EXTERNAL AUDIT

OF SINOHYDRO LTD, GHAT BRANCH

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Identification of parties:
y y y y Contractor: Sinohydro ltd. Company- Based in Ghat city, Libya. Client: HIB Libya. Program Manager Director (PMD): AECOM. CM/CS: ATLC

Auditor:
y y y y The auditor of Sinohydro ltd was the consultancy company ATLC (Arab Tunisian Libyan Consultancy) which is the nominated Cm/Cs of the project Ghat 3000 Houses , P.N. 4.21.003 of HIB LIBYA. The Cm/Cs in charged auditors was: -CM-Dan Iordachescu: Production, Human Resources, Quality, Technical Office, Material approval Compartments and for the Project Manager. -SRE- Carlos Messias: Safety and Laboratory compartments.

Status:
Dead line requested by PMD AECOM; 30 November 2010. Finished; 30th November 2010 Submitted; .
th

Object of audit:
y Performances of the contractor related to the Contract: 534/2007- design and build of 3000 houses in the Ghat Shabiya-Libya.

Objective and scope of audit:

y The objective of this audit was not the product of Sinohydro (which is the 3000 houses), because the CM/CS already does this work every time, day by day, and the results of this work are recorded and presented in our Monthly Reports and in the other standardized requested forms. The objectives of this audit were: A) Policy of the company B) Management of conducting this policy. C) Strategy of implementation of policy. D) Responsibilities.

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Regarding the above 4 points of view( A, B, C, D), the scope was: Processes and management of each one of the below compartments: 1. Human resources compartment 2. Production compartment 3. Quality compartment 4. Laboratory. 5. Purchaser and material approval compartment 6. Technical compartment 7. Safety compartment 8. Planning compartment (*) 9. Document control compartment (**)

(*) the planning compartment having very big shortage of skilled staff, there were no point and no object to be audited, therefore we just recommend to implement it, as having actually inexistent skilled schedulers for P6 software, for Base Line Schedule construction, and updated construction plan. (**) the document control compartment will be the target of further audits; I consider a completion time at 60 days as a reasonable dead line for this matter. Notice: Not included in the scope: o Administrative comp. o Financial comp. o Polystyrene factory- already audited o Batching plants already audited

Purpose of this audit:

y The purpose of this audit is to identify the contractor s problems that may lead to low quality of the product, to draw conclusions and recommendations in order to improve the quality and/or to solve nonconformities.

Tools:
y y y Face to face interviews; Spot inspections; Document verifications

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Procedures and records:

y The strategy of this audit: -Collection of necessary and incontestable data, starting with the basement of pyramid (the Site Engineers), and finishing with the top management (the Project Manager). -Every time when the audit of one inferior level of pyramid was finished, the results of this audit has been used and presented for investigation and interrogation to the next level, trying to understand and indentify the responsibility of each subject, and the explanation for the presented results. Written and signed papers were produced, having the written confirmation of each subject and of the present witness that this interview was fair conducted. Audio files were recorded. Documents were checked (Quality Manual of the company, standards and specifications, construction forms, method statement, software and so on).

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Brief history:
y This audit was noticed and prepared by the C.M. s letter sent in 08th of November 2010, five days before start, with full explanations regarding the content, procedure, requirements, audited compartments and documents to be presented. Also, in this letter was presented the schedule of interviews, day by day in order to have a smooth and fair allocation and preparation of the concerned audited person. The audit had been started in 13th November 2010, 10.00 a.m. The interviews had to be accurate and fair. The contractor already was prepared to contest this audit, asking for certificates of auditor; therefore I had to be careful and to be sure that every time somebody from Sinohydro assists to the interviews and that person s opinion is that the interview is fair. The questions and answers are recorded and signed by the audited person, by the auditor and by the assistant and/or by the translator. As a first conclusion I can say that 50 % of the time allocated for interview was wasted because of language barrier. From this remained half time, another 60% was many times wasted because of the not true answers. As an example, a young engineer claims that he has enough experience in order to do his work as a QC engineer. But before coming in this project he only worked 3 months for the foundation of a rail road. He graduates the University in 2009. I had to ask him details about housing, plastering, slabs, windows, doors, workers, how many days are needed for raising the walls for one house, and so on, in order to receive the correct answer that he is not enough experienced. Another engineer graduated of Hydraulic University, another one- Project Cost University, another- Mechanic University, and all of them answering that they are enough qualified or enough experienced for their

