Economy

My advice for the PH Government on   Contract terminations  

 

I refer to FMT’s article quote “Lim Guan Eng today played down concerns of potential job loss following Putrajaya’s termination of MMC-Gamuda’s contract to build the underground portion of the MRT Line 2 (MRT2).

The finance minister said a majority of those affected by the contract termination could be re-hired by the new contractor.

Yesterday MMC-Gamuda said the termination would result in “immediate job losses” to over 20,000 people involved in the project from a supply chain of over 600 Malaysian companies.

“If the project continues, many of these workers can be employed when the contract is awarded,” Lim told reporters when met on the side-lines of the “Malaysia A New Dawn” forum here.

On Sunday, after announcing the termination of MMC-Gamuda’s contract, Lim had said all unfinished underground work would be retendered via an international open tender process.

Putrajaya terminated MMC-Gamuda’s contract after the two parties failed to reach an agreement over cost reduction and related issues.

Lim said the decision was made after the government felt it could achieve “further significant savings”, compared with the offer made by MMC-Gamuda, through retendering the underground work package.

Yesterday, MMC-Gamuda said the termination would unjustifiably expose MMC-Gamuda to “a flood of lawsuits for compensation from terminated employees, sub-contractors, suppliers, manufacturers, and so on, whose contracts will similarly be terminated due to no fault of theirs” unquote.

My Advice:

Since the announcement of MMC-Gamuda’s MRT contract announcement a couple of days ago Gamuda’s share price has plunged from Rm 3.20 to close at Rm 2.38 per share. It has dropped 82 sen, nearly 11%. Its total issued shares is about 2,468 million shares.

Its market capitalisation has been reduced by Rm 2,023 million. 

MMC’s share price has also plunged from Rm1.38 to close at Rm 1.14, a drop of 24sen, 17%. Its market cap has been reduced by Rm 730 million. Together with Gamuda’s loss of Rm 2,023 million = Rm 2,732 million.

You can imagine the number shareholders who have lost a total of Rm 2,732 million.

I have not worked out the lost of value in Gamuda warrants.

Many people have asked me if I am affected. Although I was a co-founder of Gamuda, I do not own any Gamuda share. I am writing this article with good intention and I do not have any ulterior motive.

Besides this termination of Gamuda’s MRT contract, the Government has also terminated several other contracts.

Obviously LGE does not realise shareholder of MMC and Gamuda have lost a total of Rm 1,000 million. He also does not know the complexity of terminating and re-tendering partially completed contracts!

LGE must be super-efficient to get the successful new renderer to commence work after 6 months from termination date!!

In the meantime, will LGE provide food on the table for all workers and their families while waiting for the new contractor to start work?

In addition, what will LGE do if the new tendered sum is higher than MMC-Gamuda’s price?

The PH Govt is handling all multi-billion lop sided contacts wrongly by picking on local / foreign contractors instead of MACC directing the previous law makers (who executed the lop-sided contracts) to explain why were the prices exceptionally high and the contract terms & conditions lop-sided?

Of course the multi million Ringgit contract terminations pleases all the people who voted for Pakatan Harapan in the last general election. But the PH government must also realise the complexity and seriousness of the matter.

I hope the PH Govt and LGE realise that their promise to rule by law is not just hot air but must respect all the terms & conditions of multi-billion contracts in Malaysia!

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