Sunday, April 5, 2020

Who Will Pay For This Screw-Up in Ashgabat? The 90 to 125 Million Dollar Question

Ashgabat, Turkmenistan, city of white marble and straight lines

This might be the most consequential screw-up in U.S. embassy construction since the Moscow debacle of the 1980s and 1990s. (For a summary of that long-drawn-out disaster, which nearly resulted in embassy construction responsibility being taken out of the hands of the State Department, see the embassy's website.) Anyway, that's the only other one I can recall in which we had to demolish a newly-built embassy.

If it weren’t for the COVID-19 emergency taking up all of Official Washington’s time and attention, we would surely see State getting thrashed by Congress and the White House over an OIG audit report for Ashgabat, Turkmenistan, that came out in February. No one seems to have noticed it yet, which is understandable given the pandemic health crisis. However, the report makes clear that there will be a follow-up, and quite possibly a formal notification to Congress of waste and mismanagement, so I don't see any way that my good friends in OBO will escape repercussions forever.

You can read all about it in Review of Delays Encountered Constructing the New Embassy Compound in Ashgabat, Turkmenistan, a pedestrian title which gives no hint of the political dynamite inside the report.

The report is unclassified and uncontrolled, put out there on the internet for all the public and Congress to see. The OIG certainly isn't hiding it. They even put it in their Twitter feed on February 27. Hey, congressional oversight committees, you're missing a good one here.

The gist of the matter is that since 2016 OBO has been building a new U.S. embassy in Ashgabat, which is a city that imposes two absolute requirements on new buildings: they must have facades of white marble and they must be set back from the street a precise distance, which is referred to as "the red line." Well, we built the main embassy office in the wrong place. And now we will have to demolish it and build it again, this time in the place where the local authorities told us all along it had to go.

From the OIG Report:
[I]n July 2016, the Government of Turkmenistan halted construction of the NOB [New Office Building] because it was being constructed in a location that violated the city’s red line. This error occurred, in part, because OBO personnel failed to follow internal procedures that guide the planning of construction projects … Moreover, they did not require the Architectural and Engineering firm that prepared the project bridging design to deliver required planning documentation that would have alerted OBO about the proper placement of the NOB. In addition, the construction contractor, Caddell, failed to obtain required construction permits from the Turkmen Government prior to initiating construction. As a result, construction of the NOB was halted after approximately $26 million had been expended to construct the facility.

-- Snip --

The operational and financial implications from the improper placement of the NOB are profound. Specifically, because construction of the NOB has not been completed, embassy operations continue to be conducted from multiple locations. According to OBO’s FY 2014 Congressional Notification for constructing the NEC, this arrangement creates security and safety risks. In addition, OBO estimates that it will cost the Department between $90 million and $125 million to rebuild a new NOB in an approved location. This amount is approximately twice what was originally budgeted to construct the NOB.

So many fingers of blame to point at so many parties! And did they say we're going to pay twice the cost that was originally budgeted in order to get this project completed? Yes, well, that will happen when first you construct a building, then you have to tear it down and construct it a second time.

Keeping track, that’s $26 million in sunk costs – construction, design, contractor mobilization, project supervision – to build the wrongly-sited and unpermitted chancery office building, plus between 90 and 125 million in future costs to re-build the chancery on the correct side of the host government’s red line.

For some background on that red line, see The City of White Marble to appreciate how very, very, particular the host country’s government and its President - Protector of the Turkmen! - are about their architecturally eccentric capital city.

Ashgabat may be the strangest city anywhere outside of North Korea. Still, all they asked of us was a white marble chancery building that respected their setback distance from the street so as to keep our new embassy in geometric harmony with every other building in the neighborhood. That’s not so much to ask.

The dramatis personae in this story of – likely – waste and mismanagement include:
  • OBO’s first project manager, now retired, who failed to ensure that the local legal assessment report was properly filed away with OBO headquarters
  • The architectural firm OBO used to prepare the planning documents that guided the eventual design and construction, which failed to press with OBO the issue of the missing local legal assessment
  • The Office of Acquisitions Management and the Office of the Legal Advisor, who must now determine whether a screw-up by the first project manager relieved OBO's construction contractor from its contractual obligations, or whether that contractor is liable for damages
  • The construction contractor, Caddell, who failed to obtain a local building permit, or to verify that one had been obtained, before plunking that new chancery down right on top of the local red line; Caddell is now on the hot seat for paying big damages to OBO, or, just maybe, to boldly charge OBO even more money to compensate for the four years it has been required to suspend work on the chancery ('equitable adjustment for the cost and time impacts'), which I bet would be quite the bargaining chip in a possible settlement negotiation
  • The U.S. Congress, who will eventually wake up to this news, if not now, then in a few more months when they may well get official notice from the OIG that it has found a case of waste and mismanagement

There are also lesser players, like the OBO Director and his headquarters staff, and the Under Secretary for Management. I foresee a judge and jury getting involved, as well.

The current U.S. Ambassador and his predecessor come off pretty well, since the OIG makes clear that they both tried to talk sense to Washington while headquarters officials dithered in the four years since Turkmenistan authorities ordered a halt to construction, refusing to bite the bullet and just demolish that offending chancery.
“By January 2019, the U.S. Ambassador to Turkmenistan informed OBO that he saw no realistic chance the Turkmen Government would allow the building to be completed in its current location, and he advised OBO that the only path forward was to demolish the NOB and rebuild it in accordance with the Turkmen Government’s red line requirement. In June 2019, the newly appointed U.S. Ambassador met with the President of Turkmenistan and again attempted to find a solution other than demolishing and rebuilding the NOB. In response, the Turkmen President reiterated that the red line is Turkmen law and must be upheld.”

But instead of accepting that Turkmen reality, OBO tried to wriggle off the hook. It proposed adding a massive fig leaf – an earthen berm – to make the chancery’s red line intrusion harder for passersby to see, but the local authorities didn’t go for that. It explored a partial demolition of the unfinished chancery, but that was not a viable option. It even asked the locals if they would be open to a cost-sharing arrangement to pay for the full demolition and reconstruction of the chancery, but no such luck.

To me, that dithering and wishful thinking is the greatest fault in this sad story. It should not have taken four years to face the facts and understand there is no way out of this dilemma other than knocking down that partially-finished chancery. The sooner you do it, the faster this will be over and the fewest dollars will have been wasted.

Now, having dragged the problem out for four years, not only does OBO still have to rebuild the chancery, but State has a major legal problem and financial exposure on its hands if it tries to fix responsibility on its construction contractor, Caddell. After all, it was Caddell that failed to obtain a construction permit for the new embassy, which is a huge oversight, to say the least. So doesn't Caddell own this 90 to 125 million dollar problem? Maybe. But what equitable adjustment does OBO owe Caddell for the four years since it ordered Caddell to stop work on the biggest part of its Ashgabat contract? The answers will depend on how a judge sees contractual orders of precedence and other matters of procurement law.

Finally, let’s not forget the staff of the U.S. Mission in Turkmenistan, who will continue to have their operations split between multiple locations, some of them highly deficient in both security and safety (in particular, seismic safety) for years to come.

More to come on this, for sure.