Contractor Perspective: Experience, concerns and outlook

Experience, concerns and outlook

Engineering, procurement and construction (EPC) contractors continue to face challenges that existed even a decade ago. Issues related to land acquisition, availability of skilled labour, biased bidding documents, lengthy procedures for dispute resolution, and price fluctuations are some of the impediments that have taken a toll on the contracting party. In this regard, small steps in the form of fixing dispute resolution timelines to 12 months and guidelines for 75 per cent payout of the bank guarantee in the case of arbitration awards have been taken.

There is also particular focus on developing iconic structures rather than constructing conventional ones. Bridges are no exception. There has been a transformation from conventional bridges to longer-span, extradosed, cable-stayed bridges. The Signature Bridge in Delhi and the Bandra-Worli Sea Link in Mumbai are examples where innovative construction techniques such as cantilever-span cable-stayed technology have been used. Apart from this, the segment has witnessed an increased pace of project award and completion. The implementation of projects has been fast-tracked with completion periods becoming as short as 500 days.

At a recent India Infrastructure conference on “Bridges, Flyovers and Elevated MRTS Structures” held in New Delhi, there was a panel discussion among contractors that threw light on the prevailing issues and steps that are needed to improve the existing scenario. Excerpts…

Contractor perspective

Contractors believe that despite several advancements in the bridge segment, challenges on the ground continue to impede project development. For instance, during the project planning stage, unrealistic timelines for survey and investigation of topography and geological conditions are fixed. As a result, sound investigations are not carried out, thus leading to changes in layout, land acquisition plans and design. Another major hindrance faced by contractors is the lack of availability of land parcels. Often, projects are awarded prior to the completion of the land acquisition process. This results in project implementation delays and rehabilitation issues. One such project is the Srinagar-Baramulla-Udhampur rail link project in Jammu & Kashmir that has missed several deadlines due to the laid-back approach of the state government in acquiring land for laying railway lines. The project was announced in 2002 and has been languishing for the past 16 years. At present, only about two-thirds of the 326 km rail link has been completed.

Another critical issue is the lack of labour and skilled manpower during project implementation. As a number of projects are being constructed simultaneously there is a paucity of labour resources. Also, poor productivity and low retention results in wastage of time involved in imparting the necessary skills. Sudden equipment failures too hamper project progress.

Besides, construction of projects in hilly terrains poses geological uncertainties which impact the project completion schedule and cost. At the same time, development of structures across the Himalayan region involves complexities with respect to design and access to locations. There is a shortage of highly skilled design consultants that prepare designs in line with changing geological conditions. Also, capable and competent design engineers and consultants fail to design projects within the given time frame.

Lack of access to raw materials is another impediment to project progress. While there has been a shift from concrete bridges to steel super structures, the availability of high quality steel remains a problem. Getting high quality high grade steel for major bridges is an issue due to the presence of only a handful of manufactures in the country. Key manufacturers such as Jindal Steel & Power Limited, Essar Steel Limited and to some extent Steel Authority of India Limited are unable to produce high quality high grade steel that would be reliable for all construction techniques.

Apart from availability, transportation of raw materials from source is another challenge impacting projects. Lack of adequate logistics facilities such as warehouses and terminals makes delivery to remote corners or difficult hilly terrains a complex task. One such project location is the Katra-Banihal section of the Srinagar-Baramulla-Udhampur rail link project which is being developed in Jammu & Kashmir. It is considered to be an extremely tough engineering project as it involves the construction of 27 bridges (including the tallest rail bridge in the world) and 37 tunnels, one of which is more than 12 km in length.

For project completion, unrealistic time schedules and milestones are set, leaving contractors with no choice but to comply with them, thereby compromising on quality. This also results in the preparation of wrong estimates of the time and costs involved. Thus, there exists a mismatch between what contractors aim to achieve and how they go about doing so. On the part of the implementing agency, decision-making is severely lacking. As a result, timely action and decisions are not taken.

Another important area is the inefficient dispute resolution mechanism. Disputes are bound to arise due to conflicts of interest and once a dispute occurs, arbitration is a long-drawn process. Even if arbitration has taken place and decisions have been given, they are challenged in different courts, and this further consumes time and money. Exorbitant fees are charged by lawyers for arbitration proceedings, further stressing the cash-strapped contractor.

Price fluctuation of inputs such as cement and steel is another area of concern that does not get addressed completely through the price escalation mechanism provided under various contracts. Apart from this, the existing L1 bidding model needs to be abolished and an efficient mechanism of choosing contractors needs to be set up. Under the L1 model, new entrants vying to enter the market bid at untenably low prices. These low prices later render the project infeasible. An example of this is the Zojila tunnel project for which IL&FS had secured the contract at a price that was much lower than that quoted by other bidders, and the project had to be later retendered.

Recommendations and the way forward

A number of challenges that crop up during project execution are out of the control of the parties involved, but certain measures can be taken to reduce the impact. For instance, the bidding documents are developed keeping the interest of the nodal agency at the forefront. Instead, provisions must be made for equal sharing of risks to lower the burden on the contractors. For this, preparation of geological baseline reports, an internationally followed practice, is a must. In this report, the risk of individual parties is clearly defined. Also, proper planning and investigation before the start of the project has to be ensured. An interface between the decision maker and the technical partner needs to be created to address issues well in time.

Another hurdle is that though subcontractors are not financially sound, they are directly involved in a major part of the project. Thus it is important that their interests too are kept in mind and contractual obligations clearly laid. Regular cash flow to them has to be ensured as project completion is heavily dependent on them.

With respect to regulatory loopholes, efforts have been made to improve the scenario following the dispute resolution timeline of 12 months as stipulated under the Dispute Resolution Act. Also, exorbitant fees charged by lawyers and legal professionals during the arbitration process have to be normalised. In this regard, a maximum cap on fees charged by lawyers has to be fixed.

Apart from this, as per NITI Aayog’s recently issued guidelines, 75 per cent of the payment has to be released against the bank guarantees in case the arbitration order is issued. However, only a select few central authorities are implementing this. For greater impact, these guidelines have to be implemented in every infrastructure segment. This will be a big step forward for the sector.

For timely completion of projects, synergy between the nodal agency, consultant and contractor has to be created. In addition, innovations in construction metrology or design and construction techniques have to be adopted. Project management consultants (PMCs) also play a key part in bridging the gap between the agency and the EPC contractor. Therefore, a PMC has to be on-boarded for developing relations with clients and labour to take up issues and resolve them amicably.

Another critical factor is maintenance of adequate cash flow for the contractor so as to expedite work. For this, the responsibility should not fall solely on the shoulders of the contractor. All parties involved must ensure that payments are made on time.

Moreover, bidding models can be remodelled with a new approach to awarding projects. Bidding criteria should be based on the technical capability and past experience of the contractor rather than quoted values. Also, the norm of submitting bids only if 90 per cent of the land has been acquired needs to be followed stringently to eliminate uncalled-for delays.

Finally, the perception of contractors and all other stakeholders has to change. Government agencies must treat contractors as their partners in progress and work cordially to achieve project milestones. w

Based on a panel discussion among Sanjay Dave, Vice President and Sector Head, Engineering Management, Hindustan Construction Company; Akhil Gupta, Executive Director, Operations, Afcons Infrastructure; K.K. Gupta, Vice President and Head, Special Initiatives, L&T ECC; and R. Prakash, President, Roads, Gammon Infrastructure Projects, at a recent India Infrastructure conference