Nandipur project: cost overrun

Updated Jul 19, 2013 07:36am

THERE are many aspects of the Nandipur project which require a thorough probe. I would like to highlight one aspect of the issue: cost overruns. Cost overrun is not an unheard of phenomenon.

It is in fact an essential item in the planning of a project.

Calculating the cost overrun on a delayed project can be a colossal exercise and it can be very contentious if the two sides, i.e., the owner and the contractor are not on the same page.

Fortunately Nandipur is not a complex case. I say this for the following reasons.

One, equipment has already been manufactured.

Two, equipment stands 'supplied' (if it is lying in the customs it does not mean it has not been supplied).

Three, installation of the equipment is the contractual obligation of the contractor and is included in the original project contract price.

And four, considerable work has been executed on site and it must have been progressively paid for through the contractor's running bills, and is therefore not subject to cost overrun/escalation.

The folowing aspects would attract escalation in the cost and therefore must be reflected in the revised price the contractor is entitled to.

Repairs to the equipment, resulting from the unforeseen storage in the open.

Cost of rehabilitation of this machinery, including replacement of the unserviceable parts.

Evaluation of the current cost of erection and payment of the increase in this case.

Increase in the cost of contractor's overheads, resulting from suspension of his work.

Bonus for expeditious completion of the project through round the clock work at site.

From the foregoing it is quite evident that the cost overrun cannot be a multiple of the original project cost and given the goodwill of the Chinese government towards this nation, it can be settled in a realistic and amicable manner.

AMANULLAH KHAN Lahore

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