIN immigration project. Prestariang, now known as Awanbiru Technology Bhd, is suing the government for for RM733mil. Whichever new system has to show cost savings in addition the compensation AwanBiru is seeking from the government.

       A top executive says that the risks now with government projects with the cancellation issue means a loss for taxpayers.

       “Apart from the loss of relationship, companies have to factor in a safety net when dealing with government contracts,” he says. “That will mean those contracts will become incompetitive for the government.”

       He says that currently there is a lag between when the contract is awarded and also when the project actually gets off the ground.

       “To save on margins, the contractor will often put in a bigger mark-up,” he says.

       The other issue with the risk of cancellation of projects is the type of companies that actually bid for government project.

       “The government tends to lose credible and good quality companies that will bid for the projects. This will then attract second-rate companies,” he argues.

       But the pull-out of foreign companies that are involved with government projects also have a long-term effect on the quality of companies that are going to be interested in such projects.

       “This is just risk-analysis. The foreign companies bidding for projects will just avoid where there is a lot of risk,” he says.

       The executive, however, does agree that the cancellation of the double-tracking project did not deter foreign companies from bidding for jobs in Malaysia, given the prospect of them making more regardless of the risk factors that are present.

       The other risk that companies have to factor in is the litigation process that goes into any dispute scenario.

       “It often involves a long court process. It will be better for companies to renegotiate such contracts,” he says.