Many contractors have attempted to establish a business in the dredging market or diversify their marine business to venture into this segment. However, over the years, it has been observed that only a few contractors have been able to sustain themselves in the market for a long period. To sustain a business in the dredging industry, there is a need for qualified and experienced personnel to estimate the production and cost involved in a dredging project. The estimators should be able to understand the type of soil to be dredged, correctly estimate the production, and subsequently, arrive at a reasonable cost for the project. Any error in the production estimate leads to a variation in the cost estimate, thus resulting in losses in the dredging project.
The Ministry of Shipping (MoS) and the Ministry of Skill Development and Entrepreneurship have been jointly analysing the gaps in the marine industry, particularly in the dredging segment, and have come out with a set of skills that the industry needs to upgrade. According to the ministries, there is a need for good civil engineers to correctly understand the soil model and interpret the borehole data to make correct estimates about production. Further, there is a need for qualified cost estimators as well. The MoS is moving in the right direction and is working with the Indian Maritime University and the National Technology Centre for Ports, Waterways and Coasts to establish a working committee to regularly train dredging personnel on production and cost estimation.
Essentially, contractors and their employers agree to adhere to the scope of work and specifications, to hand over the dredging project as per the client needs, at the price quoted by the contractor. Often, financial institutions blame the employer for not having done the project cost estimation properly, thus leading the contractor to quote a high price for the dredging project. As per International Federation of Consulting Engineers contracts, the term cost includes all expenditure reasonably incurred by the contractor for executing a project, whether on-site or off-site, including overheads and similar charges, but excluding profit or markups. However, the price typically quoted by the contractor includes his profit/markup.
Since the profit estimation is at the contractor’s discretion, there is often a wide gap between the budgetary cost of a dredging project and the price quoted by the contractor. While calculating the cost, the employer has to understand the scope of work in terms of soil modelling based on the borehole data, and then make production estimates. With the production estimates in hand, equipment appropriate for the project is selected. Next, the contractor designs the work schedule in accordance with the needs of the employer. Further, the contractor calculates the overhead and applicable costs based on the schedule of work and the duration for which the equipment needs to be deployed. Finally, the contractor arrives at the cost of the project. However, there are a number of risks associated with cost estimation. For example, any errors in estimating the production or cost can result in additional costs, loss of revenue, erosion of earnings before interest, taxes and amortisation, increase in overhead expenses, blocking of equipment due to delays in project timelines and subsequent economic loss in other projects.
A major lacuna in Indian contracts is that contractors are not involved early on in the project implementation process, when in fact, they should be involved right from the soil investigation phase. Early involvement of contractors can significantly help in reducing the possibility of disputes. Keeping this in view, the MoS is working towards ensuring that contractors are involved early on in dredging projects. Phase II of the dredging project at the Jawaharlal Nehru Port Trust adopted this strategy on a trial basis and has succeeded in keeping prices reasonable relative to market levels. Apart from the contractor’s involvement, issues pertaining to the selection of equipment need to be addressed. Equipment should not merely be selected according to market availability, since its selection has an ultimate bearing on the project cost. Besides, an effective dispute resolution mechanism needs to be incorporated for timely project implementation. There is also need for a comprehensive dredging policy in India. w
Based on a presentation by G.Y.V. Victor, Director, AMAREENA Group, at a recent India Infrastructure conference