Delegates Focus on Administrative Close Out, Impact of Arbitration Notices, as Fifth Committee Discusses Final Price Tag for Capital Master Plan

GA/AB/4300
8 November 2018
Seventy-third Session, 13th Meeting (AM)

Delegates Focus on Administrative Close Out, Impact of Arbitration Notices, as Fifth Committee Discusses Final Price Tag for Capital Master Plan

Delegates in the Fifth Committee (Administrative and Budgetary) today wanted to better understand how ongoing arbitration proceedings preventing a final close-out of the paperwork surrounding the multi-billion-dollar renovation of the United Nations Headquarters will impact the project’s final cost.

Egypt’s delegate, speaking for the “Group of 77” developing countries and China, said he will ask the Secretariat during informal consultations on the Capital Master Plan for more information on the arbitration proceedings.  He also commended steps to improve accessibility and energy efficiency at Headquarters and said it is crucial to draw lessons from the Plan, the largest and most comprehensive construction and renovation project undertaken by the Organization.

In delivering her report to the Fifth Committee, Parama Sen, Chair of the Audit Operations Committee of the Board of Auditors, said the project’s main contractor has filed two notices of arbitration against the Organization, seeking indemnification if it is required to settle substantial claims from subcontractors.  Ms. Sen, who is also Director of External Audit of India, said if the claims are upheld, the final project cost will increase by the settlement amount.  The Audit Committee estimates the final costs of the Plan at $2.31 billion.

Christian Saunders, Assistant Secretary-General for Central Support Services, introduced the Secretary-General’s sixteenth annual progress report on the Plan and put the final completion cost at $2.15 billion.  He said all administrative tasks required to close out contracts were completed by March 2018, except the invoices subject to the two ongoing arbitration cases.

Turning to the Board’s recommendations made after reviewing the 2017 financial year, Mr. Saunders said the Secretariat is carrying out all the recommendations.

Carlos Ruiz Massieu, Chairman of the Advisory Committee on Administrative and Budgetary Questions (ACABQ), who introduced the Advisory Committee’s related report, said the litigation is hindering the project’s administrative close.  The Advisory Committee’s report zeroed in on change orders, benefits realization, accessibility issues, protection of assets and works of art and other gifts.  Regarding change orders, the ACABQ stressed the need for upfront, sound and comprehensive design, project planning and monitoring.  This will minimize the number and scope of change orders and avoid the risk of cost escalation and delays.

In other business, the Fifth Committee took up the Secretary-General’s report on revised estimates resulting from Economic and Social Council resolutions dealing with the Ad Hoc Advisory Group on Haiti and the United Nations Forum on Forests, as well as proposed changes to the Economic Commission for Africa (ECA).  Chandramouli Ramanathan, Acting Controller of the Department of Management’s Office of Programme Planning, Budget and Accounts, said that in all three cases, there will be no need to request additional resources.

The Fifth Committee will meet again on Friday, 9 November, to resume its consideration of the Organization’s 2018‑2019 programme budget, in particular, revised estimates relating to the United Nations Truce Supervision Organization, and to begin its consideration of the United Nations pension system.

Annual Progress Report on Implementation of Capital Master Plan

CHRISTIAN SAUNDERS, Assistant Secretary-General for Central Support Services, introducing the Secretary-General’s sixteenth annual progress report on the implementation of the Capital Master Plan (document A/73/317), said all administrative tasks required to close out contracts were completed by March 2018, with the exception of invoices subject to two ongoing arbitration cases.  All constructions and close-out activities are being met within the existing approved resources and the project’s financial positon remains consistent with the forecast set forth in the fifteenth annual progress report.  The total approved funding for the Capital Master Plan project and the final cost completion is $2.15 billion.  This includes appropriations for the original project scope of $1.88 billion, donations of $14.3 million, interest income as well as the Plan’s $159.4 million working capital reserve and the $100 million funding for enhanced security upgrades.

The substantial benefits realized from the project include a 55 per cent drop in energy consumption in 2017, compared with the baseline levels used before the plan in 2006, he said.  Though dependent on fluctuating weather, energy consumption data shows the low level of energy use for the first six months of 2018.  Turning to recommendations made by the Board of Auditors after reviewing the financial year ending in December 2017, he said the Secretariat has accepted all the recommendations and is carrying out their implementation.  During the audit, the Board also closed four recommendations from previous periods, leaving 12 recommendations from prior periods under implementation.

PARAMA SEN, Director of External Audit of India and Chair of the Audit Operations Committee of the Board of Auditors, introduced the Board’s report on the Capital Master Plan for the year ended 31 December 2017 (document A/73/5 (Vol. V)).  She put the anticipated final cost of the project — approved by the General Assembly in 2002, with construction work completed in September 2017 — at $2.31 billion.  She emphasized, however, that the main contractor has filed two notices of arbitration against the Organization seeking indemnification in the event that it is required to settle substantial claims from subcontractors.  If those claims are upheld, the final project cost will increase by the settlement amount, she said, adding that in view of the ongoing litigation, the Administration has delayed closing the Capital Master Plan account.

