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Contractors pocket advances in billion-rupee roadworks and walk off
Non-performing contractors in the iRoad (Integrated Road Investment Programme) project for developing roads in rural areas are causing huge financial losses for the government.
Great hardship is being experienced by people living in areas involved in the project due to roadwork being abandoned halfway by non-performing contractors, the Sunday Times has learned.
Local residents are forced to use partly dug-up roads, hazardous in their incompleted condition, while legal action drags on between the Road Development Authority (RDA) and the contractors who, citing various reasons, abandon their work.
The head of the RDA has acknowledged the problem and adds some failures are partly the fault of the RDA itself.
One such iRoad tender is valued at Rs. 2.5-3 billion.
A tender can involve a package of 50-100 road sections that require improvement, rehabilitation or maintenance. The total length of roads in a package varies from 50-100km to 200km.
The Ministry of Roads and Highways started up the iRoad Project in 2015 with the objective of connecting rural poverty-stricken communities with urban centres, especially in the Southern, Sabaragamuwa, Central, North-Central, North-Western and Kalutara districts in the Western Province.
About 90 per cent of the cost is being provided by the Asian Development Bank (ADB) at a minimal, concessionary rate of interest. The remaining 10 per cent comes from the government.
Bidders who are awarded work following calls for international competitive tenders for the projects are paid a “mobilisation advance” of 15-20 per cent of their fee at the commencement of the project. To obtain this, the contractor has to submit a bank bond.
Certain bidders who have obtained tenders do not use the mobilisation advance for the project but instead spend it on other business, engineers in charge of iRoad projects allege.
They ae often contractors who, it is alleged, submit bids lower than the engineers’ estimate and are awarded the job consistent with the prevailing system of a tender being awarded to the lowest bidder.
“The intention of submitting a low bid is obtaining the 20 per cent mobilisation advance,” a senior engineer in charge of an iRoad project who wished to remain anonymous said. “But they cannot complete the project for less than the engineers’ estimate. Then they halt the project halfway.”
If the tender is not awarded to the lowest bidder, the bidder can take legal action against RDA. Then endless court procedures block work from starting.
RDA Director-General, Engineer L.V.S. Weerakone, admitted the allegations are true but claimed the number of non-performing contractors in iRoad projects were about 5 per cent of the total.
He added, “If a certain contractor misuses the mobilisation advance and abandons construction, the government can encash their bank bond.”
A senior RDA engineer disputed this, saying that in the Kalutara district, where a large iRoad project is underway, when the government attempted to encash a bank bond the court did not permit it. The RDA had intended to be reimbursed and retender the project.
“Very recently, we presented facts to the court so that we could encash the bank bond of this contractor but he went to the Kaduwela District Court and obtained a stay order,” the engineer said.
“He had not even completed half of his package and is not completing the balance either. We cannot retender this nor can we obtain the government money and people are being severely inconvenienced.”
When the RDA terminates non-performing contractors it has to submit reasons to the Asian Development Bank, which then issues a no-objection letter.
Contractors object to this because the permission ADB grants for a termination cannot be reversed and errant contractors are disqualified from applying for ADB projects for up to six years.
Due to contractors abandoning construction, the RDA terminated five tenders in 2018. Two of these involved a company in Kalutara belonging to a powerful politician’s son, two by a construction firm in Kurunegala, and the fifth of a company in Galle.
Several projects were to be developed under those tenders, including:
n (KL3) Road ID No. 78 Korala-ima junction-Mohottigoda road, Jayadadagama in the Kalutara District. The contract length was 4.81km but only 2.2km were completed and construction on the remaining 2.6km halted;
n (KL3) Road ID No. 24 Ihala Kudaligama-Iddagoda road in the Kalutara District. The total distance for the project was 3.82km but only 0.19km has been done and the remaining 3.64km abandoned;
n (KL3) Road ID No. 8 Boralugoda-Thiniyawala road in the Kalutara District. Although 5.83km had to be constructed, only 2.16km was completed and construction of the remaining 3.67km stopped;
n (KL2) Road ID No. 6 Athweltota-Ambegoda via Bampara road in the Kalutara District. Not even a small section has been completed of the 4.93km stretch;
n (KL3) Road ID No. 22 Ihala Welgama-Kallumale Bulathsinghala road in the Kalutara District. Not a hand has been laid on the 5.48km to be constructed;
n Orugodawatte-Ambatale road.
Since delays occur in construction when new tenders are called, if the RDA has sent a “notice to correct issue” to a contractor, a clause that states that this contractor cannot apply for new tenders in the meantime has been included. Although the measure attracted criticism, it has brought about improvement in the performance of some contractors.
“Contractors who have achieved a top spot in the construction industry do not do such things because it will affect their reputation,” the head of the RDA said.
“We have to look at these problems very reasonably. If not, the construction industry could collapse. There could be reasons for this from our side too. Therefore, we have to identify the problems of a non-performing contractor and grant a time extension.
“If they do not correct their misdemeanours, we issue initial warnings with a ‘notice to correct issue’. We try to make an amicable settlement,” Mr. Weerakone said.
The engineers who spok to the Sunday Times claim the Construction Industry Development Authority (CIDA), which is the regulator of the country’s construction industry, is not taking steps to solve problems.
CIDA’s main responsibility and role is to register contractors required for the construction industry, grading them and regulating that process. They also compile laws and regulations for this procedure.
CIDA Chairman Professor Sohan Wijesekera said CIDA does not have the authority to blacklist contractors.
“It is only the Ministry of Finance which has the authority to do that. It is a very difficult process. Only a few have been subject to it. The reason is because it affects the future of contractors,” he said.
Prof. Wijesekera said CIDA continually receives complaints about non-performing contractors. The authority acts by conducting investigations and imposing temporary suspensions.
“If the client is the RDA, it has to make a complaint to us. Engineers can submit complaints through their line of authority. Then we carry out investigations,” he explained.
“We can carry out technical auditing to find out whether a certain construction has been done properly. However, without a complaint we cannot do so. If we are not aware of the problem, we cannot use our authority.”
Prof. Wijesekera acknowledged there were delays in the process of encashing the bank bond to obtain reimbursement of the mobilisation advance.
“That is because the contractor is not in favour of it. Then the government has to take legal action, and resolving the problem takes time. During that time, construction of the relevant road comes to a standstill.
“It is true that it causes much inconvenience to the people,” he said.
During contract registration, such complaints are thoroughly investigated and CIDA ranks contractors.
The CIDA Chairman said that during investigations carried out into several RDA projects, the authority had found that half those projects included problems created by the RDA itself.
Such faults included “delays in work at government institutions, not identifying scope properly, being unable to do certain things identified at the design stage, incorrect judgements, and responsibilities not being streamlined”, Prof. Wijesekera said.
He emphasised the CIDA Act would be strengthened in the near future in response to complaints.
The objective is to establish a monitoring system to avoid not only shortcomings of contractors but also those of government parties, he said. If bad choices are made in spite of the monitoring system CIDA would begin to publicise the names of non-performing contractors, Prof. Wijesekera said.
The Secretary to the Ministry of Highways, Engineer R.W.R. Pemasiri, said the entire construction industry would be reviewed.
“We receive many complaints. The government incurs a huge loss and people have to face endless inconvenience,” he said.
“Therefore, CIDA, RDA and the ministry will jointly appoint a committee and make required decisions. It will carry out a separate evaluation of each project and create criteria.
“Then, if a contractor goes to court, we can say that it is according to these criteria that we terminated their contract,” the Secretary said.