Why do Project Contracts in India get Delayed Abnormally ? Any Solutions ?

Yesterday a friend of mine called me up and asked my opinions about the abnormal delays that do take place in most project contracts in India.

He is a GM (Projects) in a large PSU who is responsible for getting the projects, awarded by his company to various project vendors, completed successfully in the stipulated time as per the contract.

His responsibility starts after the company places the order and signs the project contract. He has to ensure that the project purchaser's obligations as per the contract are met and the contractors (usually another company, either in the private or public sector specializing in Engineering, Procurement and Construction  or  EPC ) are able to carry out the works as stipulated in the mutually agreed contract execution schedules.

But his experience shows that invariably the contract is not completed as per the agreed terms. Time delays of months or even years take place.

There are provisions in the contract which empower the purchaser to levy penalties as liquidated damages ( usually a percentage of the contract price which normally do not exceed 10 percent) if the project is delayed due to reasons attributable to the contractor.

Yet, abnormal delays are becoming a normal thing.

Is it some thing specific to his company or a usual phenomena on a pan India basis ? If so, what are the reasons ? My friend wants to know from me. Of course, he has found out his own reasons and opinions !

First things first. This is not a pan India phenomena. A good number of projects do get commissioned in time successfully as per the contract terms and conditions. However, in a majority of cases in this category, both the purchaser and the supplier are private sector entities.

In the PSU's too some projects get successfully implemented.

But time overrun is becoming a common thing in the recent years.

From the study of such cases, I feel that one of the major cause for such abnormal delays is due to the error committed during the formulation of the project and the contract.

Often, the project feasibility reports and the tender specifications are prepared by engineering consultants on behalf of the purchaser.

The consultants are supposed to evaluate and establish the technical and commercial feasibility of the project and provide recommendations to the purchaser for the investments to be incurred with proper justifications.

Often this kind of a study for a project proposal involving a few crores of rupees to be carried out by the engineers of the consultancy group or  by any one else , if it is to be done genuinely and honestly, takes considerable time ranging from a minimum of three months to a maximum of twelve months. For familiar projects with well known background conditions the time required for the study would be less. In cases where there are too many unknown factors, the time taken would be more.

Time taken for a project by the EPC contractors depends on various factors. Most important in this are:

1. Familiarity of the EPC contractor with the content or scope of the engineering works involved in the contract- the EPC contractor may be good in doing a type of work very well as he has the required expertize and infrastructure in this kind of work. But if the contract involves other kind of jobs which requires sub contracts or procurements from not so familiar vendors, the contractor is likely to face uncertainties. It might also happen that some vendors may refuse to supply certain equipment or services through this firm.

2. The time or location of the work to be implemented- The contractor might have implemented a project at a particular location successfully earlier. But this does not ensure success in another location or time. This is because of a number of factors, most important being the difficulty in getting the same human expertise mobilized for the subsequent cases.

3. The contractors' hands are full- the contractor, though a very good EPC company might be over burdened with so many contracts at different places to the extent that further resource mobilization is impractical.

4. Communication gaps- the tender specifications did not specify certain aspects categorically and the assumptions made by the contractor initially are not acceptable to the purchaser. This leads to considerable time to arrive at a mutually agreeable decision so that the contract work goes forward smoothly. This also involves mid term changes proposed from both sides which are not mutually acceptable without considerable interactions.

5. Impractical packaging of the contracts- this may cause unwilling partners to get tied up as consortium partners who participate in the bids for the contract under compelling circumstances. This can cause non-cooperation and infighting among the consortium partners which affect the contract implementation adversely.

Given the time and the opportunity, experienced engineering consultancy groups are capable of assessing all these and suggest the practical time frame for a project and the best suited contract packages. In reality,  the project formulation engineers are the only ones who can know all these before the project contract is awarded.

However, there is a disturbing trend that is happening in most places in India in the recent years.

It is the tendency among the various top decision making authorities to undermine the findings of the project formulators.

Either there is a tendency wherein the concerned authorities from the purchasers' side where their consultants are not allowed to study the project properly or they are forced to compromise on their projections of time, costs and packaging of the project.

For example, the practical time required for the consultant to prepare the feasibility study report (FR) or the detailed project report (DPR) or the various tender specifications (TS) are whimsically enforced to some abysmally low levels compelling the engineers of the consultants to assume things the way they like without any actual studies or interactions to assess the market conditions.

Even when the consultants prepares a well thought of FR with practical contract time schedules and packaging, they may be compelled to revise those with some other arbitrary schedules and packaging.

Professionally competent consulting engineers of the past used to resist this kind of interventions by some authorities. However, in the recent years there are indications that make it clear that such competencies are no more welcomed by the authorities. Pliability of the consulting engineers is what the authorities seem to welcome. This has caused the consultants to become practical with regard to the ground realities !

