this would benefit equipment companies like Gujarat Apollo and
Revathi Equipments more than road building outfits who may end up
paying major penalties.
Road contracts to be delivery based
http://www.financialexpress.com/news/road-contracts-to-be-delivery-based/629222/0
To accelerate national highway (NH) projects, the government is
mulling a shift to a new delivery-based criterion for awarding
contracts from the current lowest-bidder norm. The idea is to bind the
concessionaires to pre-determined delivery schedules, by imposing a
heavy penalty for failure.
The government's plan is to get 35,000 km of roads built in the next
five years under the National Highways Development Programme, which
entails award of projects worth $75 billion to private players. It
reckons that the current pace of project implementation is rather
tardy, and would not get it anywhere near the target of building 20 km
of roads a day. The key, therefore, is to ensure that the
concessionaires stick to delivery schedules.
The move is also aimed at weeding out non-serious players, who have
already been discouraged by the recent norm that a concessionaire must
have achieved financial closure in the previous three projects awarded
before applying for the fourth.
According to official sources, under the proposed system, cost would
be a secondary concern, with the government willing to pay higher
costs — through viability gap funding — to get the project completed
on time.
Sources said that the concept of delivery-based award of projects is
now being discussed at the inter-ministerial level. "The
delivery-based model would certainly push up the costs initially but
in the long run, competition among equipment suppliers would ensure
that that they don't flare up too much," said an official privy to the
discussions.
"It is difficult to achieve the 20 km-a-day target under the current
system, since construction work gets affected for around four months
when there are rains. Further, our capital equipment industry is not
at a stage where it can meet such targets," said an official.
The lacuna in the current tendering model where contract is awarded to
the lowest bidder (L1) is that parties bag a set of contracts but fail
to meet targets due to equipment shortages. Some of them manage proxy
petitions in courts over land acquisition and other municipal issues,
and the ensuing litigation is cited by the concessionaire as reason
for the delay in the project.
"If the contractor is paid without the hassles of being L1 on the
undertaking that project would be delivered on time, he would divert
equipment from other smaller projects and finish the project on time.
Once the new system sets in, the capital equipment industry would
start growing and eventually the cost factor would even out," the
official said.
It is reckoned that the loss to the economy due to poor connectivity
in towns and cities could be much higher than the initial cost the
government would have to bear for shifting to the new model.
It is imperative for the government to expedite road construction, as
road density in India is 770 km per 1,000 square km against the world
average of 841 km, according to a study by Ficci and Ernst & Young.
According to World Bank, 30.1 million people in India do not have
access to rural transport as against 23.5 million in China and 0.2
million in United Kingdom.
Due to delays in awarding projects, the road transport and highways
ministry had to lower the target of awarding highway projects from
more than 12,000 km by March 2010 to 7,000 km. Later, the deadline too
was extended to June 2010. In 2010, the ministry targets to bid out
another 12,000 km.
To achieve 7,000 km a year, at any given time, work for 21,000 km
should be in progress. But it does not mean that that amount of work
should be in progress at all times. The awarding process should be
such that 35,000 km of roads is built in the next five years.
CA.RAJESH DHIRAJLAL DESAI
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