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16.02.2020 Research Findings

IMANI: A Review of Trade Facilitation Agreement Between the Government of Ghana and Ghana Link Network Services Limited for the Provision of a Fully Integrated Trade Facilitation and Customs Manangement System

By IMANI
IMANI: A Review of Trade Facilitation Agreement Between the Government of Ghana and Ghana Link Network Services Limited for the Provision of a Fully Integrated Trade Facilitation and Customs Manangement System
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PREAMBLE The government of Ghana seems determined to change the entire Port Management systems in operation in Ghana’s Port now. The existing systems have been established at significant cost and with a lot of resource outlay. Fortunately, in our view, the existing ports management systems (GCNET & West Blue) are a few of successful projects successive governments have executed.

The establishment of these systems were not without controversy- the paperless system was resisted as were many others, but Government persevered and the results seem to have proven that the Policies were proper. Generally, there has been an improvement in Port Revenues management compared to previous times. More improvement is needed and is welcome, but they clearly must make sense and must be justified.

We should be careful throwing out the hard work of many governments starting in earnest from the establishment of the GCNET and West Blue systems which had issues but which have also seen a lot of improvement over time.

As we write this all the progress made at the ports are under threat because of a determined effort by the Government to replace all the systems with a new untested alternative. The GCNet contract ends in 2023 while the West Blue contract expires in 2020. This means that there are still three and one more years, respectively, for them to operate the single window system.

To be clear, as a free enterprise think tank, IMANI is very supportive of Public Private Partnerships as a principle. We are however not oblivious of the abuse of this concept. Further still it is important to always subject government decisions and Policies to simple common sense and value for money tests as we have done over the years.

We all have to objectively assess what out governments do in our name and where there are objective clear bases for questioning those decisions we must question them.

Imani Africa has already made representations on this matter and forced some attention and even changes. We however worry that regardless of the glaring issues and clear danger, those behind this policy are pushing ahead to root out and replace all existing players in this sector. That would be worrying if only the process was a problem but the outcome was guaranteed to be a success! It is therefore most alarming beyond worry that we have NO EVIDENCE that the success of this new system is even reasonably likely much more expected and further more absolutely guaranteed but there seems to be movement to implement. See “IMANI: Why Government must reconsider its decision on the controversial UNI-PASS customs and ports technology” (https://imaniafrica.org/2020/01/31/imani-why-government-must-reconsider-its-decision-on-the-controversial-uni-pass-customs-and-ports-technology/ )

We will show in this publication the objective basis for our concern. We however wish to use this publication to just highlight the issues raised upon a legal scrutiny of the contract itself.

The contract covering such a major exercise is quite simplistic and shallow. We commissioned a review of the contract to help us understand more whether it was fit for purpose. The outcome of the review is below.

In general terms the conclusions of the review add to our concern that Ghana seems to be rushing into something serious and complex with not enough contemplation and preparation.

LEGAL REVIEW Reviews can be done in sterile fashion, where no external circumstances are factored in, or with the prevailing circumstance and context taken into account. This review is done with the circumstances and context in mind. That is required to make sense of the assessment because context is what gives meaning to such interpretations.

The main context for this review is this:

  1. There is no exigent problem requiring urgent treatment, intervention or change. There is an existing system which has been improved over a number of years and is presently working satisfactorily.
  2. It gives almost no detail about motivations except to express that government wishes to change the system for a more comprehensive one. It bears mention that no criticism of the present system was stated as a reason.
  3. The Ghana government owns part of the existing systems and risks significant direct and related losses if it changes the existing system
  4. There are other third party contractors involved in the present system whose contracts are in force and whose termination would lead to serious consequences

Given the above circumstances, any legal review will factor in the exigent need to take any steps which could trigger liability, and weight the liability against the potential benefit of that step. A good move will be one which will yield a benefit above the costs.

