Workshop on

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Workshop on Enforcement of Contract Clauses
Timely Recovery on 23-24th February, 2012
TOPIC
Time and Cost Over-run in AAI Projects (Causes
and Solutions)
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Cost overrun

• A cost overrun, also known as a cost increase or
  budget overrun, is an unexpected cost incurred in
  excess of a budgeted amount due to an
  under-estimation of the actual cost during
  budgeting.

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Cost Overrun.

• Cost overrun is common in infrastructure,
  building, and technology projects. A
  comprehensive study of cost overrun published in
  the Journal of the American Planning Association
  in 2002 found that 9 out of ten construction
  projects had underestimated costs. Overruns of 50
  to one hundred percent were common.

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Cost escalation

• Cost overrun should be distinguished from cost
  escalation, which is used to express an
  anticipated growth in a budgeted cost due to
  factors such as inflation.

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Continu..

• Professor Bent Flyvbjerg of Oxford University
  believes that big public-works projects almost
  always have cost overruns due to strategic
  misrepresentation"that is, lying", as he defines
  the term.

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Time Overrun

• A time overrun, also known as a time increase is
  an unexpected time incurred in excess of a
  estimated/ allocated time.

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• Interesting Facts
• Nine (9) out of Ten (10) infrastructure projects
  fall victim of cost escalation
• Cost escalation generally varies from 10 to 50
• Cost escalation exists across twenty (20) Nations
  and five (5) Continents it is a global
  phenomenon. India is NOT an exception.
• Cost escalation appears to be more pronounced in
  Developing Nations than in Developed Nations
• Cost escalation has not decreased over the past
  70 years - No learning seems to take place
• The worst part is that the pattern has not
  changed for the past 90-95 years
• Bandra-Worli Sea Link cost escalated from Rs.300
  to Rs.1600 Crores with Five (5) years delay
• Contd..

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• Interesting Facts.
• According to the Economic Survey of India for
  2005-06 till September 2005, of the 683
  infrastructure projects, having an estimated cost
  of Rs.2,81,890/- Crores, spread over 16 sectors,
  171 projects (25) are having cost over runs to
  the tune of 38.87 as compared to their latest
  approved estimates. There are 247 projects (36)
  which have a time over run, ranging from one (1)
  to 168 months.
• The project that look best on paper have the
  largest cost over run.
• Public Ownership - Problematic because of
  lengthy/complicated procedures.
• Private Ownership - Successful in cost
  control due to over simplification.
• Most of the projects of Delhi Metro of DMRC have
  been completed on time and within budget

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Cost overrun in Central Public Sectors

• The analysis of the Ministry of Statistics and
  Programme Implementation shows that cost overrun
  in projects even with respect to the original
  approved cost have come down from 62 in March,
  1991to 12 in March, 2008 and the increased to
  21 in September 2010. This has resulted into
  indirect savings of more than 2,50,000 crore over
  a period of 10 years. This has been possible due
  to the dedicated effort of the infrastructure and
  Project Monitoring Division of MOSPI and

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• Other Ministries. The increasing trend of in
  cost overruns in the recent years is mainly due
  to the impact of high increase in the cost bulk
  materials such as cement and steel in 2006-07 and
  recent recession. The trend of cost overruns is
  depicted in the Figure 1.

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Time overrun in Central Public Sectors

• The analysis of time overrun in terms of
  percentage of projects running behind their
  original schedule also shows a declining trend.
  Percentage of projects behind schedule declined
  from 62 in 1991 to lowest ever to 31.72 in
  March 2001, to 34.13 in March 2007 and
  increased again to 52.10. The increasing trend
  of percentage of delayed projects is also due to
  the same reasons as in case of cost overruns.
  The projects in the Highway, Power, Petroleum,
  Shipping and Ports, Telecommunication, Steel,
  Fertilizers and Railway sectors suffered the
  most. The trend of percentage of delayed
  projects is depicted in Figure2.

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Trend of projects running behind schedule w.r.t.
original schedule
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Project Management Triangle

• Quality

Scope
Schedule
Cost
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Project Management Triangle

• Project constraints have been listed as
  quality," "time," and "cost. These are also
  referred to as the "Project Management Triangle,"
  where each side represents a constraint. One side
  of the triangle cannot be changed without
  affecting the others.

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Project Management Triangle

• The time constraint refers to the amount of time
  available to complete a project. The cost
  constraint refers to the budgeted amount
  available for the project. The scope constraint
  refers to what must be done to produce the
  project's end result. These three constraints are
  often competing constraints increased scope
  typically means increased time and increased
  cost, a tight time constraint could mean
  increased costs and reduced scope, and a tight
  budget could mean increased time and reduced
  scope.

