AUDIT REPORT ON TAIZ WATER AND SEWERAGE CONSTRUCTION PROJECT NO. 279-0039 USAID/YEMEN

Evaluation covers the period 8/28/77-4/30/81 and is based on field work and audit tests of records. Host/contractor/A.I.D. cooperation has been deficient. Poor project planning and continuous changes in project design have created problems. New outputs have been assigned without additional inputs, resulting in rising costs (from $65.4 million to $104.2 million) and delaying the project"s completion date from 8/81 to 7/82. A financial shortfall of $19.6 million now exists. To meet it, a $5 million A.I.D. loan is being proposed and requests for additional funds from the other two donors (Saudi Arabia and Abu Dhabi) are being pursued. USAID anticipates cooperation from these donors. USAID non-receipt of adequate information from the project implementing agency, National Water and Sewerage Agency (NWSA), regarding funds receipt and disbursement is attributed to NWSA inexperience. Slow reimbursement by Yemen government has caused a cashflow constraint for the construction contractor (Hanab-Stevin Pipelines Limited), with interest claims potentially rising to $3 million by 7/82. The performance of engineering contractor, Hazen & Sawyer (H&S), has been marked by assessment of $112,785 in questionable costs to the project, cumbersome invoicing procedures, substandard design task and personnel management, uninformative project reporting, and inadequate recording of non-expendable property. Nonetheless, it was decided in 1/81 to retain their services contingent upon management reorganization. It is recommended that: (1) NWSA provide detailed information on receipt and disbursement of funds on a donor basis; (2) USAID/Yemen and NWSA review questionable H&S costs and streamline H&S voucher processing; (3) H&S improve cash management by discontinuing purchase of round trip airline tickets and revise monthly reports to be more solution-oriented; and (4) H&S conduct an inventory of property procured under the contract, reconcile the inventory to the financial records, and establish adequate property records.