Govt mega projects under probe:

Claims could follow suspension, loss of funding - Contract Specialist

A Sri Lankan Chartered Quantity Surveyor, Senior Contract Specialist and Claims Analyst, with over 15 years of experience, Dr. Chandana Jayalath, working in Doha Qatar, told Sunday Observer Business in a telephone interview that any decision to suspend projects must be founded upon adequate facts and honest conviction.

He said any unreasonable suspension would undoubtedly carry severe time and cost consequences. Extracts of the interview with Dr. Jayalath.

Q. Today, everyone knows that the government will review the projects spearheaded by the previous regime. What is your view?

A. I am optimistic of this move under the circumstances where the allegations of corruption have become the key concern. Review could take place at any stage of a project and it may be technical, commercial or contractual.

What has been lacking in our local projects is the dimension of review. It is a badly neglected skill unlike in international projects. Therefore, this will be a novel experience to many Sri Lankans. The key question is whether the project delivers against the original intent, and we can look forward to an interesting debate.

One person, group or political party may suggest that a certain project may not meet all or part of the original plan but may still deliver a 'significant project' for the client. However, the consensus seemed to be that if the original intent, either not in good faith or could not be met, it is better to stop the project.

However, this warrants a careful consideration of many factors before a decision is taken. A party, which wishes to exercise the right to suspend performance, runs the risk that the suspension will be regarded a failure to carry out the works regularly and diligently which may be treated as a repudiation of the contract, if in the particular circumstances no such right actually exists.

Q. The Colombo Port City is one of the targets of the Janatha Vimukthi Peramuna. Their main argument is that this project is environmentally not viable at all. Does this aspect entail in your term 'review'?

A. Definitely. As I have heard, reclamation work at the Port City project is to be suspended till the environmental, economic and security issues concerning the project are resolved. I heard that the Government will re-examine the agreement with China Harbour Engineering Company Ltd. (CHEC), a partnership of the China Communication Construction Co. Ltd. (CCCC) to develop the Colombo Port City Project.

The first phase of the project includes reclamation, breakwater construction, connected road network and supply of services, which we call 'enabling works'. The Environmental Impact Assessment (EIA) has been carried out by the Ports Authority and approved by the Department of Coast Conservation, which is only the project approval agency without the concurrent approval of the Central Environment Authority (CEA).

There are laws that call for an Environmental Impact Assessment to be conducted before the launch of a project in the coastal zone. An EIA should be carried out for projects that may produce significant environmental impact.

The CEA has no mandate to conduct the EIA beyond two km of the coast line and the authority for this purpose is the Department of Coast Conservation. I have no facts to firmly say that the CEA has approved the extraction of sand for this project beyond two km of the coast line.

Q. Can the government suspend a project unilaterally?

A. Let me quote a few classic international examples. In 2011, Burma's President Thein Sein ordered the suspension of a $3.6 billion project to build a new hydropower project on the Irrawaddy river. His decision was made to respect the will of the people which was described as 'stunning' by environmentalists. The project's Chinese backers were reported to be considering legal action.

It was a project of some 3,600 MW Myitsome dam being part of a planned cascade of seven dams in Burma backed by China Power Investment Corporation. This decision shows that dam builders can no longer rely on dictatorial governments to push through projects that are rejected by their populations. Coming to Myanmar, Aung San Suu Kyi called for transparency in implementing government projects. The Dubai government suspended many projects due to the credit crunch in 2009. Many mega scale projects were delayed in Bahrain.

The simple criterion is whether the suspension is valid.

Q. The government has also decided to temporarily suspend the Uma Oya multi-purpose project and the Northern Expressway, which has been a much discussed topic in the past few weeks.

A. People in the Uva Province held several protest campaigns against the project due to its adverse environmental impact. I think the government will not stop the project entirely, but will temporarily halt it until issues are fully discussed.

I am totally in agreement with that decision as the government should look at the best measures to be taken to address the concerns over the project as it was launched at an estimated cost of US$ 529 million by the previous government in 2012 with a US$ 450 million loan from Iran.

I think the reason behind cancelling the Northern Expressway project is the doubt on its cost effectiveness. As we all know, this is a project of national significance that may upgrade the entire country economically. However, the costs appear to have been inflated as in most development projects, either executed or in the pipeline and, therefore, it would be better to have a full-scale review to ascertain the cost in real terms.

Q. A common allegation is that the estimated cost is double the size of the actual cost in certain cases. How do you look at this allegation as an expert in this field?

A. A Minister has said that the new government has decided to stop payments for various dubious transactions during the previous regime.

Apart from this common allegation, there is the question of the 'right man for the right job'. Has any government ever thought of deploying qualified and experienced quantity surveyors in its projects?

Quantity surveyors must be deployed to analyse cost components in a scientific way at least in large scale projects of National significance.

Others can apply the results of such analysis to a variety of financial and economic problems confronting the government and investors.

Given the large amount of money associated with building projects, value for money is what made Sri Lankan Quantity Surveyors important to the clients in the Gulf region. Unfortunately, this is purposely ignored by local clients, investors and politicians.

There is no point in making allegations over cost overruns without having experts in the subject. The Southern expressway project was a classic example where at the end of the project, the government received a Rs. 4.8 billion claim from the project owners.

Whether this additional money was paid by the public and who the culprits are behind this catastrophe is a part of bad history that should be revealed to the public.

Q. The other side of the same coin is the payment of compensation. Do you agree it is a politically motivated factor? In international projects, how does payment of compensation take place?

