Background to the problem
On November 13, 2011, the Nation newspaper published an article captioned “Saga of the Barrack muddle” and written by Bryan Walker. That article stressed the fact that, with interest rates as high as 10% built into the arbitrator’s ruling, pressure was mounting on the Government of Barbados to solve the Al Barrack problem as quickly as possible. However, pressure or not, little or no progress has been effectively made since then.
Today, I am focusing attention on the amount of money owed by the Government of Barbados to Barrack Construction (Barrack) only. Thus, arbitration costs, court costs, and legal fees are not included in my analysis.
It appears that Barrack was “awarded” a contract by the Owen Arthur administration related to the erection of a National Housing Corporation (NHC) office complex at Warrens, St. Michael. A dispute subsequently erupted between Barrack and the Owen Arthur administration and the contentious issue was submitted to arbitration on July 25th, 2002. The issue remained under arbitration until September 6, 2006.
At this point, a few questions are justified:
Did any Barbadian firms get a chance to bid for this project? If not, why not?
Why did it take over four years for the arbitrator to resolve the dispute?
On September 6, 2006, the arbitrator ruled that Barrack had been entitled to a payment of $34.5 million back in July 2002, and since the amount was not paid back then, it should accumulate at an annual interest rate of 10% up to the date of the ruling. After September 6, 2006, any amounts unpaid would attract an annual interest rate of 8%.
The $34.5 million owed to Barrack in July 2002 had accumulated to $50.9 million by the time the arbitrator gave his ruling in September 2006.
The Owen Arthur administration refused to pay the $50.9 million in September 2006, and when a change of government was made on January 15, 2008, the Al Barrack debt had grown to $56.4 million.
Based on information provided in the Nation article, I was able to note that the David Thompson administration paid Barrack $2.5 million in November 2008, but did not formulate any meaningful solution until December 28, 2009 when it made the following proposal to Barrack:
· $15 million in cash by January 31, 2010
·Monthly payments of $1.67 million thereafter for 18 months.
Presumably, at the end of the eighteenth monthly payment, the debt would be considered paid in full.
Using principles from financial mathematics, I have analyzed David Thompson’s proposal and have come up with the following picture:
| Payments & Proposed Payments | Value at January 31, 2010 using 8% interest |
| Actual $2.5 million paid in November 2008 | $2.75 million |
| Proposed $15 million to be paid on January 31, 2010 | $15 million |
| Proposed 18 monthly payments of $1.67 million payable from February 28, 2010 | $28.3 million |
| TOTAL VALUE OF THOMPSON’S PROPOSAL | 46.05 million |
At January 31, 2010, the $56.4 million unpaid at the end of Owen Arthur’s term in office had grown to $66.21 million based on the arbitrator’s orders.
This led to the following situation at January 31, 2010:
Gross debt owed to Barrack $66.21million
David Thompson’s offer $46.05 million
Proposed underpayment $20.16 million
If that Nation article is correct, Barrack, as was his right, refused the offer made by PM David Thompson to cheat him out of $20.16 million. According to the newspaper, Barrack’s ‘public snubbing of the offer so disgusted former PM David Thompson that he declared he would make “no further personal intervention” in the matter, but would leave it up to the lawyers.’
The Barrack solution was now outsourced.
By the time David Thompson died in October 2010, the outstanding Barrack debt had grown to $67.2 million.
Reportedly, no further action has been taken, and by the end of December 2013, the outstanding Barrack debt will grow to $85.8 million, with responsibility assigned as follows:
Amount of Barrack debt
Owen Arthur administration $56.4
David Thompson administration $10.8
Freundel Stuart administration $18.6
Total ($ million) $85.8
Solution to the problem
Dear Mr. Barrack,
I have been informed that, as a result of an arbitration ruling made on September 6, 2006 related to the construction of a NHC office complex at Warrens, the amount owed to you by the government of Barbados will reach $85.8 million at December 31, 2013.
From a national perspective, this matter has been allowed to fester for an unacceptable length of time. Since Barbados is not a banana, fig, or plantain republic, the government must play an exemplary role when it comes to obeying and upholding the rule of law.
As you are undoubtedly aware, Barbados is facing some serious economic and financial challenges at this time so we simply cannot afford to pay you the outstanding $85.8 million in a single lump sum.
Consequently, I am proposing the following payment schedule which will eliminate the government’s obligation to you by December 31, 2018:
-
A lump sum payment to you of $25 million on December 31, 2013
-
An annual payment of $15.23 million to you for five years, with the first payment starting on December 31, 2014, and the last payment being made on December 31, 2018.
Please note that these payments are mathematically equivalent to the amount of the outstanding debt. You can rest assured that the Government of Barbados is not trying to cheat you out of any money which is legally yours.
Please indicate, in writing, if you agree with the proposal as outlined above.
On behalf of the people of Barbados, I would like to take this opportunity to commend you for the amount of patience and tolerance you have exhibited over the past seven years, and to wish you the very best in the future.
Respectfully yours,
The Prime Minister of Barbados
The blogmaster invites you to join the discussion.