BREVITY Contracts covering contracts of significant size complexity are expected to be sufficiently detailed to contain all relevant information within one document so it can show as clearly as possible all pertinent issues under consideration by the parties and also express the rights and responsibilities in sufficient detail. For a contract of the magnitude of the UNIPASS contract, the brevity is worrying, so is the lack of detail. The pronouncements and warranties seem to have been made without connection to any proof of ability to perform or lien in default.

This contract in its brevity still gives much space to the rights of the Ghana Link Limited (also referred to as The Contractor) and the responsibilities of the Ghana Government and penalties attendant to default on the part of Ghana Government. Not sufficient space is allotted to the responsibilities of the Contractor and the penalties for their failure.

Section 2. APPOINTMENT OF CONTRACTOR The appointment clause is complete, emphatic and unequivocal. Such emphasis suggests a certainty which could only be the result of complete due diligence. Such due diligence is not evident or obvious nor is it referred to at all. This contract is not for the purpose of outlining the outcomes of the due diligence exercise, so it must be assumed that due diligence was done and favourable. Any scrutiny of this contract in its entirety must go into the outcomes of the due diligence done.

Section 3. CONDITIONS PRECEDENT This section normally should set out conditions prior to certain actions for each party. It however seems skewed to only things the Government of Ghana has to perform.

it is reasonable to expect that this section would contain undertakings by the Contractor also to perform certain preliminary tasks before the Government of Ghana will commit.

Our review revealed that the conditions precedent listed are one-sided in favour of the contractor at the expense of Government of Ghana.

There are also clauses which show that Government of Ghana plans to hand over some assets and facilities belonging to existing service providers to the Contractor ahead of this contract. It is not clear under which contracts these handovers would be conducted since the existing service providers, have not been engaged by the government. Further, West Blue and GCNET, have been quite vociferous in their rebuttals to the crookedness of the current arrangement and swore never to hand over such assets (years of investment and knowledge to match) in the manner contemplated by government.

A contract is to protect the parties, a reviewer for Government of Ghana would worry about such unsecured commitments and rightly so. What covers the handing over of GCNET and West Blue’s assets and the commencement by the contractor of operations handed to them?. It is a most worrying omission and worse still if there are no subcontracts covering these hand overs.

The contractor in 3.1.4 only provides assurances and lists ‘Plans’ to perform certain functions. It is not sufficient under this circumstance that there is no liability assumed by the contractor for all the assets and operations it has been given. At a minimum one would expect a certain minimum investment by the contractor and a Performance Bond or something similar to assure Government of Ghana that it is covered and would not be the loser if things go wrong. It is definitely not sufficient that one party extends real assets and property, whereas the other extends assurances backed by nothing evident.

Section 4. REPRESENTATIONS AND WARRANTIES OF BOTH PARTIES

A legal review of the contract show that this section is generally sweeping in its provisions. Again it must be assumed that there are several other more detailed and more technical agreements beneath this main contract. It will be quite worrying if there are no such contracts. If there are, they surely must be attached as Appendices to this for a fuller understanding. In this section the contractor simply warrants that he has capability and legal authority to perform the contract.

Observing this agreement as it is, facially gives the contractor lopsided advantages without sufficient lien on its own assets. It is also not clear what the contractor is risking as their “Skin in the business”. A reviewer would expect these warrants to be based on something certifiable, such as a contract with the owners of the UNIPASS system (CUPIA) and Ghana Link, or other such firm proof to back the capability statements made. There is no evidence of such.

The simple question one could ask is, ‘what are these warranties based on?’ Where is the proof that the Contractor can fulfill them, and what are the penalties for failure or fallback for Ghana Government?

Regarding the government’s own warranties to contractor in this section, Government purports to recognize that contractor has “rights in and to the unfettered legal, technical and commercial management of the services under this agreement”. This is both vague and unfounded.

Contractor has no inherent right to government property and those of third parties such as West Blue and government cannot grant that by such a statement. For such unfettered access to resources and systems, some of which are owned by third parties, there must be more elaborate detail on the quid-pro-quo; What is the contractor giving for these and under what terms? Do these “rights’ extend to parties such as West Blue and other 3rd Parties?

