With project delays costing India's exchequer more than Rs 3 trillion, the time has come for the government to review and update, and match the contractual nuances with global practices.
According to the report published by Ministry of Statistics and Programme Implementation (MoSPI), out of 1,420 central-sector infrastructure projects worth Rs 1.50 billion and above, 385 are on schedule, 366 projects are delayed, 358 projects reported cost overruns, and 136 projects reported both time and cost overruns with respect to their original schedules. That said, around 32 projects have reported additional delays vis-a-vis their date of completion. Of these 32 projects, 14 are mega projects costing Rs 10 billion and above.
The total original cost of implementation of the 1,420 projects when sanctioned was Rs 18.05 trillion but this was subsequently revised to Rs 21.63 trillion, implying a cost overrun of Rs 3.38 trillion (20 per cent of the original cost). The expenditure incurred on these projects till September 2018 is Rs 7.83 trillion, which is 36.21 per cent of the anticipated cost of the projects. However, the number of delayed projects decreases to 300 if delay is calculated on the basis of latest schedule of completion.
Further, for 651 projects, neither the year of commissioning nor the tentative gestation period has been reported. Out of 366 delayed projects, 100 (27.32 per cent) projects have an overall delay in the range of one to twelve months, 69 (18.85 per cent) projects have a delay in the range of 13 to 24 months, 91 (24.86 per cent) projects have a delay in the range of 25 to 60 months and 106 (28.96 per cent) projects have a delay of 61 months and above. The average time overrun in these 366 delayed projects is 45.95 months.
While the delay saga continues, something is brewing India's current contractual agreement scenario.
Here Dr Ritesh Chandrashekar Tiwari, Director-Highways & Structures, Egis India highlights how most contractors are not rewarded despite timely completion of projects. He supports contractors' demands for incentives over and above the promised amount to complete projects on time. "This will help companies to focus more on building their reputation," he says. "Also, there need to be checks and balances at the client's end at a more stringent level to monitor delays so that they can be addressed and minimised."
RA Rajeev, Metropolitan Commissioner, MMRDA explains the downside of the current system in a nutshell. According to him, PPP is yet to evolve in India owing to policy changes every five to six years. However, his inclination towards EPC mode is evident as many projects in Maharashtra are based on cash contracts. "In India, EPC contracts terms and conditions have properly evolved over the years," he adds.
With respect to EPC and PPP contracts, Jai Prakash Shivahare, IAS, MD, Dholera Industrial City Development Company, favours internationally accepted standard contract template or guidelines such as one prepared by the International Federation of Consulting Engineers (FIDIC). As international contractors are familiar with these contracts and are much more comfortable bidding on Indian projects, Shivahare opines project delays issues can be resolved in an amicable and equitable manner.
Although, quite a few Indian projects are being implemented by foreign companies, the country has a potential to attract more international bidders. Jagdish Salgaonkar, Sr Vice President - Major Programmes, Aecom is a firm believer of international contractual practices. "Owing to India's lopsided contractual agreements, not many international bidders participate, especially from Europe," he says. Even EPC contracts are modified by the Planning Commission, whereas the international community is familiar with the guidelines of the FIDIC contracting terms and adheres to them.
Ditto to Salgaonkar, Sandeep Upadhyay, Managing Director and CEO, Centrum Infrastructure Advisory raises the red flag on India's contractual agreements as they mostly favour clients. "After the Vijay Kelkar Committee, there has been a strong impetus on balancing out the contractual obligations from both the public and private prospective for all EPC and HAM projects, which is working in favour of the roads and highways sector," he adds.
Recently, the Ministry of Road Transport and Highways has revised the model request for proposal (RFP) and contract agreement for National Highway projects to be executed on EPC model. The revised model suggests that in no event shall the cumulative length of encumbered or hindered sections of project highway exceed 10 per cent of the total length.
"In case both parties to the agreement comply with the above provision in letter and spirit without any dilution and the concerned authority takes all the required advance actions in fulfilling the above indispensable requirement of exclusive possession of 90 per cent right of way of the project highway, it will certainlyhelp mitigate risks effectively," says Yogesh Jain, Managing Director, PNC Infratech Sunil Srivastava, Managing Director, BARSYL suggests weightage for technical competence, past history of timely delivery and core competence in contractual agreements. He cites the example of European countries where the lowest and highest bidders are eliminated during the pre-bid process. "Such practices must be implemented in India, especially for mega projects," he avers.
All considered, most contractors believe that government contracts are one-sided the majority of times and criticise the implementing authorities, believing they look down upon contractors as outsiders, not partners.