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Status of Projects in AAI as on 31.1.2012
Total Ongoing Projects 52 Annex I II
Projects in Progress within time 0 Annex I II
Projects delayed upto 25 of stipulated time 06 Annex I II
Projects Delayed upto 50 of stipulated time 08 Annex I II
Projects Delayed more than 50 of stipulated time 38 Annex I II
Status of Mega Projects at Kolkata Chennai Airports Annex III
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STATUS OF ONGOING PROJECTS
Annex-I
Engineering Works
Region Total On-going Projects Projects in progress within time Delay up to 25 of Stipulated time Delay up to 50 of Stipulated time Delay more than 50 of Stipulated time
Northern 06 0 01 01 04
Southern 08 0 02 0 06
Western 7 0 01 02 04
Eastern 11 0 01 03 07
North-Eastern 03 0 - - 03
TOTAL 35 0 05 06 24
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Annex-II
STATUS OF ONGOING PROJECTS
CNS Works
Region Total On-going Projects Projects in progress within time Delay up to 25 of Stipulated time Delay up to 50 of Stipulated time Delay more than 50 of Stipulated time
All Regions 17 0 01 02 14
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Annex-III
STATUS OF MEGA PROJECTS AT KOLKATA CHENNAI
PARAMETER Kolkata Airport Chennai Airport
Estimated Cost (Crs.) 1602.61 1808.00
Stipulated Date of Completion 05.05.2011 23.01.2011
Present Physical Progress 93 96.5
Delay already occurred 33 54
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A CAUSES OF TIME COST OVERRUN

• I Preparation of Faulty Estimates
• - Inadequate site condition survey/data for
  finalizing Scope of Work
• - Improper Design Drawings
• - Unrealistic Time Period fixed for Completion
• - User Consultation Process not done.

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CAUSES OF

• Preparation of Faulty estimate (Contd)
• - Rates not based on actual market rates
• - Narrow range of approved makes
• - Non- consideration of rehabilitation of
  existing
• structure/services at the time of planning
• - Factors of insurgency / disturbed area

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CAUSES OF

• II Delay in applying/issuing of NOC / clearance
  from statutory authorities
• III Delay in Environmental Clearance
• IV Non-availability of complete land/site free
  from encumbrances

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CAUSES OF

• V Selection of consultant contract agencies
• - Selection without assessing Technical
  Financial capability
• - Lack of experience in similar nature
  of work

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CAUSES OF

• VI Delay in issue of working design drawings
• VII Delay in issue of NOTAM indicative of
  prior lack of coordination
• VIII Frequent changes in scope of work, drawings
  specifications

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CAUSES OF
IX Delay in rehabilitation of existing
structures / services X Non-availability of
construction material (points to inadequate site
survey resulting into costly substitution at a
later date) XI Incomplete/Improper nomenclature
of items in contract agreement
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CAUSES OF

• XII Lack of co-ordination amongst the various
  disciplines and other airport functionaries
• XIII Inadequate monitoring system

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B SOLUTIONS

• Estimate should be based on actual site data
  /drawings
• Scope of work should be well defined finalized
  in consultation with user Agencies
• 3. Presumptions should be minimized

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SOLUTIONS..

• 4. Realistic time frame to be kept
• 5. Proper Market Survey for estimates
• 6. Proprietary / Imported items should be
  minimized.
• 7. Timely action for statutory clearances

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SOLUTIONS..

• 8. Technical Sanctioning Authority to ensure
• availability of land
• 9. Advance / timely actions for diversion of
  services/obstructions relocation of structures
  etc.
• 10. Proper Selection of Consultant Contract
• agency

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SOLUTIONS..

• 11. Regular monitoring of performance of
  consultants/contract agency
• 12. Yearly performance evaluation mechanism for
  timely action to weed out non- performing
  contract agencies/consultants
• 13. Timely issuance of working drawings

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SOLUTIONS..

• 14. Proper co-ordination among the disciplines
  other airport functionaries
• 15. Penalty Clause for deficiency in services of
  Consultant/Contract Agency
• 16. Timely decisions/ approvals / sanctions
• regular monitoring of Projects

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C ACTIONS REQUIRED / TAKEN IN AAI

• 1. Advance actions to remove hindrances,
  structures, diversion of services coming in the
  alignment of the project structures
• 2. Clear and well defined scope of work vetted
  by all stakeholder departments within AAI
• 3. Dedicated and independent PMQA cell to
  monitor progress of work.

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ACTIONS ..

• 4. Web enabled project monitoring software
  being put into place
• 5. Delegation of power is decentralized with
  accountability
• 6. Project In-charge to monitor slippages in
  targets.

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• The GOAL can be achieved if we have WILL,
  COMMITMENT, DEDICATION AND PASSION to feel the
  need and purpose.

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Workshop on Enforcement of Contract Clauses and
Timely Recovery

• Important tips for effective contract management
• Immediately on receipt of letter of acceptance,
  open site order book.
• Hand over the site. This is important, since
  time allowed in contract for execution of work
  commences from 10th day after the date on which
  the Engineer-in-Charge issues written orders to
  commence the work.
• If handing over site is made in phases. Please
  make an entry in site order book to the extent
  site handed over.

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• In accordance with clause 13, insist time
  progress chart from the contractor.
• Closely monitor the progress made. Compare the
  progress achieved in relation to clause 13.1 of
  contract. This clause envisage progress of work
  with relation to time lapsed.
• In case, there is backlog in the progress,
  promptly issue a diligence notice. The notice
  should highlight the slippages.

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Workshop on Enforcement of Contract Clauses and
Timely Recovery.

• Clause 32 of contract envisages compensation for
  delay. This clause stipulate that the
  contractor, if failed to maintain the required
  progress (as agreed), they are liable to pay
  compensation . Hence, diligence notice should
  invariably notify the intended action for breach
  caused.
• Closely watch the progress at the portion of
  site handed over.
• Read the contract thoroughly.
• Take timely decision.

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THANK YOU