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job (site engineers or QC engineers). Most of them, not having read the HIB specifications and/or the method statement, tried to answer that they have read and they know the concerned documentation; I had to enter into details of HIB specs and method statement in order to understand if their answer is true or not. For this reasons, each interview took me 3-4 hours, been very exhausting. After two days of interviews, I delegated some of the auditor s power to the Surveyor engineer, Mr. Zhong, who had assisted me two days and he already understood how the interview should be conducted. He continued with site engineers of Awaynat and Tahala and I start to interviews the QC engineers of Berket. In this manner I succeed to cover myself minim of 40-50 % of the site and QC engineers, having also for the others an indirect result from Mr. Zhong. The interviews of the QA/QC Manager, Technical Central Office Manager, Project Manager, Site Managers, and Material Approval -compartment, were made by me. The Safety System and the Laboratory Management were audited by Mr. Carlos Messias, the SRE. th The audit ends in 28 of November and in the same day the CM have started this report. All the original records of this audit are kept in the CM/CS archive in Ghat, and a complete copy will be sent to the ATLC Tripoli Office as backup.

Conclusions and recommendations:

1) Human resources :
 Process: (see attached flow chart)  Management:

Request of the needed staff: The Site Managers. Centralizing the requests: The Chief of the Technical Office. Approval of requests: The Chief Engineer and Project Manager Transmitting of request to China: The H.R. chief. Performing the selection, recruitment and visa process: The China office. Approval of rsums: The Project Manager. Training: nobody.  Conclusion:

a) Recruitment: a normal process on the paper, but very slow and hard process in fact. This process is taking too long time, and the Libyan visa timing is not anymore an acceptable excuse. The recruitment management is weak

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and not followed up; example: the management of recruitment process for the scheduler engineers took too long time and the qualification and experience of the new employees is well short. b) Selection process and target achievement. Difference between needed and got it: far away of acceptable. The most of new engineers brought in site have NOT the required qualification for this project and they are inexperienced. Either the rsums of the candidates are not verified, either the process is not controlled by the Project Manager. The general impression is that the contractor lost the control of recruitment, not having a plan of needed staff, and not following up the quality of recruitment. c) Trainings and improvement of qualification courses: inexistent.

Recommendation:

The Project Manager is called to improve the speed of recruitment, to increase the control and authority over the recruitment agency from China in order to receive human resources according with the actual needs of this project. The verification of the rsums is mandatory and the specification of what human resources are needed should be accurate. The improvement of qualification, like courses is mandatory, and the training is requested. o The Cm advice the contractor to prepare a plan with the necessary allocation and needed specifications of human resources and timing estimated as be needed, for each category of job, and after having the intermediary answer, to follow up the concerned rsums before having the decision of visa process start. The contractor shall present within 72 hours a complete training process, schedule, agenda, trainee, trainer, reference docs and so on. The contractor should start an internal investigation in order to identify the responsible person for the failure of this process. Consequently conclusions and actions should follow this th investigation. The Cm expects to see the concluded actions until 15 December 2010.

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2) Production compartment:
 Process:

The production compartment of all five sites is controlled by the Chief Engineer, Mr. Lu. The production for each site is controlled by the Site Managers. The site managers are assisted by the Deputy Site Managers, and here is ending the senior engineers level. The site engineers, new incomers, most of them inexperienced, unprepared for their job, are in charge with site inspections after is finished the work process for the concerned items (example: form work and steel bar fix before concreting). If the item is not conform, they

