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)’

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 underestimation of the actual cost during
budgeting.

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.

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.

Professor Bent Flyvbjerg of Oxford
University believes that big publicworks projects almost always have
cost overruns due to strategic
misrepresentation—"that is, lying", as
he defines the term.

A time overrun, also known as a time
increase is an unexpected time
incurred in excess of a estimated/
allocated time.
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 learning seems to take place
No
 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..
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

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
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.
Trend of Cost Overrun w.r.t Orlginal cost
Overall % cos t Overrun
70
61.6
56.8
57.5
60
51.4
50
40.9
53.9
46
40
46.9
36
37.3
30
22.3
36
20
21.1
14.72
22.4
26
17.4
17.7
10
12.06
14.51
13.45
Years
Mar-2010
Mar-2009
Mar-2008
Mar-2007
Mar-2006
Mar-2005
Mar-2004
Mar-2003
Mar-2002
Mar-2001
Mar-2000
Mar-1999
Mar-1998
Mar-1997
Mar-1996
Mar-1995
Mar-1994
Mar-1993
Mar-1992
0
Mar-1991
% of cost overrun


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.
Scope
Quality

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.

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.
Status of Projects in AAI as on 31.1.2012
Total Ongoing Projects
52
Projects in Progress within time
0
Projects delayed upto 25% of
stipulated time
06
Projects Delayed upto 50% of
stipulated time
08
Projects Delayed more than 50% of
stipulated time
38
Status of Mega Projects at Kolkata &
Chennai Airports
Annex I & II
Annex III
STATUS OF ONGOING PROJECTS
Annex-I
Engineering Works
Region
Total
Ongoing
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
NorthEastern
03
0
-
-
03
TOTAL
35
0
05
06
24
17
Annex-II
STATUS OF ONGOING PROJECTS
CNS Works
Region
Total
Ongoing
Projects
All
Regions
17
Projects
in
progress
within
time
0
Delay up
to 25% of
Stipulated
time
Delay up
to 50% of
Stipulated
time
Delay
more than
50% of
Stipulated
time
01
02
14
18
Annex-III
STATUS OF MEGA PROJECTS AT
KOLKATA & CHENNAI
PARAMETER
Estimated Cost (Crs.)
Stipulated Date of
Completion
Present Physical Progress
Delay already occurred
Kolkata
Airport
Chennai
Airport
1602.61
1808.00
05.05.2011
23.01.2011
93 %
96.5%
33%
54%
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.
20
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
21
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
22
V
Selection of consultant & contract
agencies:
- Selection without assessing
Technical & Financial capability
- Lack of experience in similar nature
of work
23
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
24
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
25
XII
Lack of co-ordination amongst the
various disciplines and other airport
functionaries
XIII Inadequate monitoring system
26
1. Estimate should be based on actual
site data /drawings
2. Scope of work should be well defined &
finalized in consultation with user
Agencies
3. Presumptions should be minimized
27
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
28
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
29
11.
Regular monitoring of performance
consultants/contract agency
12.
Yearly performance evaluation mechanism
for timely action to weed
out
nonperforming contract agencies/consultants
of
13. Timely issuance of working drawings
30
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
31
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 PM&QA
monitor progress of work.
cell to
32
4.
Web enabled project monitoring software
being put into place
5.
Delegation of power is decentralized
accountability
6.
Project In-charge to monitor slippages in
targets.
with
33
The “GOAL” can be achieved if we
have “WILL, COMMITMENT,
DEDICATION AND PASSION” to feel
the need and purpose.
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.
•
•
•
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.
•
•
•
•
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.