Case Study Public Sector Accounting in Malaysia

Building for the future

Three years ago the government entered into a contract with MMM Berhad to build a community complex at the selected rural area. The idea was to develop an integrated complex that will accommodate classes for the local community, sports arena, a recreation area, laboratories, a library, a mini theatre, a cafeteria, a common, a business centre, consultation and counselling rooms, and offices. Various programs were planned to be carried out at the complex, including career and technical classes, seminars and discussion forums. The project is part of a master plan to expand community centres within the country. The project was supposed to be completed within two years.

At the start of the project, additional plots of lands were acquired because the reserved land was too small for the project. The construction of the complex also faced resistance from squatters. The squatters claimed that they have occupied the land for more than 25 years and have developed sustainable livelihood. Relocation would cause them to lose their current way of life and increase the cost of living. After several meetings that took place over two months, the squatters consented to be relocated. The government agreed to pay each family RM2,500 in an ex-gratia package and RM300 in monthly compensation. Thirty-eight families were then relocated to an apartment complex.

However, the project suffered problems which cause numerous delays and cost overran by our RM3.4 million, resulting in the termination of the contract with MMM Berhad. Another company, HGL Berhad, was then appointed to take over the project. MMM Berhad claimed to have completed 80% of the work and delays were due to late approval of design, delays on the handover of the land and disputes over a variation order. MMM Berhad threatened to sue the government for the damages incurred by the company.

Ten months ago, the statement issued a stop-work order on the project. The state government claimed that the project was an environmental hazard. The clearing of the land to build the complex caused landslides in the nearby villages. The construction was delayed for another month to allow for installation of retaining walls.

Questions;

1. Explain how the government should deal with the cost overrun.