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refuse it and the labor team shall proceed to remedial work. If the site engineers accept the work, the QC engineer is called in order to proceed to final inspection before the Cm/Cs. [My remarks: why two floors of young engineers (Site Engineers and Qc engineers) are doing the same job, one after the other? Both floors are inspecting the same item after the work process is finished. Maybe, because the QC engineers don t trust in the ability of inspecting of the site engineers? Then, what is the point to have them in site? And to have them in Libya? Actually, I have the answers: 1) Because I asked long time ago the contractor to introduce Qc engineers for inspection of works before calling the CS. 2) Because in this case, the management doesn t know what to do with the other category: the site engineers; so they were kept also for the same job. This is the understanding process of production for the Manager of production in this Project: they were brought from China because the Cm asked them, but nobody understood why. 3) Because not having other choice, the management decided to start a learn process in site for the new students , just arrived. Therefore, with the Client money and claiming extension of time because whether problem and utilities shortage, the management of production started the school house process in order to have well prepared engineers for further Projects.]  Management:

I call the above organization, as the second level of Sinohydro. The first level is the working team, consisting on the skilled and unskilled labor. Those are the production teams, well organized before coming in Libya, having specialized people for all what is necessary for a good coordination, and having a foreman as leader. The number of workers of one team varies from 40 to 100 people. Neither one engineer coordinates their job, nor supervise the follow up of the methods stated, nor scheduling. These teams are paid by quantities, and if the work is rejected, they will not be paid, unless a basic small salary.

Conclusions:

The management does NOT control the production process of Sinohydro: Several hundred of workers in each site are not organized, controlled and supervised by any engineer, and the production process suffers of a big lack of seniority. The only one connection with the production management is two Deputy Site Managers for each sites of Ghat and Berket, and one Deputy Site Manager for each site of Tahala, Feewat and Awaynat. Actually, the staff of each site (the second level of Sinohydro) acts as a Cm/Cs, inspecting only finished works in order to demand the inspection of the second Cm/Cs, which is ATLC.

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The real constructor is the first level , organized and coordinated by the foreman. This kind of management of the production process leads us into an unbelievable percent of rejections as at 49% this month.

Recommendation:

o The contractor should introduce the site engineers into the production team, asking them to organize and coordinate the process, the method and provide planning and report for the future work, needed materials, and so on. Any processes should be leaded by engineers. The site engineers should be much more responsible for all the aspects of the site works, and not only to inspect the finished work. But, Sinohydro does not have such experienced engineers in order to accomplish this task. o Additionally the new site engineers are not equipped with computers, desks, folders, cabinets, documentations, and all the other tools that a real engineer (and not a student) needs. Principality and seniority of civil engineers is a must for the actual situation of this project. o The contractor should bring from China exactly this kind of engineers, replacing the not ready ones; the remained ones should be trained and well equipped. Actually, time is a luxury for Sinohydro at this moment, with two years delay in Ghat, Tahala, and Berket and school and training for everybody is not a valid option. The contractor needs to have already experienced engineers. A selection between the present ones should be done; training is needed for them, but not for all, as is too late now. The others, if they are not fit with the demands of this project should go home. o The production team should have electrical Site Engineers. o The contractor should start immediate investigation in order to identify the responsible person for this wrong organization system. The Cm estimates that this process of recovering the production control could take 60 to 90 days.

3) Quality compartment;
 Process:

Brief, the QA should ensure that the QC is doing the right job. The QA manager should apply the correct policy of quality, should implement the quality assurance system in order to control and coordinate the work of the QC engineers; should provide them with the right necessary record forms and reports, ensure them with the correct tools, standards and documentation in order to maintain the requested level of the quality control. Traceability and the quality policy is a must. Feedback should be provided. The QC engineers should take any action in order to test, supervise, inspect, and analyze the product, having the necessary documents and the shop drawings, in respect to the client demands and to the referred Page | 8

standards. The QC engineers should coordinate the sampling of each casting, plastering, backfilling, masonry, material reception on site and so on, calling the concerned laboratory person for sampling and testing and following up the results in respect of the applicable standards. Additionally, the QC engineers should inspect the quality of the product according with the control points described in each method statement.

