Due Diligence & Technical Audits: Save Billions in Construction

Construction, particularly of critical infrastructure projects like dams, barrages, and tunnels, require due diligence and technical audits for identifying risks, ensuring regulatory compliance, and optimizing project execution. In fact, due diligence and technical audits can save billions in construction by preventing catastrophic failures of such infrastructure.
Subrata Das - FIE, Chartered Engineer, Advisor-PMDCS; Professor of Practice-MIT(WPU), Pune

Due diligence involves a thorough investigation and assessment of all aspects of a project, from contractual to technical and safety aspects. It ensures that potential risks are identified early, particularly during the construction stage and are mitigated before they become costly issues. This applies to every phase of the project - right from feasibility, design engineering, construction, commissioning, and operation phases and is a continuous process.
On the other hand, technical audits focus on evaluating the quality of engineering design, construction methods, materials, and adherence to safety standards during all phases of the project and its lifecycle. Audits serve as a checkpoint, verifying that construction, maintenance and operations are proceeding as planned and that any deviations, including the ones which were not envisaged during DPR or construction stage, are corrected immediately.
When due diligence and technical audits are overlooked or inadequately performed, the consequences can be disastrous, leading to costly repairs, operational hazards, and massive revenue losses.
Impact on Construction Companies
Construction companies that fail to conduct proper due diligence and technical audits face severe consequences. Critical issues such as subsidence in barrages due to poorly monitored subsurface cutoffs leading to piping, tunnel collapses or deformity or leakages caused by incorrect construction sequences, often go unnoticed until it's too late. This results in massive financial losses, project delays, and reputational damage. For instance, gaps between secant piles that allow water seepage can erode the foundation of a dam or barrage, leading to subsidence and forcing the construction company to re-invest crores in repairs as its contractual obligation. It has to suffer penalties for delays and spend productive hours of the management in disputes and litigations.

Developer and Financier’s Risk

Developers and financiers bear a significant portion of the risk when due diligence and technical audits are insufficient. For hydropower projects, subsidence or structural failures or landslides can delay energy production or disrupt production, leading to significant revenue losses that often amount to thousands of crores annually. These delays or disruption not only affect profitability but also jeopardize loan repayments and future investments. Financiers face the risk of stalled projects that inflate budgets due to unexpected repairs, making it harder to re-finance or attract new investors.
Agricultural and Hydropower Losses
Failures in critical infrastructure like dams and barrages can have devastating effects on sectors like agriculture and hydropower. In agriculture, barrages play a crucial role in irrigation. If a barrage fails due to subsidence or structural issues, water supply to crops can be disrupted, leading to major production losses and financial distress for farmers. Similarly, in hydropower projects, subsidence caused by poor construction oversight can halt power generation, causing revenue losses in thousands of crores due to downtime and missed energy contracts. These impacts extend beyond the immediate project to affect entire economies reliant on these sectors.
Recent cases of dam breach and gate washouts of two hydropower plants with total installed capacity of 1710 mw triggered by a GLOF (Glacial Outburst Flood) on 04 Oct 2023 is roughly estimated to cause an annual revenue loss of around Rs. 2,000 crore. This estimate is based on power generation data from the Central Electricity Authority up to 2022-23 and the 2021 sale price, in addition to the cost of rebuilding and modifications. As per reports, the insurance claims of both the projects amounts to more than Rs. 3500 cr.
Modifications to the design, which are estimated to cost around ₹240 crore, represent less than 20% of the projected generation loss. These modifications could have been implemented immediately after the evolving GLOF risks were identified.
Generation performance prior to the event is given below:

Construction Risks in Dams and Barrages
- Subsidence Due to Subsurface Cutoff: In dams and barrages, poorly monitored gaps between secant piles in cutoff structures can allow water seepage. This erosion undermines the foundation and leads to subsidence, threatening the stability and functionality of the structure.
- Water Seepage and Erosion: If the cutoff system is not properly designed and monitored, water seepage can slowly erode the foundation over time, leading to significant structural weakening and eventual failure.
- Failure in Gap Detection: Deviations between primary and secondary piles, if left undetected, create gaps that allow water flow beneath the structure, eventually leading to collapse and costly repairs.

Key Construction Risks in Tunnels
- Excavation and Support Sequence Errors: In tunnel construction, errors in the excavation sequence or failure to provide adequate support timely can lead to collapses or subsidence, destabilizing the tunnel and surrounding ground.
- Ground Loss through pipes: Uncontrolled water flow through drainage pipes tends to wash out fines from the rock joints, weakening the ground around the tunnel, causing voids and eventual collapse or subsidence.
- Missed Face Ground Information: Tunnel projects rely on real-time data from either probe hole data or Measurement While Drilling (MWD) to assess ground conditions ahead. Missing or misinterpreting this information can lead to collapses or ground loss due to unaddressed risks.
- Uncontrolled Dewatering: Inadequate dewatering can destabilize the ground, causing subsidence or caving in tunnels. Without a thorough risk assessment, dewatering activities can severely compromise the tunnel structure and lead to major repair costs.

Conclusion: Prevention is Priceless
Due diligence and technical audits are indispensable in ensuring the long-term success of construction projects, especially when it comes to critical infrastructure like dams, barrages, and tunnels. These processes help identify risks early, optimize construction practices, and uphold safety standards, thereby preventing costly repairs and operational hazards.

Neglecting due diligence can result in crores of rupees lost to repairs and revenue delays, alongside significant reputational damage. By integrating thorough due diligence and technical audits into every phase of a project, construction companies, developers, and financiers can minimize risks, protect their investments, and ensure the sustainability of sectors such as hydropower and agriculture.

Acknowledgments:
- https://www.pressreader.com/india/mint-ahmedabad/20240906/281925958378183?srsltid=AfmBOoqIxkFuxe0PLHk3l86ER_qS52yjwFIw_KVPZEjhePVjm8L-lhsi
- https://theprint.in/india/sikkim-govt-central-panel-split-over-what-caused-2023-floods-at-stake-is-rs-2500-cr-insurance-claim/2291910/
- https://economictimes.indiatimes.com/industry/renewables/patel-engineering-secures-rs-240-crore-hydropower-project-from-nhpc-in-sikkim/articleshow/113520886.cms?from=mdr
- https://cea.nic.in/wp-content/uploads/annual_hydro/2022/Review_Book_2022_23-1.pdf