A. The Government has reintroduced Land Acquisition and Re-settlement Committees (LARCs) to decide on compensation for those losing private property in 18 major road-widening and construction projects. The Land Ministry has laid down criteria for payments to property owners and tenants, to proprietors of businesses and even to those who have encroached State land.

Those who are not satisfied with the amount of indemnity they receive can appeal to an additional body called the 'Super LARC' which will be at the Road Development Authority (RDA). The LARCs were disbanded in 2009 when the Land Ministry ruled that compensation would be decided directly by the Valuation Department.

However, I think, the RDA received hundreds of complaints from landowners who felt they were being treated differently than to those whose compensation payments were calculated before 2009. People were also upset that they could no longer take their grievances personally before a committee.

There should be a criterion, fair by the people who lost not only their physical properties but their heritage. Replacing land and vegetation is simple. Heritage is immeasurable because it is the legacy of intangible attributes of a group or society that are inherited from past generations, maintained in the present and bestowed for future generations.

This is a question of humanity that cannot be compensated monetarily by whatever means. However, there are economic and social indexes in calculating these aspects forming a part of the compensation.

Q. What is the accepted process associated with this type of suspension?

A. Suspension usually occurs in a construction project when the client calls on the contractor to temporarily stop work on all or a portion of the project. Contractually, the contractor shall suspend the progress on a written notice only if it is provided for in the contract, due to contractor's default, due to climatic conditions, on safety reasons, necessary for proper execution of work or in what we call excepted risks.

A mandatory need is cast on the contractor to give written notice of his intent to claim for any additional cost or time within a specified period from the date of receiving the engineer's order to suspend work.

Costs shall be borne by the employer unless such suspension is otherwise provided for in the contract, necessary for the proper execution of the work, by reason of weather conditions, by some default on the part of the contractor or necessary for safety of works.

Each case is unique, however, internationally we use FIDIC standard forms where it says that suspension lasting more than 90 days is to deal with the suspension in one-go or part by part in consecutive periods, giving the contractor the right to determine the contract in two ways.

If the suspension has continued for more than 84 days, the contractor may ask for the engineer's permission to proceed. If the engineer does not give permission within 28 days, the contractor may, by giving notice to the engineer, treat the suspension as an omission of the works.

If the suspension affects the whole of the works, such as the one we were talking about, the contractor may give notice of termination treating as an abandonment of the contract by the employer. After permission or instruction to proceed is given, the contractor and the engineer shall jointly examine the works, plant and materials affected by the suspension.

The contractor shall make good any deterioration or defect which has occurred during the suspension.

Q. What are the contractual implications arising out of this decision?

A. A suspension notice quickly sparks a situation which is claimable contractually. These suspension claims often need a schedule delay analysis to evaluate the impact to the project's critical path.

A suspension claim consists of cost calculations with regard to protection and securing works, idling labour, plant, loss of managerial inputs and whatever incidental costs such as costs on demobilisation and remobilisation incurred due to the suspension.

If the employer's actions do not allow the work to proceed, the contractor may claim for what we call constructive suspension. A constructive suspension occurs for example when, through no fault of her own, an employee is absent from work for more than a certain period, with a loss in pay. Constructive suspension occurs when an employee is found to be fit to return to work.

When an employee calls for work within his medical restrictions, the employer is bound by policy, regulation, or contractual provision to offer available work to the employee.

If the employer fails to make such an offer, the employee's continued absence for over a certain period constitutes an appealable constructive suspension. More or less the same argument could be brought up in construction.

Q. Do you believe that this is due to lack of project review?

A. Lack of proper review at the outset is what has mattered in almost every unsuccessful project. Some do pre-review but no post review.

A post project review, sometimes called lessons learned, project completion review and project post-mortem, helps determine whether the project delivered the desired benefits, met the customer's needs and remained within the scope of the budget.

It also helps gauge the user's comments about performance, reliability, suitability and ease of use. It is important to have a post project review so that a mistake may not be repeated in the next project.

In my previous example of the Southern Expressway where the Government faced a huge claim. None of our authorities have learnt the lessons and applied them in the next project of a similar type.

In simple terms, post project review consists of activities performed by a project team at the end of the project to gather information on what worked well and what did not, so that future projects can benefit.

This might also be used with a project that was completed some time ago, but from which the lessons were not gathered. Though a technical audit is some kind of a project review, the intentions are poles apart.

The essence is that many organisations have no structured approach to learning from projects after their completion. Even worse, most projects have been prematurely terminated without undergoing retrospective analysis on the causes of failure.

Some projects are not reviewed at all after completion and most of the remaining is reviewed without established review guidelines.

Q. Is there any particular reason why project reviews are not encouraged within political or professional circles?

A. Post project reviews are sometimes completely neglected because they take time, discontinuity - beneficiaries of project reviews are future projects, not the present ones and reviews involve looking back over events that project participants are likely to feel sceptical.

People resent the fact that reviews frequently have become major finger pointing exercises, simply concerned with apportioning blame for shortcomings in the project.

People can be reluctant to engage in activities that might lead to blame, criticism or allegation. Many people think that experience is a sufficient teacher, in its own right, without closely reviewing what has been exactly experienced.

Lack of expertise in the subject matters (incompetence to carry out reviews), lack of baseline data (benchmarks at the project inception in relation to objectives) to establish criteria of assessment in a post-project review and lack of maintenance of data during project progress are all discouraging.

There is also political patronage to cover up inefficiencies and corruption.

I mean the unwillingness to disclose facts, lack of interim reviews making the final post review impossible depending on the issues that characterised the project and moreover the fast track procurement basis of many construction projects cause rapid shift of project gangs from one project to another whose concern is time rather than review.

- GW