So, it can so happen that the project FR in the first place is with a time schedule that is not practical under the prevailing circumstances. The tender specifications may not be practical with regard to the packaging and the time schedule.

The EPC contractors do realize this. In earlier years, they used to point out such impractical things.

However, in the changed scenario, the customer is the king.

Any attempt to correct the customer might cause the EPC contractor losing his chance to win a contract.

So collectively they decide to accept the TS as floated by the purchaser in his tender enquiry and agrees for every thing and the contract is signed only to deviate to practical levels later.

As the situation was similar to all bidders, the penalty clause has become irrelevant.

Any way, in this kind of a situation, the purchaser is the ultimate loser.

He pays more for unsuccessful projects !

What is the way out ?

Simple. If the purchaser determines that such a thing should not happen, it will never happen.

Just allow the consultants to do their work professionally and honestly !

And then proceed as per the FR or DPR that the consultants have prepared honestly !

If the projects fail then, carry out a honest audit to find out the reasons and fixing the responsibilities.

Provide these feed backs to all those concerned.

If actions are required to be taken against those who committed deliberate acts of omissions and commissions, be firm in taking actions which could perhaps work as a deterrent to prevent future mistakes.

It all depends on the purchaser who spends money for the projects.

If the purchaser has a will, there is a way !

Project Cost Estimation and Turnkey Contracts : Some Important Considerations !

Many times it would be necessary for organizations to invest money for some projects involving multidisciplinary engineering and technology.

The organizations could be government departments, government funded autonomous institutions, Public Sector Undertakings, large private sector companies, Non-Governmental Organizations (NGO), etc.

The projects could be some thing of the following kind:

1. Implementation of a water treatment plant with or without the distribution pipe networks.

2. Implementation of a water supply project

3 Implementation of a waste water treatment facility

4 Implementation of a municipal or industrial waste handling and treatment facility

5 Implementation of a captive power plant project or power utility project

6 Development and construction of a township

7 Implementation of a Pollution Control Project for an existing industrial unit.

8 Implementation of a new processing plant with new technology.

9 Building a new multi-storey office complex

10. Implementation of a fire protection system or an Air Conditioning and Ventilation System.

There could be many more such projects. I have mentioned some common investments that keep arising for most of the organizations.

There is a notable thing in this kind of projects that may surprise a common man. That is the project cost.

Even when two projects resemble in their titles and the essential descriptions, their costs could be widely different.

This is because of the wide variety of engineering and technological design options that such projects can have.

For example, a waste water treatment project which I had formulated for my company about two decades ago was estimated by me as costing Rs. 14 Crores.

While this was tendered out for implementation on a turn-key contract basis, the costs as quoted by the various bidders ranged from Rs 12 to Rs 30 Crores.

The more the engineering and execution competency of the bidder, the more was their price.

In this case the purchaser naturally face a dilemma.

Suppose the purchaser make stringency in the eligibility criteria, he has to spend much more money than his estimate.

Again, in this case none of the bidders had any previous experience of implementing a project of similar nature, while all of them had experience in executing turnkey projects involving similar engineering of various scopes and costs.

Some of the bidders have a name and a reputation. While the others are lesser known.

While evaluating this case, I had the opportunity to study the methods used by the bidders in estimating their prices.

Cost estimation is important for both the purchaser and the bidders.

The techniques and assumptions used are all important.

For the bidders pricing is a policy based on the initial engineering estimates worked out.

Some bidders, especially the ones which are large companies, the costing is done by various engineers belonging to various engineering disciplines.

Some others add it arithmetically and add other costs like taxes, contingencies and profit margins to make the final price.

In countries like India, where bidding is the process by which pricing is finalised, it is extremely difficult to establish the cost of an equipment or system.

The various requirements of Earnest Money Deposits, Bank Guarantees, conditions for performance guarantees, payment schedules, etc make the cost of the project to go much higher than the reasonable cost at which a project could be implemented.

In India, both the purchasers and the bidders are pretty unaware of the principles of cost engineering.

Costing, estimation or other aspects related to investment appraisal etc are either handled by engineers who do not have much formal exposure in this field or by finance personnel who have some formal back ground in accountancy only.

Cost Engineering is not a common field of study in India. Indian purchasers or bidders normally  do not use cost engineering tools or softwares.

I remember some attempts made by some engineering  colleges in India, including the one where I studied, making some attempts to introduce this topic in the engineering curricula. As far I know these attempts did not succeed.

In  the developed nations, such as the US and some European countries, where engineering professionalism is statutorily protected and respected, cost engineering training and proficiency is considered as an essential pre-requisite for successful implementation of projects.