Management:

The quality process is not yet independent of the production process, and all the interviewed QC engineers did not know that their boss is the QA/QC Manager of the Head Quarter from Ghat, but they believe that is the Deputy Site Manager of each site. The Quality Manual is the one of Sinohydro Mother Company, not adapted to this project. The QA/QC Manager could not present the content of this Manual as he never read it. He could not answer which one standard are followed in this Manual. The construction forms included in this Manual are not used by the contractor. The document record numeration indicated in the Quality Manual is not the same as actual in Sinohydro. I could not found in the Sinohydro offices the ISO 9001/2000 nor ISO 9001/2008 . The QA plan is four times rejected, not yet approved and the person in charge is churlish to not follow the CM instruction, although I help them and I have give them a full model to be followed for the Q.A.P. The Project Manager has not yet writes a signed commitment regarding quality, and regarding the person delegated in charge with quality for this Project. The internal audit requested by the CM was not done; the contractor could not present any record, proof of this audit, although they tried to mislead me and to show me a safety audit done by the Mother Company of China, instead of what I asked. The contractor had officially lied the CM having sent a letter saying that they have finished the internal audit and the result is that the company is working fine. The laboratory is not subordinated to the QA/QC Manager, but to the Chief of Technical Office. Actually the management critical line for laboratory is a totally unknown equation. The QC engineers are not enough trained and they don t know yet to whom to report. The only one QC engineer enough technically prepared for this job is the QC leader of TAHALA, but he also was convinced that he s boss is the Deputy Site Manager. We cannot speak about any central coordination of the QC engineers if they even didn t know who their boss is. The staff doesn t know that the general policy of the contractor should be the satisfaction of our client. The method statement is mostly not yet assimilated by all of them. They are not yet familiarized with new procedures. The HIB specs are translated in Chinese and are present in each computer belongs to the QC compartment, but they don t read it. The QC engineers know nothing about quality assurance.

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Conclusion:

There is too much confusion and lack of vectorization. Management is well short. Qc team and laboratory are controlled by production team for each level. The Qa/Qc Manager is new in this position, weak, not yet oriented on the right path to follow. I believe he is not in the full control of he s job, as himself recognized. Other persons control him and most of them don t pay too much importance and attention to this important position. He should be direct subordinated to the Project Manager, but he is subordinated to the Chief Engineer, who is the Production Manager. Even so, been asked who is he s boss, he pointed out to the ex- QA/QC Manager saying that this is the technical office chief, therefore is he s boss also . In the last monthly Meeting he asked a 30 days delay in order to organize the QA/QC compartment but I have serious doubts.  Recommendations:

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The Quality Manual should be updated and personalized with the conditions of Ghat 3000 Houses project. The contractor should follow and use the construction forms included in this Manual if there are not other forms asked by the PMD AECOM. The numeration record of documents should follow the algorithm of the Manual if there are not other requirements from PMD AECOM. The contractor should improve the internet speed in order to have access to the Aconex system. The contractor should present a.s.a.p. the Q.A.P. updated with the new organization chart of the quality system, with the signed statement of the Project Manager regarding the quality policy. The QC engineers should have as direct boss the QA/QC compartment of the head quarter. The contractor shall provide a.s.a.p. with electrical QC engineers. The QA/QC compartment shall ensure that the QC engineers are enough well prepared for this job and will ensure about the performances of their job with proper feedback having reports, forms, and provide a reliable system of following the N.C.N. process until close out of the file. The QA/QC compartment shall cooperate with the Human Resources Compartment following up the training process, the results, and the personnel selection. The laboratory compartment shall immediately be subordinated exclusive to the QA/QC Manager. The contractor shall immediately start the real internal audit and will communicate the results.

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4) Laboratory;
 Process:

The laboratory employees collect samples for test for each material delivery, concrete casting, plastering, brick factory in respect of the QC engineers demand and/or of the standards requirements. Occasionally the laboratory will do the sampling and testing every time when the CM/Cs asks. The result of the tests is submitted to the CS engineers and to the QC engineers. After acceptance of the tests, the work is validated and other control points will be followed according with method statement description.  Management:

The attached organizational chart is incorrect, the management is confused, and the laboratory is not direct linked to the QA/QC Manager.  Conclusions:

Wrong management. The Laboratory Manager is not experienced on this position and only during this project qualified for this job. HIB requirements are not completely assimilated. Lack of possession and lack of establishment of own procedures. The procedures are correct followed, but only as a result of the CM/CS pressure and indications. Confuse definition of individual responsibilities. Action based only as reaction to the CM/CS request. Lack of acknowledges about the individual duties. The records and storage of tests and documents are acceptable. Lack of communication between laboratory and the QA/QC compartment. Difficult communication with the CM/CS. Obstructions to the CM/CS request: the requested tests for all the materials are not yet submitted/performed.  o o o o o o o Recommendations:

Immediate subordination only to the QA/QC Manager. Provide the laboratory with all the necessary standards requested by the HIB specs. Provide the laboratory with own internal procedures according with Quality Manual, Q.A. Plan, and client requirements. Individual study of requested specs and standards. Cooperation with QC engineers. Independence to the production team members for each level. Timely comply with the CM/CS request. Immediate action for the all materials tests, long time ago requested. Replacement of the Laboratory manager.

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5) Material approval compartment:

 Process:

See the attached file. Brief: The marketing is done in 3 offices: Tripoli, Missurata and China. The chief of these 3 offices is Mr. Wang, also the safety manager. He manages this process, but controls it only by phone and post mail, as Sinohydro has no reliable internet connection. The process of selection is placed in the Technical Office of head quarter from Ghat, leaded by the Chief of Technical Office. After selection is finish, the materials are submitted to the CM/CS and after approval the purchaser team takes charge in order to supply the goods. This is a simple description, but in fact, the process is very confuse and heavy.

Management:

The material s selection, done in respect of characteristics and specifications of H.I.B., is the attribute of the Chief of the Technical Office. He is subordinated to the Chief Engineer. The Project Manager and the Financial Compartment approve the price list before submission to the CM/CS. o Conclusions:

Sinohydro has not yet a breakdown of the materials of the all project; assortment and quantities. The contractor cannot schedule a supply process for the necessary materials for this project for two reasons: a) The planning compartment coordinated by the Technical Office Chief is not able to make neither a valid base line schedule nor an update of the construction plan. Actually, after so many rejections of the base line schedule, and despite the recommendations of the CM/CS, the Management of Sinohydro prefers to maintain in position the scheduler of Sinohydro, and dismissed him only after the strong action of AECOM, who have specifically ask it. b) The Technical Office is not able even after two years, to create a complete material list. Sinohydro cannot synchronize, coordinate and control from the Ghat technical office, the supplier selection and the material submission having not a reliable internet connection. Having interviewed the team of material submission, I found out that this team believe that the CM/CS discriminate the suppliers from China against the other countries. The chief of this office recognized that he doesn t know which one should be the policy of selection for this office. They don t know that the

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quality and the respect of standards should be the guide line of this selection. The only one criteria of selection is the price. The only one person having the correct answer was the Project Manager who said: best quality for the lowest price. The responsibilities are not clear defined and a general confusion is floating when I ask about the marketing process.  o o o o o o o Recommendations:

The contractor should have internet speed connection on site. The contractor should have a clear definition of responsibilities. The contractor should have a clear understanding of the selection policy. The contractor should have a clear understanding of the requirements. The contractor should have the necessary standards in order to be able to make a correct selection. The contractor should have immediately a complete material list for the entire project. The contractor should identify the responsible person for this wrong policy and wrong submissions.

6) Technical Compartment. Technical central office.

Process;

There is no process to be described as this office is artificial and not functionally.  Management:

The Technical Central Office coordinates in fact the QA/QC and the Laboratory compartments. This coordination has been discovered only with the occasion of this audit, actually been not shown until today in any organizational chart. As a result of bad understanding of standards and bad performances regarding the quality assurance, the CM had asked the contractor to remove from the QA/QC Manager position Mr. He Quanhong; now, the CM found out with surprise that Mr. He, removed from that position is promoted above the QA/QC Manager, and above the Laboratory Manager, coordinating them from shadow. Additionally, the manager of this office controls the material approval team, the method statements submittal, the translator team, the surveyor team, the quantity surveyor, the document control team and the planning team. The central office is subordinated to the Chief Engineer. As described and signed on the interview sheet, Mr. He Quanhong s activity is sometimes overridden by the Chief Engineer, without noticing him.

