Formulation and Administration Essential for Smooth Hydro Power Execution
[R V Shahi's Weekly
Column for Infraline, November 19, 2007]
To have a correct
understanding and appreciation of the problems which are associated with the
execution of hydro power projects, it may be necessary to have a clear
perspective of the distinctions between construction of a typical and moderately
difficult hydro project, a typical and very difficult hydro project on the one
hand and a typical thermal power project on the other. Experiences have brought
out that our success rate in hydro project execution, and therefore the pace of
developing new capacities, has not only been significantly lower than those in
case of thermal projects, but our performance has been abysmally poor. To a
great extent the reasons for the vast difference in securing success are really
beyond the control of developers because of the inherent difficulties that are
associated with these projects. To a great extent, however, these difficulties
are also exaggerated and therefore the delays in such cases could be attributed
to deficiencies in project management approach, systems, procedures,
construction technologies and monitoring methods.
What are the
distinguishing features? And, to what extent this difference could be overcome
or atleast partly addressed? These two questions would, if addressed, partly
mitigate the problems which are supposed to be beyond control. In any case the
other sets of problems which are, as it is, attributable to reasons within have
to be suitably answered through appropriate mitigatory mechanism. First let us
take the distinguishing features which are inherently integral part of a typical
unpredictable nature of hydrology poses a major construction challenge in most
cases. What compounds the problem is also the location of the project.
Difficult terrain, hilly and mountainous areas, inaccessibility, lack of other
infrastructure, all put together make the construction activities difficult.
These are such problems, however, as have got to be addressed through
combination of technologies of construction, skill of people and managerial
inputs. If not eliminated, they can be minimized substantially.
Under the geological problems there could
be two types - one relating to the general nature of fragile geology in many
of our mountain ranges, more particularly in Himalayan rivers, and the
second could be on account of totally unexpected geological surprises
because of sheer zones. Normally in the case of excavation for an
underground power house, head race tunnel (HRT), tail race tunnel (TRT), and
desilting chambers, these difficulties are often faced. Here again, through
proper investigations the impact could be reduced, if not eliminated.
Sometimes these problems are accentuated on account of aggressive techniques
of excavation, for example use of excessive explosives, much more than
required, could lead to much bigger problems and if the extent of use is
skillfully calibrated such incidences could be avoided. Choice of tunneling
technology itself could play a significant role in minimizing such problems.
The type of Dam that
is selected for the project is obviously based on the most important
consideration of whether the project is a storage project or a run of river
project. But the type of Dam is also influenced by the nature of hydrology,
the type of geology of the land on which the Dam has to be built and also
the characteristic of the mountains/hills on the two sides. Proper choice
could make a difference in implementation of the contract and therefore
Many of these
simply do not exist in other types of power projects and therefore to that
extent implementation does not suffer from these difficulties. While the issue
of proper execution could be examined and analyzed from different points of
view, here, in this paper, we are restricting the discussion only to the issue
of suitable formulations and administration of a contract so that the project is
implemented with convenience, smoothness, quality, safety and without cost and
time overruns. A well structured, unambiguously documented and clear provisions
for easy dispute resolution suitably incorporated contract will lead to not only
a very harmonious operation at the level of execution but it can lend itself to
an implementation which could be timely, contractors grievances redressed
appropriately, payment flow streamlined and hopefully possibilities of cost and
time overruns kept within manageable limits if not totally avoided.
One of the ways to
minimize various types of construction risks, and more particularly the
inter-contractors coordination problems, could be to have one Turn-Key contract
to execute the entire project rather than a number of contract packages being
implemented by several contracting agencies with the inevitable consequence of
mismatches leading to overall project delays. However, opinions on this
approach are divided because there are mixed experiences of success, and not so
good success, while going through this route. As a result, there are more
projects in the hydro sector which are implemented through three to four
separate agencies rather than through one agency. My own assessment is that
this issue requires a more detailed careful consideration before rejecting the
Turn-Key contract approach. A dispassionate discussion among the engineering
consulting organizations, the client owner organizations and major contracting
agencies could definitely lead to formulation of an approach which can make
Turn- Key contract arrangement succeed in most cases, if not in all cases. Such
cases and such situations which may not lend themselves to this dispensation
could be singled out to be dealt with through package contract approach.