Section 5. SCOPE OF SERVICES This section describes the actual job. It states as follows:

“the contractor….shall deliver and install a tailor made comprehensive national single window platform …..” a parsing of these words reveal that the contractor will impose an end to end system which they control. it is not clear but suggested that this will be their own system and not necessarily an assemblage or blend of existing systems managed by different entities as presently pertains. This presents many questions, key of which is how such a sweeping system can be imposed in the present situation. It could be that (as suggested earlier) the existing systems will be handed over to contractor and he will work them all into one seamless system, it must be noted that not all the systems belong to Ghana Government.

The lack of clarity on this is extremely worrying. If not properly sorted out, that could be the deal killer, bringing everything down with attendant costs and confusion. Again it is important to study any underlying contracts which make this possible without legal, financial and operational problems.

Section 6. THE UNIPASS SYSTEM The UNIPASS system is described here. The key questions which arise from a review of this section are well outlined in the questions and recommendations section of the Imani Africa article. (https://imaniafrica.org/2020/01/31/imani-why-government-must-reconsider-its-decision-on-the-controversial-uni-pass-customs-and-ports-technology/ )

The key question which arises is whether there is an exigent need to change this system and what the cost and benefit analysis looks like.

The level of urgency serves to either justify a certain cost or make it pointless.

This legal review so far has not detected any urgency for which the present system must be disrupted. This also raises questions around why the Ghana Government will give so much away for the UNIPASS system.

If the Ghana Government sought independent objective legal advice on this, it is likely they would be advised to allow UNIPASS to make a competitive Bid against the existing system and prove why they must take over the system plus the rewards of such a move. The present arrangement looks like the Government is handing over the contract ‘on a silver platter’ at no evident cost to the contractor herein, and then also grants them generous terms and wide latitude to operate without proving either their capability or producing proof upfront of what they bring in terms of investment and other resources. This will no doubt attract suspicions of undue influence.

FEES A legal assessment should not stray too much into that analysis, but it is highly recommended that the present fees being charged be compared to the proposals agreed in this contract and a determination on value for money made.

In this instance however, it is pertinent to note that other examples exists and constitute precedence and a guide for assessing these fees. This issue is also raised in the Imani Africa article.

A cursory glance reveals that this level of fees is significantly higher than the existing but reveals no added benefits to justify the higher cost to Ghana.

According to the contract, the processing fee for the UNI-PASS system will be 0.75% of Free on Board (FOB), compared to the existing combined fees of GCNet (0.40% of FOB) and West Blue (0.28% of CIF) which sums up to 0.68%. However, as government receives 35% out of the GCNet’s 0.40% fee, in real terms, GCNet receives 0.26% (0.40% less 35%). This means the total cost to government under the existing system is 0.54% (GCNets 0.26% + West Blue 0.28%) while UNI-PASS’ fee will be 0.75% of FOB.

OBLIGATIONS OF THE GOVERNMENT Another worrying section is with regards to the stated obligations of government. Read together with the conditions precedent section, it is clear that there are many obligations placed on government which is in this case the sovereign entity, and the safer partner to deal with; and little obligation is placed on the side of the contractor which is the service provider.

In this arrangement, the sovereign is more at risk in a default because whereas the contractor could go out of business and leave huge problems, the country Ghana will remain and the locus in quo (the ports) will always be there. It falls to reason therefore that the obligations on contractor be better spelt out for the protection of government in case of contractor’s failure, rather it is clear that more obligations are placed on government.

This is usual if the contractor drafted the agreement, but it is expected that government would amend these lopsided provisions to balance things out. Presently it doesn’t seem there has been a balancing of the relative responsibility and the effects of a potential default risk.

OBLIGATIONS OF THE CONTRACTOR One would expect This section to outline obligations and conditions to be met by contractor before commencement or even the landing of equipment for installation. It however skips all that and starts with an obvious stipulation which is trite, that contractor shall commence and complete installation of the UNIPASS system…. This is trite because that is what the contractor is contracted to do.