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[ Example: the estimated quantity and price for the leveling of new area in Berket: The CM have reject the submission for a total price of 51 million LYD and 1.9 million cubic meters, and after two hours the same office have done a new submission for 18 million LYD and only 677,000 cubic meters, proofing a total nonprofessional attitude toward the money of the Client and to the CM s intelligence. Asked how is possible in two hours to decrease the price with 33 million LYD, the Chief of the Technical Office answers that he doesn t know, because sometimes the Chief Engineer override he s activity.]  Conclusion:

The planning team is not enough qualified, and not well coordinated, and the base line schedule is rejected too many times. The replacement of the scheduler is late and decided only after the AECOM special request. The method statement approval is taking too long, impeding the process of work. The method statements are too many times rejected and every time when a sentence should be modified or added, according with the CM/CS request, other sentences are also changed on purpose, hoping that will be passed with the lack of attention of our Resident Engineer. The materials approval process is totally inefficient and late. Not yet submitted any break down of materials. The quantity survey and the BOQ monthly submission have every time wrong figures. The translator team is partial unprofessional and inefficient having difficulties in understanding the technical terms. Despite the fact that the CM/CS asked the contractor so many times to improve the quality of the translator s team, the improvement was only in quantity.  o o o Recommendations: Immediate recruit of a new experienced scheduler. Improvement of the quality of the translator team. Professional experienced engineers should be placed for the method statement submission and the CM recommend the cooperation with the Site Managers in order to have a correct understanding of the production process. The material approval team should have a clear and smooth organization and management. The possession and assimilation of the requested standards and specification is a must. Replacement of Mr. He from any key position is mandatory in order to achieve a good performance for these teams.

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7) Safety compartment :

Process;

The safety process is based on an independent structure; there is safety responsible for each site and safety central management for the entire project. The safety engineers supervise the work process, make safety remarks and follow up the remedial action. Reports are done and transmitted to the central management. The production team complies with safety requirements and weekly and monthly training are placed in each site. The new request of the CM/CS will be implemented: to check and to revise the method statements.

Management:

The central management is ensured by the Deputy Safety Manager and by the Safety Manager. Ghat, Berket and Tahala site have a safety responsible and a safety engineer. Feewat and Awaynat have one safety responsible. The organizational chart is accepted and correct implemented in field. The HIB requirements are well assimilated and well followed. The H.S.E. plan is followed and updated in a continuous process.

Conclusions:

This team is improving monthly the work, is taking care of their own duties and tries to comply with requirements. There is a fast reaction to our suggestions, excellent cooperation with the CM/CS.

Recommendations:

o o o o

First aid person is missing in all sites except Ghat. Training for the first aid person should be done. The personalized helmet should be introduced faster for safety responsible. The accident reports are requested to be presented in a weekly basis.

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Responsibilities:
Question: who are the responsible persons for the: Wrong inter relation between compartments? Wrong implementation of the organization chart, or/and wrong organization charts? Wrong planning? Wrong recruitment? Wrong Quality management? Wrong organization of the Production? Bad submission for material approval? Bad submission of the method statements? Bad calculation of the invoiced BOQ? Bad translation? Bad policy? And finally and consequently: for the bad results of the production, too many rejections and dramatically decrease of the production rhythm? Answer:      The Project Manager The Chief Engineer The Technical Office Chief The Laboratory Chief The QA/QC Chief.

The CM/CS congratulates the Safety Team and Safety Management for their good performances, understanding that is the maximum that they can do, considering the actual situation.

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Additionally, the CM/CS congratulates the QC leader of Tahala for his attitude toward the work, toward the technique, toward the new and progress. This report is closed on 30th November 2010, Ghat.

Notice: The recommendations with bold font represent a systemic nonconformity therefore are major non compliances and should be addressed a.s.a.p. The contractor shall notify the CM/CS for verification, as soon as each one of the major non compliance is remediated in order to close the concerned N.C.N. The recommendation s compliance will be the subject of the next audit after six months.

ATLC,

CM: ENG. DAN IORDACHESCU.

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