Upload
vutuong
View
216
Download
1
Embed Size (px)
Citation preview
Indian Contracts & Risks - Time to Relook
Experience on
Infrastructure Contracts
S C Sharma
Former Director General (Roads) & Special Secretary
Ministry of Road Transport & Highways
3rd December 2016, New Delhi
1
Contracts & Risks
Indian Contracts & Risks
Risk Control approaches
Identify and Remove sources of Risk, Mitigate, Transfer
OR Absorb Risk consequences and losses
2
Infrastructure construction projects have a history of
problems
Generally, of high risk nature, which affects project
objectives -
Quality, Time, Cost
Response - Reactive
Item Rate Contracts-Employer’s risks are high
3
Risks
Known and Controllable
Design: Inaccuracies in Survey, Design and Estimation
Errors in items of reference for setting out
Delay in Drawings, Design Changes,
Change of Scope
Right of Way
Delay in acquisition and giving access to the Site
Requirement of Additional Land due to changes
4
Environmental Clearance
Concerns of stake holders , Inadequate EMP
Approvals, ROBs, Utilities, Unsuitable ground conditions
Unpredictable Risks
Unforeseeable Physical conditions,
Exceptionally adverse climate conditions,
Unforeseeable shortages of personnel, goods
Force Majeure
Non-political, Indirect political, Political Event
5
Public Procurement- Annual
Public Sector procurement – 8 lakh crore*
Government procurement – 2.5 to 3 lakh crore*
* not updated
6
State of Procurement
As per OECD Matrix of items for quick assessment of
the state of procurement practices in a country, India
may be lagging behind on many of the items such as:
Legislative framework
Model documents
Standardisation of Conditions of Contract
Procedures of Contracting
7
State of Procurement
Planning and integration with budget
Timely procurement and payments
Conflict of Interest
Quality control and performance evaluation
Contract administration
Dispute resolution, Appeals, etc.
8
Institutional framework for procurement is weak:
Transparency, Accountability,
Efficiency,
Economy, Competition
9
Public Perception
Public perception about the quality, credibility and probity of public procurement is generally poor.
10
Time and cost Overrun- Trend Analysis (MOS&PI)- 16 Sectors - Oct 2015
Out of 782 projects:
TOR in 215 projects range 1-261 months
COR in 224 projects 86.88%
Original cost – Rs.2.36 lakh crore
Anticipated cost – Rs.4.42 lakh crore
Railways – 160/296 – COR 154.8% *
RT& Highways- 13/160 – COR 56.1% *
* Not updated.
11
Performance Audit of PPP projects – NH
CAG, Dec 2014, 94 projects
Change in Scope in 23 projects – Increased cost by Rs.856.80 cr. Of this Rs.662.5 cr due to deficient DPR/FR
In 25 projects TPC worked out by Concessionaire was higher by 50%
Delay in handing over land in 63 projects
Delay in obtaining approval of ROBs,
Environmental clearance
5 projects completed in time out of 60 projects.
12
2014-2015 NHAI
113 Arbitration and 83 court cases involving
Rs.22,426 cr and Euro 3.5 lakh pending against
Authority
Capital works in progress Rs.1.41 lakh cr.
EPC Projects under implementation Rs. 29,648 cr.
13
Railways- CAG Report 2015
Out of 442 ongoing projects targets for completion
fixed for only 156 projects.
Time overrun upto 16 years.
Cost overrun Rs.1.07 lakh crore.
75 projects were ongoing for more than 15 yrs.
Cost of 442 ongoing projects revised from Rs.1.55
lakh crore to Rs. 2.62 lakh crore.
14
Railways
Delays due to
Failure to ensure completion of preliminaries before award of the works.
Delay in preparation/ sanction of estimate/ Inaccuracies in estimates.
Delay in land acquisition
Deficient planning
73 percent of the arbitration cases decided against Railways.
15
Risk Allocation
Private sector’s capacity to take risk under- estimated.
The principle is that risk is owned and managed by the Party best able to deal with it effectively.
Risk allocation between Parties depends on the type of
Contract
16
Responsibilities of Parties & Risk sharing
Design Bid Build
Dual Responsibility
Allocation of Risks – Employer H
Design Build
Single Point Responsibility
Allocation of Risks – Employer M
EPC/Turnkey
Single Point Responsibility
Allocation of Risks – Employer L
17
Change from Item Rate to EPC
Public procurement has to embrace new forms of
global best practices and newer forms of procurement.
The Committee on Infrastructure, chaired by the
Prime Minister, had decided in 2006 that the NH
Projects should be done on EPC basis.
The Cabinet approved construction of the Railway
freight corridor only on EPC basis.
18
Public Procurement Committee
Way Forward and Recommendations
For accelerating the reform of public procurement:
1. Declare the public procurement policy for promoting transparency, competition, efficiency, economy and probity.
2. Set up an institutional framework as the Department of Public Procurement to build institution capacity, laying down rules, regulations, procedures, standardised documents and to establish an oversight framework for achieving the objectives
19
3. Enact a Public Procurement Law
4. Public Procurement Portal
5. Procurement of Works
Item –Rate Contract responsible for endemic time and cost over-runs should be phased out.
EPC (LS/Turnkey) contract system should be adopted for all projects other than small or exempted works.
Multiplicity of tender and contract documents used by different Ministries and PSEs cause avoidable confusion, risks, disputes and costs.
20
6. Department of Public Procurement should bring out standard bid documents and processes should be streamlined and standardised for all ministries.
7. Procurement rules for services. Suitable templates developed for procurement of different types of services
8. Mandate that procurement by PSEs should be based on competitive bidding and Public Procurement Policy
9. Capacity Building- Training Need Assessment and calendar of training for procurement officials. Set up an Institute of Public procurement
21