On management of the Headquarters campus, she said that a physical verification of 1,555 assets conducted in 2017 was unable to locate 266 assets worth $4.68 million.  According to the Administration, as of March 2018, 99 assets remained to be located while 25 assets were being written off.  Meanwhile, the gift registry is still incomplete, with no annual physical verification of gifts and works of arts.  She went on to say that, out of 16 outstanding recommendations from the Board, 4 have been implemented, with the remainder under implementation.

CARLOS RUIZ MASSIEU, Chairman of the Advisory Committee on Administrative and Budgetary Questions (ACABQ), introducing the Advisory Committee’s eponymous report (document A/73/468), noted that administrative close out of the project cannot be completed until the litigation cases are concluded.  The Advisory Committee’s observations and recommendation focus on change orders, benefits realization, accessibility issues, protection of assets and works of art and other gifts.  Regarding change orders, the ACABQ stresses the need for upfront, sound and comprehensive design and project planning and monitoring of the full and timely application of the construction guidelines.  This will minimize the number and scope of change orders and avoid the risk of cost escalation and delays.  The Advisory Committee recommends energy usage continue to be monitored and actual efficiency gains be reported in future progress reports.

Turning to accessibility issues, he said the Advisory Committee trusts the Assembly will receive information on the accessibility review results and an update on accessibility improvements.  Regarding works of art and gifts, the Advisory Committee stresses the need to maintain an updated registry and carry out an annual physical verification, as recommended by the Board.  It emphasizes the need to implement the Board of Auditor’s recommendations immediately.

MOHAMED FOUAD AHMED (Egypt), speaking for the “Group of 77” developing countries and China, supported efforts to modernize and improve the operating efficiency of the Organization’s facilities.  The Group believes it is crucial to draw lessons from construction projects that have been carried out, particularly the Capital Master Plan, the largest and most comprehensive construction and renovation project undertaken by the United Nations.  Turning to the accessibility survey, he said accessibility is an important issue and commended the Secretariat’s progress in this area, especially improvements made in the General Assembly Hall.  The Group looks forward to examining the accessibility review of the Headquarters premises.

Regarding energy efficiency, he noted that the energy savings were less between 2016 and 2017, even though the decrease achieved the reduction target of 50 per cent.  The Group supports full use of the Energy Dashboard and Reporting Tool to monitor energy consumption.  The Group notes the progress regarding the project’s administrative close out and during informal consultations it would like additional information on the arbitration notices filed by the main contractor against the United Nations, seeking indemnification.  The Group also wants to know the financial implications for the project’s final costs if the claims against the United Nations are upheld, he said.  The Group appreciates the Board of Auditor’s report and commends the Secretariat for its commitment to carrying out the recommendations.  He said the Group wants a comprehensive update on the status of the implementation of different recommendations.

Revised Estimates:  2018 Economic and Social Council Resolutions/Decisions

CHANDRAMOULI RAMANATHAN, Acting Controller, Office of Programme Planning, Budget and Accounts, introduced the report of the Secretary-General on revised estimates resulting from resolutions and decisions adopted by the Economic and Social Council at its 2018 session (document A/73/400).  According to that report, the Department of Economic and Social Affairs will accommodate the budgetary impact related to Council resolution 2018-19 on the Ad Hoc Advisory Group on Haiti, amounting to $69,000 for 2019.  The same Department will also accommodate the budgetary impact related to resolution 13/1 on the outcome of the thirteenth session of the United Nations Forum on Forests, amounting to $282,900 for 2020 and 2021.  In both cases, there will be no request for additional resources, he said.

He added that the report includes the proposed organizational restructuring and programmatic changes to the Economic Commission for Africa (ECA) and the related proposed reorganizing, realigning and re-profiling of resources in accordance with that Commission’s new strategic direction, which was endorsed by the Council.  The budgetary impact of those changes is within the overall approved budget level for 2018-2019, he said, adding that no additional resources are being requested.

Mr. RUIZ introduced the Advisory Committee’s related report (document A/73/478), saying it has no objection to the Secretary-General’s proposals to accommodate the budgetary impact related to the Council’s resolutions on the Ad Hoc Advisory Group on Haiti and the Forum on Forests.  It also has no objection to the proposed realignment of resources with regard to the ECA.

Mr. AHMED (Egypt), speaking on behalf of the Group of 77, noted that the budgetary impact related to the two Council resolutions will be accommodated within overall resources.  He also welcomed the ECA’s new strategic direction, saying it will enable it to better develop macroeconomic and structural policy options to speed up economic diversification and job creation on the continent.  It will also better equip the Commission to contribute solutions to regional and transboundary challenges and to design and implement innovative financing models for infrastructure, and human, physical and social assets for transforming Africa.  Noting that the budgetary impact is within the overall approved budget level for 2018‑2019, he emphasized the need to support the Commission as it supports the implementation of the 2030 Agenda for Sustainable Development, the Addis Ababa Action Agenda and the African Union’s Agenda 2063.

For information media. Not an official record.