New law proposed to check underperforming contractors

Tuesday, October 2nd, 2018 | | National

Contractors undertaking large infrastructure projects who fail to perform as per the target for two quadrimesters could lose their contract once the proposed new law meant to govern a large infrastructure project comes into effect—a significant move by the government to discipline contractors.

With works on several large-scale projects running behind schedule, mostly due to the non-performance or under-performance of contractors, the Prime Ministers’ Office (PMO) is introducing a separate law with stringent measures to oversee larger infrastructure projects.

The PMO prepared the draft of the new legislation in line with the budget provision of the current fiscal year 2018-19 which has envisioned introducing a separate law for the National Priority Projects. The bill is currently at the Law Ministry for review after which it will be forwarded to the Cabinet.

Government officials said the new bill has tried to address four major issues that have plagued the country’s development projects: delay by contractors, the problem in land acquisition, low bidding, and forest clearance.

Once the bill is endorsed by Parliament, infrastructure projects with a budget above Rs25 billion will come under its purview. Similarly, four-lane road projects, hydropower projects above 300MW capacity, and transmission line projects above 300KV will also fall under this law. PMO officials said only those projects whose feasibility study is completed and financing is guaranteed will come under the new law.

“The work of the contractor will be reviewed in every four months,” said PMO Secretary Kedar Bahadur Adhikari, who is involved in the drafting of the bill. “If the contractor fails to meet the target set for two quadrimesters, the government authority can terminate the contract as per the proposed provision we have included in the draft.”

The country’s key infrastructure projects such as Melamchi Drinking Water Project, upgrading of the Tribhuvan International Airport, construction of Gautam Buddha International Airport and Kulekhani III Hydropower Projects among others have been adversely affected by under-performance of contractors over the years.

Due to delay in completion of the projects, the cost of major infrastructure projects has been spiraling up. For example, the cost of Melamchi project soared to Rs35.54 billion from initially estimated cost of Rs17 billion, according to the National Planning Commission.

The government is also trying to address the perennial problem of low bidding in the government contract through the new bill. The bill has provisions of awarding the contract only to the bidder who passed the technical evaluation first.

“We have proposed a two-envelope system of bidding under which both technical and financial proposals will be invited at the same time. First, the technical proposal will be opened and financial proposals of only those who had passed in technical assessment will be opened,” said Adhikari.

As per Public Procurement Act, the lowest bidder is given the contract. This legal provision has been exploited by many contractors to win the infrastructure projects. The Pappu Construction is classic example of this modus operandi. Despite poor track record in project execution, the company has been winning some of the best construction deals in the country through low bidding.

The bill also includes a provision for land acquisition, according to which projects can be implemented as

soon as 75 percent of the affected people in any area approve the compensation. “Administrative measures could be taken against those who continue to oppose,” said Adhikari.

Implementation of some of the projects has halted for years although few local people did not accept compensation. Projects like Mid-Hill Highway, Kathmandu-Nijgadh Fast Track, Thankot-Chapagaun-Bhaktapur transmission line, Kabeli Transmission Corridor, Sikta Irrigation project, among others, are facing land acquisition-related issues due to protests from the locals.

As for the early forest clearance, the bill has made a provision that the project would provide appropriate compensation to the authority that handles the forests. The draft of the bill also says that the head of a project should not change until the project is completed.

“We have included this provision as frequent change of the project chief has hit the projects badly,” said Adhikari, who added that the bill also has a provision of appointing the project chief through free competition.

Tulasi Prasad Sitaula, a former secretary, said that as the project manager and contractor alone could not solve many problems that arise in infrastructure projects, there should be a mechanism to facilitate the implementation.

He said that although the issues could be addressed through an amendment in the existing laws, the new law is also a welcome move.

“But the biggest question is whether the government authority will enforce the law,” said Sitaula. “The government’s failure to enforce the law in the past has led to current anomalies in the first place.”

Key provisions of proposed law

  • The new Act to govern only the projects with completed feasibility study and guaranteed finance
  • Contractor could lose their contract for underperformance
  • Project implementation only after 75 percent of affected people accept compensationn
  • Ban on protests at the project site
  • Project chief’s hiring through competition
  • Two-level bidding on the projects