However, engineering professionalism could be a problem for those desiring to adopt whimsical project management.

The absence of such competencies, in my opinion, cause cost and time over runs for projects which is a very common thing in India.

How much the country collectively lose on account of this is a matter of debate !

I wonder why India is reluctant to learn certain things from the developed nations ! Cost engineering and contract management are two of such things !

Jesus' Discourse on the Evolution of the God Concept among the Jews !

There is a narration in my favorite book which explains, in a matter of fact manner, how Jesus taught  his twelve disciples about the manner in which the concept of God evolved to the reach to that existed among Jews who lived in and around Jerusalem at that time.

The basis of his teaching was the recorded history that they had at that time in the form of their holy scriptures (the old testament bible that we know today).

The human race, at least some of it, had acquired the mental and intellectual growth level that was required for comprehending some essential aspects of the Infinite Being that they vaguely conceptualized as God.

And that was the beginning of a new epoch in the evolutionary history of mankind on earth !

Now what did Jesus taught them about their evolving concepts of God ?

He was recapitulating the gradual growth of ideas about God in human minds during the previous few millenniums, especially among the Israelite who lived in the regions of Palestine and Egypt.

Let me reproduce below this  narration as given in Paper-132 of the book which I referred above. 

Jesus mildly upbraided the twelve, in substance saying:

"Do you not know the traditions of Israel relating to the growth of the idea of Yahweh, and are you ignorant of the teaching of the Scriptures concerning the doctrine of God?"

And then did the Master proceed to instruct the apostles about the evolution of the concept of Deity throughout the course of the development of the Jewish people. He called attention to the following phases of the growth of the God idea:

1. Yahweh—the god of the Sinai clans. This was the primitive concept of Deity which Moses exalted to the higher level of the Lord God of Israel. The Father in heaven never fails to accept the sincere worship of his children on earth, no matter how crude their concept of Deity or by what name they symbolize his divine nature.

2. The Most High. This concept of the Father in heaven was proclaimed by Melchizedek to Abraham and was carried far from Salem by those who subsequently believed in this enlarged and expanded idea of Deity. Abraham and his brother left Ur because of the establishment of sun worship, and they became believers in Melchizedek’s teaching of El Elyon—the Most High God. Theirs was a composite concept of God, consisting in a blending of their older Mesopotamian ideas and the Most High doctrine.

3. El Shaddai. During these early days many of the Hebrews worshiped El Shaddai, the Egyptian concept of the God of heaven, which they learned about during their captivity in the land of the Nile. Long after the times of Melchizedek all three of these concepts of God became joined together to form the doctrine of the creator Deity, the Lord God of Israel.

4. Elohim. From the times of Adam the teaching of the Paradise Trinity has persisted. Do you not recall how the Scriptures begin by asserting that “In the beginning the Gods created the heavens and the earth"? This indicates that when that record was made the Trinity concept of three Gods in one had found a place in the religion of our forefathers.

5. The Supreme Yahweh. By the times of Isaiah these beliefs about God had expanded into the concept of a Universal Creator who was simultaneously all-powerful and all-merciful. And this evolving and enlarging concept of God virtually supplanted all previous ideas of Deity in our fathers’ religion.

6. The Father in heaven. And now do we know God as our Father in heaven. Our teaching provides a religion wherein the believer is a son of God. That is the good news of the gospel of the kingdom of heaven. Coexistent with the Father are the Son and the Spirit, and the revelation of the nature and ministry of these Paradise Deities will continue to enlarge and brighten throughout the endless ages of the eternal spiritual progression of the ascending sons of God. At all times and during all ages the true worship of any human being—as concerns individual spiritual progress—is recognized by the indwelling spirit as homage rendered to the Father in heaven.

Never before had the apostles been so shocked as they were upon hearing this recounting of the growth of the concept of God in the Jewish minds of previous generations; they were too bewildered to ask questions.

As they sat before Jesus in silence, the Master continued:

“And you would have known these truths had you read the Scriptures. Have you not read in Samuel where it says: `And the anger of the Lord was kindled against Israel, so much so that he moved David against them, saying, go number Israel and Judah’?

And this was not strange because in the days of Samuel the children of Abraham really believed that Yahweh created both good and evil.

But when a later writer narrated these events, subsequent to the enlargement of the Jewish concept of the nature of God, he did not dare attribute evil to Yahweh; therefore he said: `And Satan stood up against Israel and provoked David to number Israel.’

Cannot you discern that such records in the Scriptures clearly show how the concept of the nature of God continued to grow from one generation to another?" 

Yes, let me ask that last question to the peoples of the current era:

Can you not discern from the books and the records that are with you now to realize how the concept of the nature of God continue to grow in your minds?

As for me, I realize how this has grown in my mind!

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