Overcoming Roadblocks

Issues and concerns in DFC implementation

G.Venkata Prasad, Director, Operations, Deep Foundations Institute of India 

By unveiling the vision for setting up separate freight corridors and by incorporating a separate special purpose vehicle, Dedicated Freight Corridor Corporation of India Limited (DFCCIL), in 2006, the Ministry of Railways chose to pursue an ambitious and much-needed expansion and modernisation of the railway network. It is to be noted that in order to accommodate a larger number of trains to handle the increasing passenger traffic, Indian Railways (IR) lost share in freight traffic, which fell from 83 per cent in 1950-51 to 35 per cent in 2011-12.

Implementation plans

After the formation of DFCCIL, many follow-up actions were taken to award the first contract by 2013, as a part of the eastern corridor, for commencing civil works. During the intervening period, plans were frozen to execute the

1,856 km long eastern dedicated freight corridor (DFC) and the 1,504 km long western DFC involving a cumulative investment of Rs 815 billion. As on 2013, land acquisition was taken up, contract documents were developed and loan agreements were signed with the Japan International Cooperation Agency and the World Bank for east and west corridors. All the packages corresponding to these two corridors were awarded in a stage-wise manner between 2013 and 2016.

The other four corridors – North-South (Delhi-Tamil Nadu), East-West (West Bengal-Maharashtra), East-South (West Bengal-Andhra Pradesh) and South-South (Tamil Nadu-Goa) – will be taken up for implementation in the next stage. Once fully complete, the DFC will cover a length of over 10,000 km.

Delays in the implementation of current packages

The aforementioned DFCCIL projects offer substantial opportunities to various stakeholders related to the Indian construction industry. Substantial work has been carried out meticulously by multiple agencies, resulting in the first two corridor projects achieving significant progress as on date. However, it is expected that a few more years will be needed to see the first phase of the project being completed fully against original deadline of 2020.

There are multiple civil, electrical, mechanical, signalling and telecommunication packages under the two corridors that have been awarded to various contractors and are facing substantial delays and are expected to be further delayed by two to four years. This is due to various coordination issues with the multiple government authorities involved, delays in land acquisition and securing design approvals, etc.

Cascading impact of delays

Most of the contractors have made cost provisions to cover men, materials and plant including overhead costs for contractual duration of four years. The extended project implementation period will put contractors in irrecoverable financial distress in terms of cost overruns without any mechanism to address it. Further, with the contract conditions remaining stringent and the client/project management consultant (PMC) mindset not accepting time and cost extension claims easily, contractors are deprived of adequate working capital. Further, the payment terms of a lump sum contract are so stringent that it is a nightmarish experience for contractors to generate the required finance, from running bills to ploughing back funds into project execution. These circumstances will lead the contract duration in getting drifted for the substantial period.

In different DFCCIL contract packages, a number of different work elements are bundled in such a manner that, unless all the specified tasks are complete, the contractor is not eligible to claim the bill. For example, if a particular billing lump sum item is priced at Rs 200 million and it takes four to six months or more to complete all the sequential activities to achieve 100 per cent completion, the contractor is not eligible for any payment till then, despite having incurred a huge cost at each stage of the project. More such items mean it is financially stressful for the contractor in terms of investment being locked up against various tasks. The initial mobilisation advance given to the contractor provides no compensation to manage these situations. Such a scenario puts a huge burden on the contractor, thus impacting project timelines and costs.

The implementing agency and the PMC make every effort to repudiate the various contractual claims of the contractor for salvaging the damages inflicted on them for a prolonged time. They refer to the dispute resolution board and then to arbitrators/courts. In the process, years pass by and considerable damage is caused to the contractor’s interests.

Project intricacies

The design phase of this project was very critical since it involved a plethora of steps including conducting surveys and soil investigation, taking stock of the existing bridges along the portion of the line that runs parallel to the existing IR track, collecting hydraulic data, and incorporating all these details in the project framework.

The duration of the project is 48 months. The design development is to be planned in such a manner that the first-stage construction of bridges and earthworks commences from the 11th to the 12th month after the contract commencement date. By this time, the contractor is expected to put up reasonable site infrastructure across the hundreds of km of different packages to commence the main works. Further, different utilities are required to be shifted in all priority stretches so that the main project works can be executed unhampered.

While land acquisition and the handing over of land to the contractor are the responsibilities of the implementing agency, the contractor faces multiple challenges in taking over the land as per the timelines stipulated in the contract. The contractor is also responsible for coordinating with various government authorities such as the forest authorities for obtaining the necessary approvals for the removal of trees; the highway authorities for design development and execution of all road interfacing works related to bridges and road crossings; the revenue departments of various regions for obtaining permission for quarrying earth for embankments; the electricity boards and water supply departments for the removal/relocation of various utility services; and the traffic authorities for the diversion of traffic. It invariably takes longer time to achieve these goals and awarding contracts with 4-year duration will only lead to substantial delays and strain to all contractors across the spectrum.

Financial woes of contractors

Given the enormity of the job and the already delayed project timelines, contractors are subjected to deep financial problems; hence, granting incentives to them to speed up project works is not a workable solution. Rather, the implementing agency should pragmatically look into the above-mentioned issues, consider revising the payment terms across the spectrum and take quick decisions on settling genuine claims so that contractors feel financially secure to complete the balance works. It is also suggested that contractors come forward, discuss common issues and possible solutions with the owners to reach consensus that provides win-win situation to all. Such an approach will hopefully provide a lot of relief to the contractors. A big loss in such projects may have a long-lasting impact on contractors’ fragile financial position including on the performance of their other ongoing projects.

Remedies

Since the states involved will reap immense benefits once such a major infrastructure project is commissioned, the concerned government authorities should consider stationing their liaison officers from the respective departments  at the office of the chief project manager of the particular DFCCIL package, and report directly to the top official  of their department, so that they are able to coordinate between the DFCCIL team and their offices in expediting all approvals.

It is difficult to obtain approvals for the general arrangement drawings (GADs) of various project components involving third parties in a time-bound manner since there is no obligation on the part of the respective bodies to commit to project timelines. This has been one of the major reasons for the delays of various packages that are under execution. To avoid this in future packages, as is being practised by the National Highways Authority of India in its contracts, GAD approval should be made a prerequisite at the time of the reckoning of the contract commencement date.

Another issue resulting in project delays relates to the payment schedules of current contracts. Most contractors do not receive payments commensurate with the progress achieved on various fronts. This needs to be changed suitably in all future contracts. In some of the later DFCCIL contracts, the civil, environment management plan and other packages are bundled and awarded to a single contractor to achieve better coordination. There is a need to review the success of such contracts for replication in future contracts.

It is a welcome move that, the central government asked DFCCIL and the contractors to take all possible steps to settle the latter’s cash flow situation/variation claims amicably.   DFCCIL’s investment of Rs 815 billion involves a financial cost of around Rs 50 billion per annum. Any further delay in project implementation would mean additional costs for the government and also delayed economic benefit to the entire nation.

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