Penang undersea tunnel is the largest privately funded public works project in Penang.
The state government should be aware that the undersea tunnel project requires an exceptional financial capacity in the same manner that building and operating such complex transportation assets require exceptional technical skills.
The financial capacity of Zenith BUGC is essential for project acceptance by users and stakeholders. The state government must contract with an entity that stakeholders believe has the capacity to deliver its obligations under the contract.The level of trust that an agency bestows when granting long-term concession agreements and the responsibility of operating such an essential pieces of public infrastructure can only be assured if there is evidence that the vendor has the full financial capability to develop, finance and lead the project and manage it for the long term.
It is generally accepted that tunnel construction costs more and is generally riskier than other kinds of construction. Therefore Zenith BUGC should be made to provide payment and performance bonds and all related bonds for the project in the form and in the amount that prove it has the financial capacity. In no case shall the amount of the payment bond be less than the amount of the performance bond. Zenith BuGC should be required to obtain all liability insurance, and errors and omissions insurance as well.
A performance bond is a guarantee a contractor will complete a project according to the contract. Performance bonds protect taxpayers' money, as they ensure public works projects will be completed properly and in full. Payment bonds, supply bonds and maintenance bonds are usually required along with performance bonds. Payment bonds guarantee payment to all subcontractors and suppliers; supply bonds ensure that materials will be provided according to the contract; and maintenance bonds guarantee a contractor's work will be defect free for a specific time frame after it is complete.
Under the procurement rule by the finance ministry, performance bond are required for a contract worth more than RM200,000.00.
Performance bond may be given in the following form:
(a) Bank Guarantee issued by banks licensed under the Banking and Financial Institutions Act 1989 which operates in Malaysia; or
(b) Insurance guarantee issued by insurance companies licensed under the Insurance Act 1996 which operates in Malaysia; or
(c) Finance Company guarantee issued by finance companies licensed under the Banking and Financial Institutions Act 1989 which operates in Malaysia; or
(d) Bank Guarantee issued by banks licensed under the Islamic Banking Act 1983 which operates in Malaysia; or
(e) Takaful Guarantee issued by a takaful operator registered under the Takaful Act 984 which operates in Malaysia; or
(f) Guarantee issued by the Infrastructure Development Bank Malaysia Ltd. (BPIMB); or
(g) Performance Guarantee Fund (for works only).
Performance bonds are, essentially contracts of guarantee and so fall within
the purview of the Contracts Act 1950, Sections 79 to 81.
It is provided in Clause 37(a) of the P.W.D. Form 203A (Rev. 10/83) Standard Form of Contract to be Used Where Bills of Quantities Form Part of the Contract that the Contractor shall either deposit with the Government a performance bond in cash or
alternatively by way of a Treasury's Deposit or Banker's Draft or approved Banker's or Insurance Guarantee equal to 5% of the Contract Sum as a condition precedent to the commencement of work. In other words, the Contractor is not permitted to carry out any work under the Contract unless and until the performance bond is given. The failure of the Contractor to give the performance bond may amount to a fundamental breach of contract entitling the Government to discharge the Contract and sue the Contractor for damages accordingly.
Failure by the state government to make this as a non-negotiable criteria in entering the construction contract is tantamount to betrayal of the people and smacks of corrupt practices.