His obligations should be related to timelines for performing certain preliminary functions which then would open way for full implementation. It has already been observed that the contractor is already installing systems and proceeding as if everything has already been concluded. The obligations listed here are essentially the contractor’s operational requirements for performing on the contract without which there can be no contract.

It should be clearer what the contractor has to produce to show that he is capable of performing his duties under the contract, such as proof of availability of financial, technical and other resources, and setting up escrows and other conditions to ensure the right levels of mobilization by contractor before Ghana commits to them and removes the operators on the ground.

REPORTING A useful provision, but there must be some detail (hopefully in another document about linkages with institutions on ground such as GRA)

LICENSE A necessary and Proper provision but raises the question of what rights contractor has regarding the software and other systems. This emphasizes why Government of Ghana must have a view into the contract between contractor and CUPIA.

GOVERNING LAW AND DISPUTE RESOLUTION This is the best part of the agreement. The contractor is a Ghanaian company domiciled in Ghana under the laws of Ghana and conducts business in Ghana. This arrangement leaves out the complexities of an international agreement with its attendant costs and nuances.

The parties also accept that the Laws of Ghana will apply entirely in dispute resolution and other matters

TERM OF THIS AGREEMENT It would be useful to streamline regarding the potential difference between commencement date and effective date. This is important because liabilities apply from effective date. There must be agreement on the date when all parties assume rights and responsibilities.

TERMINATION Termination clauses are regular and proper, but as dispute clauses, they always create stress and must therefore be well set out. The payments due upon termination clauses complicate this.

Termination of the UNI-PASS contract by the government either voluntarily or through material breaches occasioned by it, attracts graduated fees of between US$93 million in the first year to US$12m in the tenth year. Given that the UNIPASS/Ghana Link Network Services single window contract was awarded for US$40 million for ten years, these termination clauses only benefits the contractor. There is need for further scrutiny of other relevant documents on how those figures were arrived at.

Curiously, the Ministry of Trade has not published revenue projections from implementing UNI-PASS because it has not published such reviews to justify the signing of the UNI-PASS agreement. Our advice to government will be to shelve UNI-PASS until its promoters have demonstrated value far and above existing systems.

CONCLUSION This is intended to be a review of the legal aspects of the contract. The goal is to pronounce on whether in a normal situation under regular conditions this contract can be described as legally sound and fit for purpose. The verdict on that is this, for a purpose so complex, this simple contract is not fit for purpose.

Between the two parties herein this is legally binding, however it is easy to surmise from the above analysis that there are other encumbrances attendant on the capacity of the two parties herein. These encumbrances have a direct effect on whether the parties can perform their responsibilities under this contract. To the extent that the encumbrances can lead to the frustration of this contract they are also material and crucial.

The government of Ghana is encumbered in the sense that there are third parties with valid contracts within this same space with some engaged in Joint Ventures with the Government itself. The resolution of the rights of these third parties and the introduction of this new player (Ghana Link) will not be simple and straightforward. At least, West Blue and GCNET have said in interviews, that, the UNIPASS-Ghana Link contract can never be effective as existing critical systems, they own cannot and will not be handed over to another private vendor in the manner proposed.

Ghana Link as a party to this contract brings the UNIPASS system, which is the main service being offered. It is clear that they don’t own the UNIPASS system and the extent of their rights regarding the system it is not stated. It is also not evident if they have run this system anywhere else. If their partners, and the owners of UNIPASS, (i.e. CUPIA) have a change of mind for any reason, this whole project will suffer.

This contract, whether stated or not in reality touches many parties in different ways. Such a multifaceted and multi layered arrangement covering a crucial sector of the Ghanaian economy, (i.e. Ports) and a strategic area (revenue generation) is not one to be sufficiently concluded in such a sparse agreement with little detail, and which seems to have been drafted for the protection of just one of the parties.

It is not possible to describe this contract as sufficient or fit for the present purpose. Instead of clarifying rights and responsibilities as every contract should do, this contract complicates things and is likely to create more problems once the third parties involved decide to assert themselves. If possible this whole arrangement should be given a thorough re-consideration.

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