Logistics

JNPT seeks refund of ‘extra money’ made by Dredging Corp on channel maintenance contract

P Manoj Mumbai | Updated on December 26, 2020

A view of a container terminal at Jawaharlal Nehru Port Trust

JNPT is one of the four shareholders of DCI after a 2019 government-to-government strategic divestment

Jawaharlal Nehru Port Trust (JNPT) has asked Dredging Corporation of India Ltd (DCI) to refund the more than ₹30 crore it made in “extra money” by sub-contracting the channel maintenance work given to it in 2019, at a value lower than what was agreed between them.

Dredging industry sources said this is the first such instance in the sector where the employer is seeking refund from the dredging contractor.

This further assumes significance because DCI is now part-owned by JNPT.

Also read: Port union brace-up for litigation against privatisation of JNPT-run container terminal

Visakhapatnam Port Trust, Paradip Port Trust, Jawaharlal Nehru Port Trust and Deendayal Port Trust together acquired the Central government’s 73.47 per cent stake in DCI for ₹1,056 crore in March 2019.

Maintenance contract

DCI secured a three-year annual maintenance dredging contract from JNPT in 2019 on nomination basis (without a tender).

In the first year of the dredging contract, DCI outsourced a large portion of the ₹165 crore work agreed with JNPT to a private dredging contractor for a much lesser value, making more than ₹30 crore of “extra money” in the process from the deal.

DCI defended its move to outsource a big part of the work to a private dredging contractor stating that “it was short of dredgers” to do the work on its own.

Also read: JNPT board clears privatisation of self-operated container terminal

“The sub-contracting was done by inviting open tenders and the lowest was selected,” a DCI official told BusinessLine in June, adding that it did nothing wrong by sub-contracting the work and making some extra money. “That is business; how can anybody blame us for that,” he said.

The Board of Trustees of JNPT discussed the issue following a BusinessLine report on the matter and issued a notice to DCI seeking refund of the “extra money” it made from the contract, government sources said.

DCI confirmed receiving a notice from JNPT asking for refund but declined to comment further.

Sub-contracting is allowed in dredging contracts finalised by the employer and the contractor at an agreed rate. In such cases, the employer will only look at whether the sub-contractor is capable of doing the work properly, industry sources said.

Overstepping the terms

“This is also the first time an employer is overstepping the contractual terms to seek a refund. If it were the other way round, would JNPT agree to pay the higher amount to the contractor,” an industry source asked.

JNPT, according to sources, has sought refund from DCI to avoid potential adverse observations or queries from the government auditor, the Comptroller and Auditor General of India, on why the contract wasn’t tendered out to the lowest bidder – the preferred way to determine market rates — instead of giving it to DCI on a nomination basis, resulting in “unjust gain to DCI” from sub-contracting the work at a lower value.

Wiser from the experience of spending more than the market rates for annual dredging, JNPT decided not to pay the full ₹189 crore estimated by DCI for the second year’s work. Instead, JNPT said it will only pay DCI the amount it finalises with the sub-contractor plus a 10 per cent extra as supervision/project management consultancy charges.

Published on December 26, 2020

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