NE BUSINESS BUREAU
AHMEDABAD, JAN 4
All government contractors in Gujarat, under the banner of the Gujarat Contractors’ Association (GCA), have collectively taken an action oriented plan to resolve the long-pending contractors’ price escalation issue with the Gujarat Government, said GC president Arvind Patel here on Monday.
Despite making a representation to the state government on December 7 seeking to pay adequate compensation to meet the cost of 30 percent to 40 percent escalation in input costs like construction materials – steel, cement, bitumen, gravel, sand, bricks – logistics and labour charges, the state government has remained unresponsive so far. This has forced all contractors to shut down projects as they were economically unviable. To take a concrete decision on this nagging issue, all districts units have been urged to constitute a five-member panel to get the feedback of their members by January 6. After getting the members’ opinion on our action-oriented plan, no contractor will take part in tendering processes from January 8 onwards, said Arvind Patel.
Over 300 of the contractors present at the meeting have consented to this proposal by saying ‘yes’. This will seriously affect projects of the roads and building department, urban development department, irrigation department, and police housing of the state government. Many of the contractors have already stopped the ongoing projects of various civic bodies and the state government as they could no longer bear the huge monetary loss, Arvind Patel added.
Throwing light on the price escalation clause of the bidding document, Arvind Patel said, in the contract agreement for contracts of up to 12 months’ duration or less already awarded by the government institutions to compensate for the amount of price variations to the contractors so as not to exceed five percent of the contract value which is untenable.
Kishore Viramgama, vice-president of the association, said, “We urge the state government either to pay adequate compensation to complete the works which had been stalled due to COVID. Of the total infra projects worth Rs 25,000 crore, Rs 10,000 crore were that of roads and buildings department and Rs 8,000 crore of Ahmedabad Municipal Corporation. In addition to that the central government’s PMAY meant for housing in urban and rural Gujarat, which is worth over Rs 15,000 crore, will also be stopped by the contractors for want of escalation compensation. We hope the state government will pay heed to our plea in the larger interest of all stakeholders.”
Case study supports contractors
Incidentally the construction industry has a major role in the development of the Indian economy. This industry consumes 40 to 50% of the national five-year plan outlay and contributes 20% of gross domestic product. Medium to large construction projects take over a year for completion and the cost of materials and labour often increase, which leads to major problems in administration of the contract, says a study.
This study revealed that (a) the contractor is not adequately compensated based on the currently used escalation clauses in government contracts, (b) the wholesale price index currently used in the escalation formula of many contracts does not adequately reflect the escalation in costs in building construction projects, (c) a building cost index needs to be used for calculating escalation payment in the building contracts instead of wholesale price index, (d) an escalation clause should be included in the government contracts where the project duration is more than 6 months and (e) cost escalation affects the quality, delays project completion and causes dispute between clients and contractors.
