CAG admonishes UP for excessive payments to private entities for constructing cancer hospital

The Comptroller and Auditor General (CAG) of India has severely admonished the Uttar Pradesh government for excessive payments to leading real estate developer Shapoorji Pallonji and Company Pvt Ltd, third-party consultant for quality control Mukesh & Associates and architect Archohm Consults, for building a cancer institute in Lucknow at a cost of ₹854.51 crore.

The State ended up paying ₹64.60 crore more since the estimated cost of constructing the cancer hospital itself was inflated, the CAG reprimanded in a "compliance audit report" for the year ended March 31, 2020. Similar instances of payments to private entities on jacked up prices have been exposed by the CAG in its report submitted to the UP assembly on Wednesday. UP government's Department of Medical Education had made the PSU UP Rajkiya Nirman Nigam Limited (UPRNN) the project executing agency in 2015.

Delay flayed

The auditors have criticised UPRNN also for the project delay of more than four years. The hospital construction at Medicity in Lucknow was slated to get over by October 22, 2017, but it was still going on at the time of two-month long audit, from November of 2020, and the CAG charged that the UPRNN did not seek liquidated damages from Shapoorji Pallonji though a clause, the penalty would escalate with delay of time, was spelt out in the agreement.

"The estimated cost of the project was inflated by ₹75.91 crore due to adoption of rates without obtaining competitive rates from market and adoption of incorrect rates. As the bids were benchmarked against such inflated estimate and justification statement of rates was also not prepared, it resulted in extra expenditure of ₹64.60 crore when compared to actual procurement cost or correct/reasonable rates," the CAG observed.

The Department of Medical Education, said the CAG, accorded administrative approval in February 2015 to construction at a cost of ₹854.51 crore which included cost of work amounting to ₹796.84 crore. The estimate of cost was prepared by architect Archohm Consults on the basis of UP Public Works Department's Schedule of Rates, Central Public Works Department's Delhi Schedule of Rates and analysis of market rates in case of non-scheduled items. The estimated cost, including of items, was ₹499.38 crore and were based on analysis of market rates. Of the total sanctioned cost of work of ₹796.84 crore, more than half, i.e. 62.67 per cent was based on market rates and these were determined by the architect by obtaining budgetary offers/quotations, the auditors stressed.

The UPRNN, stated the CAG, without obtaining rates of non-scheduled items from manufacturers on a competitive basis to verify the veracity of the rates independently invited tenders for execution of the project on the basis of sanctioned estimate. This despite the fact that the Expenditure Finance Committee while giving nod to the estimated cost in January 2015 had noted that UPRNN should obtain rates from manufacturers on competitive basis to avoid purchase on inflammatory prices, it pointed out.

Single budgetary offer

During the audit, the CAG detected that nine non-scheduled items having estimated cost of ₹99 crore were high rates and adopted based on single budgetary offer/quotation resulting in increase in the estimated cost by 45.50 crore. Shockingly, the estimated costs of the nine items were inflated ranging from 33 percent to 395 percent when compared each of them from the invoices attached with the bills submitted by the construction agency.

In its reply, the UP government stated that since the contractor was not required to quote for individual items but on an overall cost percentage basis, there may be multiple instances where the contractor had estimated his rates as much lower than the tender rates. They were, however, not reflected due to the nature of contract, UP told the CAG.  

In addition to that, the audit also found that the prices of five other items were evaluated on higher side -- from 6 percent to 100 percent when compared to the competitive rates -- to get an estimated cost of ₹153.64 crore. This puffed up the estimated cost by ₹30.41 crore.

COMMENT NOW