In any project
execution - and it is truer for hydro project execution - allocation of risks in
an equitable and balanced manner is a difficult task and therefore skill lies in
how best the risk allocation process is carried out. Any one sided approach, in
the sense of one trying to score over the other, might give one party a
satisfaction that it has scored over the other. However, this type of an
approach is fraught with a serious consequence of the whole project getting into
a lose-lose situation rather than effectively and smoothly implementing the
project. Wisdom, therefore, lies in properly understanding the problem of the
other party appropriately, accommodating those problems in the overall
architecture of project contract configuration and subsequently a positive view
on issues during implementation. Unless there is proper consideration for the
other party in the mind of the first party the win-win situation cannot be
secured. One must recognize that in a large project or even in medium size
project, in the last year of the project more than 70% of the capital
expenditure is already incurred. In a typical hydro project of a 1000 MW
capacity with a capital estimate of Rs. 5000 crores, about Rs. 4000
crores would have been spent in the first four years. In the last one year
therefore every month of delay will mean a direct loss of Rs. 40 crores apart
from electricity generation loss and therefore the loss of revenue on sale of
power. These figures and financial burdens have to be borne in the minds of all
engaged in the project execution, both on the sides of the owner organization
and of the contractor's organization. If project contract structure is
formulated with each side putting itself in the shoes of the other side what can
result is a workable, acceptable and effective contract.
last few five year plans are so disturbing that it is time that these issues are
properly addressed and resolved. Ministry of Power in association with Central
Electricity Authority organized a day's deliberations on November 16, 2007, with
participation of all the important players in the field - Hydro Power Generation
Companies, Consulting Organizations, Contracting Organizations, Equipment
Suppliers and others. Union Power Minister, Power Secretary and Chairman, CEA,
spoke and provided the basic structure of the issues involved and emphasized the
need for streamlining contract administration. CEA has prepared a good
background document. A list of likely shortcomings in the contract document and
during implementation is given below:
Attributable to the Owner
does not actually own the site, so the Contractor cannot start construction.
the Owner has
not obtained the necessary clearances.
the owner has
not performed sufficient site investigations.
financing is not ready.
estimates are not realistic.
allocation imposed on the Contractor is unworkable.
are not frozen at the correct time.
collection or interpretation of relevant data.
schedule and target completion date.
based on lowest price without adequate consideration of contractor
not given in deputing skilled & experienced Owner's team for project
cordial relationship with Contractor.
of drawings or instructions/decisions by Engineer.
identifying the cause for a delay & failure to initiate timely remedial
approval of construction programmes.
response to Contractor's claims.
determination of compensation.
interim certification & payment.
evaluation of Variations.
time not awarded in a reasonable time frame.
compromises on designs for commercial reasons.
liquidated damages for delay in completion of works.
Contractor to execute works of specialised nature, when such works are
specified to be executed by specialised agencies.
setting out of works at the time of handing over of site.
Attributable to the Contractor
depute a competent project management team.
forward planning and budgetary control.
attention towards critical targets of time, cost and quality.
failure to use
proper tools and techniques such as CPM network analysis, relating to
forward planning and control.
procurement of materials and construction equipment due to a casual
maintenance of construction equipment, inadequate workshop facilities for
repair of construction equipment, and shortage of spare parts for
of competent specialised sub-contractors.
documentation and logging of site records, copies of agreed minutes and
other important data relating to the works being executed.
illogical submission of information while seeking important
decisions/instructions from the owner in changed situations.
submission of Method Statements for changed site conditions.
tradesmen and supervisors.
quality control facilities and staff.
replacement/repair of defective works.
with labour laws.
with environmental and ecological requirements.
implement the approved construction methodology.
submission of concreting schedule.
inadmissible claims, leading to avoidable disputes.
Related to Valuation of Changed Conditions
daily records of deployed resources are not maintained/submitted by
Contractor and/or signed by Engineer.
Unit rates of
variations are not submitted by Contractor and/or approved by Engineer in
Work is done
but is not paid by Engineer in a timely manner.
work is not recognized and over-assessed by the Contractor or it is
under-evaluated by the Engineer.
variations on construction schedule is not fairly determined by Engineer.
physical obstructions are not properly recognized by Contractor and/or
claims for additional "Time & Costs" impact are either not tenable or the
Engineer or Owner do not respond properly.
