The Hindu Business Line : NHAI takes a new route

As the National Highways Authority of India (NHAI) gets ready for the next lot of highway contracts, which are going to be much larger in size than the earlier ones, it needs to take up a slew of measures to ensure that these projects do not suffer long delays, as was seen in the several earlier contracts.

Experts in the sector — both from the industry and the Government — point out that the NHAI now has some experience and should take preventive steps so as to avoid such cost over-runs and delays.

DELAY IN PRESENT CONTRACTS

As on March 31, 2007, NHAI had about 46 construction works — amounting to a total length of 1844 km — which were plagued by time and cost-overruns. Three projects, which were cancelled due to non-performance of contractors, are yet to be re-awarded. One project is targeted for completion with a 61-months delay, two with a delay of 51-60 months, six with a 41-50 months delay, 16 with a delay of 31-40 months, six with a 21-30 months delay, seven projects by about 11-20 months and five projects with one-five months delay. Incidentally, these completion dates are targets and could be subject to further changes. In terms of cost-overruns, almost 29-30 projects of the 46 have already incurred costs beyond the budgeted amount.

WORK AHEAD

In 2007-08, the NHAI is targeted to take up 65 construction projects for building 7,000 km of highways — with the work valued at about Rs 46,000 crore.

This is against 116 construction contracts undertaken to build 4,740 km of highways in 2005-06. Thus, in 2007-08 fiscal, NHAI contracts would be for road lengths ranging from 90-300 km, point out official sources.

REASONS FOR DELAY

While the reasons that delayed implementation of projects were unique in each case, broadly, they were on account of land acquisition, utilities clearance, bad quality detailed project reports (DPR), leading to massive change in scope of work after the project was awarded, and non-performing contractors.

Land acquisition: Problems in land acquisition have resulted in massive delays for several projects. To avoid such delays, the new model concession agreement has clauses to ensure that 60 per cent land acquisition and utilities clearance are done by NHAI and passed on to the road developer before the financial closure of the project.

"NHAI would have to pay penalty to the contractor in case the authority fails to adhere to these norms.

Thus, we would be under pressure to acquire and handover the land to the concessionaire," said a top NHAI official.

Bad quality DPRs: Industry observers also point out the need for NHAI to strengthen its process for selecting engineering and supervision consultants, as well as contractors.

"Several projects got delayed owing to poor quality DPRs. With so many highways projects, almost everybody with some prior experience in highways opened a consulting firm. This led to bidding at very low prices and, thus, there were project reports which had been prepared with virtually no ground work. With such DPRs, when contractors actually got down to work, they realised that the scope of work had to change significantly," pointed out companies in the construction and consulting space.

Admitting that this was an issue, NHAI officials point out that apart from blacklisting consulting firms, they have introduced penalty clauses to ensure better performance by DPR consultants. "Now, according to the contracts, if there is a variation in actual scope of work beyond 15 per cent levels of the suggestions in their report, they are penalised," said a top official.

Contractors: Additionally, many smaller contractors also entered the highways sector through the joint-ventureroute, to meet pre-bid qualification criteria. "About two-three years ago, NHAI was struggling to meet deadlines. That was the time when several contractors were planning initial public offers (IPOs) in the market. For the IPOs, they wanted to show swelling order-books and bid at rock-bottom prices. However, now the manpower and raw material costs have gone up making projects unviable at those costs," sums up another official from the industry.

According to sources in the Ministry, "NHAI could have resorted to stringent measures more often such as terminating contracts of non-performers. And better contract management to ensure that none of these non-performers are able to stall work by litigation." NHAI, however, has avoided cancelling contracts. "We usually try and get the work done by the same contractor by extending some help," said an NHAI official.