Views of Private Contractors: Key issues and possible solutions

Key issues and possible solutions

The dredging industry has received increased government attention in the past one-two years. One of the major initiatives has been the new guidelines released by the Ministry of Shipping for dredging projects at major ports in November 2015. At present, major ports follow different practices for the the award of dredging works. These contracts can be awarded with payments linked to the quantity dredged based on pre- and post-dredging depths, guaranteed depth, hopper measurement of the dredger or daily dredger hire charges. The new guidelines are intended to ensure uniformity in the practices adopted at different ports.

Key issues and challenges faced so far

According to private contractors, there are still a number of issues hampering the growth of the sector. The conditions stated in the bid documents of government-owned dredging projects are stringent and the bidding parameters are not defined clearly.

Despite various discussions, the Indian dredging industry has been unable to develop a comprehensive contract document based on International Federation of Consulting Engineers (FIDIC) guidelines. The FIDIC is an international standards organisation that formulates conditions for contracts recommended for construction works where tenders are invited on an international basis. With some minor modifications, these contracts are widely used in domestic projects. As these documents are project, location and employer specific, special conditions are required for project-specific issues, on a case-by case basis.

At present, most dredging contractors use a standard dredging contract which fails to meet project-specific requirements and assess associated risks. Also, the risks associated with dredging contracts are not predetermined and are left to the contractor’s interpretation, resulting in ambiguity in its interpretation.

The lack of detailed soil investigations is another concern being raised by private contractors. While performing soil investigations for dredging contracts, investigators are also asked to undertake soil investigations for upcoming infrastructure facilities at the port for which dredging is being undertaken. This leads to discrepancies in the results of soil investigation, thereby delaying the implementation of the dredging project.

The Central Vigilance Commission, the nodal agency for ensuring that procedures are followed during the tendering process, has set 180 days as the bid validity period. The equipment reserved for dredging contractors by port authorities is unlikely to be available in case of late submission of work orders.

The Finance Act (No. 2), 2004, introduced a tonnage tax system (TTS) for the taxation of income derived from shipping activities by an Indian company. The TTS is an optional scheme, that is, if a company does not wish to opt for the scheme, it will continue to be governed by the normal provisions of the Income Tax Act. However, this beneficial tax regime is available only to Indian companies, putting foreign shipping companies at a comparative disadvantage.

A lack of clarity in bid documents, shorter designated time period between bid issuance and submission, ambiguity in tender documents regarding the scope of work and associated risks, unanswered queries during pre-bid meetings, and absence of the required expertise and research and development are key challenges faced by contractors in the dredging industry.

The way forward

A dredging contract needs to include a proper arbitration mechanism which provides a time-bound method for the resolution of any possible dispute. If any party fails/refuses to perform its obligation or conceals/misrepresents some facts/information, then the contract should be considered void. Contracting practices need to be improved, as besides capital dredging projects, more and more maintenance dredging projects are being awarded.

Project managers and consultants need to be proactive and should act as neutral observers, giving equal importance to both the employer and the dredging contractor.

Other recommendations that can help promote the growth of the industry are proper soil investigations, equal sharing of risks between employers and dredging contractors, and training personnel for dredger maintenance, project management and hydrographic surveys.

Based on a panel discussion among Harsharan Singh Dharni, chairman and managing director, Rock and Reef; Amedeo Peyron, managing director, International Seaport Dredging Limited; Prasad Rao, general manager, dredging, Mercator Limited; and Janak Raj Thomas, adviser, Jan De Nul Dredging India Private Limited, and treasurer, Eastern Dredging Association, at a recent India Infrastructure conference