Issues may not
professionally handled, if the Engineer and the Contractor take their
respective rigid stands while disregarding the needs of the project.
I had the
privilege of chairing a session on "Contract Administration and Associated
Issues" alongwith Addl. Secretary and Member (Hydro) CEA, Joint Secretary
(Hydro), Ministry of Power, as panelists and three eminent speakers - two from
the contracting agency and one from the owner organization. Excellent
presentations and comments from the panel together with contributions from the
participants generated lot of ideas and suggestions. I would like to highlight
only a few important suggestions in this regard which, I consider, can be
implemented without much of debate and delay.
Selection of contracting agency is most important. Their technical and
financial capabilities must be properly assessed at the stage of
pre-qualification. Their resources - machinery and manpower vis-?-vis their
commitments on other projects should be critically evaluated, and then only they
should be qualified.
Procedure for giving extra work during
execution, which is normally necessitated by site conditions, should be
provided in the contract itself. It should predict, based on experiences of
last many years, typical situations warranting change in scope of work or
additional work. If the authority or authorities entrusted with this
responsibility are identified in the contract itself alongwith the procedure
for dealing with this, the execution could become much more smooth.
Similarly, the original contract could
provide for different types of situations, which are normally faced during
execution, and procedure for deciding on those issues could also be laid
down. Engineer Incharge of the
contract or concerned Manager or the General Manager of the project, depending
on the nature of the issues could be identified as the designated authority who
could be delegated the power to consider and decide these cases rather than
waiting for dealing with these with consequent avoidable delays.
In most cases, if the workers and
officers of the contracting agencies are, right from the beginning, notified
about an attractive incentive scheme linked to not only completion of
intermediate milestones but also a major portion of the incentive linked to
the commissioning of the project, this is likely to yield a more successful
project implementation. The amount of incentive needs to be really
attractive. The cost will be more than offset by the savings effected on
account of timely or ahead of schedule commissioning.
It should be provided in the contract -
and more importantly it should be ensured that these provisions are
implemented - that suitable infrastructure facilities like housing and other
welfare majors are properly arranged for contractor's employees and labour. What normally lacks is a proper mindset for this.
The contract document must provide a
reasonably good amount of insurance cover at the cost of contractor for
accidents etc. in respect of contractor's employees. These are measures
which are not only essential but they have very strong potential for
creating and sustaining a high level of confidence and motivation so
essentially needed in the work environment in which hydro projects are
Invariably the contract document itself
should provide, in unambiguous formulations, for escalation linked to
certain well established indices and for different types of situations. A
proper implementation of these provisions will obviate the need for disputed
claims in this regard.
Client's expectation that claim for any
extra amount should be regularly lodged rather than contractors accumulating
and postponing these toward the end of the project, is valid and justified.
There should be a proper procedure and time indicated in the contract
document for lodging of extra claims and dispensation of these claims. What
should be expected from both the contractors and the owners is that these
provisions and procedures are meticulously followed.
A very important suggestion that emerged
is with regard to the structure of the contract. The principle that "there
should be flexibility in the contract but the process should be rigid" would
be a good guiding direction. Some of the above points are really the
elements of flexibility in the contract. While they are strongly
recommended, the process to arrive at these should be rigidly and
Wherever the prequalification is done on
the basis of the strength of a consortium partner, the contract document
must ensure that the partner is not allowed to run away during
implementation. Experience on this has been very bitter. The example of Parbati-II Project is an eye opener. Each of the
consortium partners should be jointly and severally tied down in a manner, with
their individual financial back-ups, so that they do not escape and pullout
Quite often some of the contracting
agencies tend to under-quote to fetch the contract with a clear intention,
right from the beginning, that during execution they would make-up through
extra claims. This obviously leads to protracted examination of their claims
and non resolution leads to delays and stoppage of work because the rate
quoted itself, to start with, was unworkable. This type of an approach is
obviously short sighted. It benefits none - neither the owner nor the
contractor in the long run.
In hydro sector larger
number of construction agencies need to be developed. The existing ones need
to upgrade their construction infrastructure and resources besides their
organization and manpower. They must introduce modern construction
technologies and monitoring methods. Bigger hydro power development
companies e.g. NHPC have a definite role in facilitating this process.
Similarly large construction companies should encourage a number of feeder
construction agencies to come up. For this managerially and financially they need to be guided and
Copy Right : R.V. SHAHI