ISLAMABAD: Despite political pressure the ministry of housing and works has declined to entertain over Rs17 billion compensation sought by the contractors’ association due to price escalation of public sector projects saying the claim was neither economically fair nor legally justified.
“The government cannot accept en-block claims for compensation against cost escalations as demanded by the contractors. The payment against such claims cannot be justified under the rules”, Secretary Housing and Works Ahmad Bakhsh Lehri told Dawn on Wednesday.
The Pakistan Engineering Council (PEC) also openly came with its opposition to the contractors’ demand for compensation, saying it was shocked and surprised to hear that government was processing the contractors claim that violated the applicable procurement and engineering council rules.
It said in many cases, incapable contractors secured public sector contracts through low bids on the basis of inadequate data and experience that did not only spoil the public projects but also wasted public money that belonged to the people.
The All Pakistan Contractors Association had recently taken up the issue of compensation for escalation payments with the prime minister and since then the Planning Commission and the ministry of housing and works were under pressure to expiate the payment to contractors “as a special compensation”.
Mr Lehri said the ministry was seeking comments from various government agencies on the cumulative claim that did not make any economic sense but would listen to the viewpoint of contractors on Jan 13, to see if there was any genuine reason for cost escalation in a particular contract so that it could be examined on merit.
He said the ministry had adopted the Pakistan Engineering Council’s standard guidelines and formula for price escalation and would like to examine why these were not followed by the contractors and the executing agencies.
Responding to a question, he said the government would soon put in place a composite schedule of rates on national basis so that the issue of arbitrary cost escalations in government contracts could be done away with once and for all.
Under the schedule, the prices and premiums for all construction materials would be worked out for all cities keeping in mind factors like distance from main commercial centres, transportation and availability of material. These would be used as benchmark for all projects and contracts, he said.
PEC chairperson Rukhsana Zuberi told Dawn that the contractors’ compensation claim for cost escalation was “not justified.” She said that previously, the government had dished out billions of rupees to the contractors on similar grounds in 2004, which was a clear violation of engineering council rules.
She said the executive committee of the National Economic Council had approved the PEC standard cost escalation rules envisaging a proper methodology and mechanism for price adjustment in contracts, which should be implemented in letter and spirit.
She said the PEC had recently established Pakistan Institute of Cost and Contracts (PICC) that would work out all the details of contract specifications, including material, design and services so that cost data was available for project cost estimation in a fair manner to rule out manipulation in contracts and cost escalations.
Meanwhile, Mazhar ul Islam, the executive director of PICC and convenor of PEC Acts and Contracts said that submission of contractors’ claim to the government and its consideration was “childish and shocking and the move did not have any legal justification”.
He said the government could not even consider the contractors’ claim in the presence of PEC rules and if it took any political decision to give compensation to the contractors, it would have to notify amendments in the existing rules through a gazette notification.
The All Pakistan Contractors Association has submitted a claim of about Rs17 billion to the prime minister seeking escalation payments from Jan 1, 2006 to June 30, 2009. This includes a claim of Rs8.75 billion against the federal government, Punjab Rs3 billion, Sindh Rs2.8 billion, NWFP Rs1.15 billion and Balochistan Rs1.01 billion.
The APCA had based its escalation factor on a Karachi Water and Sewerage Board project funded by the Asian Development Bank (ADB) and Sindh government that was started in 1989 and completed in December 1998, which did not conform to the cost escalation formula approved by the PEC, public procurement rules and the Transparency International Pakistan.
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