Time and Cost Overruns in Implementation of Infrastructure Projects, Problems and Remedies

J.L.Narayan, Joint Adviser Infrastructure and Projects, Ministry of Statistics and Programme Implementation

Implementation of infrastructure projects in India has improved substantially. Although the complexity of infrastructure projects have increased but capacity to handle them efficiently is inadequate on many fronts that is why, time and cost overruns in projects still persists.

It emerges from the analysis of the Central Sector Projects by the Ministry of Statistics and Programme Implementation that many of the projects suffer from inadequacies in project formulation and implementation, resulting in large time and cost overruns, affecting the very viability of the projects and acting as drag on the economy. The analysis has also identified several factors responsible for time and cost overruns – some within the control of the enterprises and some beyond their control.

Nature of sector specific problems are summarised in the Table 1:

Table 1: Sector Specific Problems for Time and Cost Overruns
Sl.No. Sector Sector specific reasons for time and cost overrun
1. Atomic Energy In the Atomic Energy the cost increase in projects is due to exchange rate variation and delay in supplies from foreign vendors.  Delay in civil works is due to locational problems.
2. Civil Aviation Most of the projects in the Civil Aviation Sector are modernization projects.  The main reasons for delay is availability of adequate land and funds causing delay in modernization of non-profit airports.
3. Coal A number of Coal projects are under expansion and these projects are being funded from internal resources of the Coal Companies which is causing constraint in timely completion of expansion projects.  Since Coal projects are location specific, the problem of land acquisition and rehabilitation is a major constraint.
4. Steel In the Steel Sector, major modernization activities have been taken to expand the capacity of existing plants.  Due to very heavy pressure on vendors and suppliers because of large construction activities all over the world, supplies are getting delayed.  Delay in award and availability of suitable contractors for carrying out major activities is also causing delay in implementation.
5. Petroleum & Natural Gas The Refineries which are under expansion are facing supply problems from indigenous as well as foreign vendors.  The refineries which are being expanded for clean fuel production are facing constraints in redesigning their fluidized catalytic units which require shut down of their plants for a longer period.  In the development of oil exploration, projects encountered delays mainly due to geological problems.
6. Power The Power projects particularly, Hydro-electric projects are suffering delays due to law and order problems in the North East and in Kashmir.  Some projects are also facing problems of geological surprises.  Non-availability of contractors in difficult areas is posing a threat to timely completion of projects in Power Sector.
7. Railway The major problem of Railway Sector is the non-availability of adequate funds for large number of New Line, Gauge Conversion, Doubling projects.  A number of projects are also facing land acquisition, rehabilitation problems due to lack of proper response from the State Governments.
8. Road Transport & Highways Projects are delayed mainly due to basic reasons like land acquisition, realignment of public utilities like water supply, power supply line etc.  A number of projects have suffered due to lack of proper response from the State Government authorities.  Some projects have been delayed due to delay and slow progress made by the contractors requiring award of the contract afresh.
9. Telecommunication In the Telecommunication Sector projects are delayed due to lack of proper coordination and in some cases timely availability of equipment and material.  Since Telecommunication is very technology intensive, availability of required type of experts and material is also causing delays.
10. Urban Development The Urban Development projects are mostly of civil construction nature and they are being carried out by CPWD on behalf of the administrative Ministries.  Improper contract monitoring and follow up causes delay in civil work projects.

As an apex institution for monitoring, the Ministry of Statistics and Programme Implementation has initiated several measures in cooperation with various Ministries & PSUs to improve the system and procedures relating to project formulation, implementation and monitoring. These include 2-stage clearance, appointment of Nodal Officers, improved procedures for cost benefit analysis and approval, delegation of more powers at project level, release of project implementation manual, institution of MOU system, institution of 2-tier regular monitoring (Monthly & Quarterly), adoption of network based monitoring, extensive training of project managers, prioritization of projects matching with available resources, and several project based interventions. Amendment to Land Acquisition Act and development Standard Rehabilitation Package are important measures to reduce time and cost overruns.

The time and cost overruns in projects in the environment uncertainties, inadequate funding, delay in land acquisition, law and order problems, general escalation in costs and high cost of capital cannot be eliminated altogether but these can be controlled by suitable measures which have been highlighted above. 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, 1991 to 12% in March, 2008 and the increased to 21% in September 2010. This has resulted into indirect savings of more than Rs. 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 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 overruns

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 the Figure 2.

Trend of percentage of delayed projects

As monitoring alone cannot reduce time and cost overruns in projects, the Ministry of Statistic and Programme Implementation is continuously taking steps to strengthen implementation mechanism. One of the steps initiated by the Ministry was the adoption of modern Standard Bidding and Contract documents which has been developed jointly by this Ministry and the Construction Industry Development Council. A Project Implementation Manual has been prepared recently to guide the project authorities/user agencies so that the projects are formulated as per the guidelines issued by the Government of India from time to time. It has taken views from large number of studies undertaken by this Ministry with the help of consultants and their recommendations. It is a revised manual which not only concentrates groups on Industrial infrastructure but it gives a checklist of almost all the sectors of the Indian economy. This Manual now incorporates a complete check-list for preparation of project/ program proposals in the prescribed formats for Infrastructure and Utility Sectors covering Roads, Bridges, Shipping & Ports, Airports And Civil Aviation, Energy And Power Generation, Telecommunication, Water Supplies, Sewerage and Drainage etc; and Social and Community Development Sectors which includes Education, HRD, Health and Medical Services; and Economic Sectors such as Agriculture, Fisheries, Forestry, Industrial Estates and Tourism. The guidelines make reference to the latest innovations to the PPP and make a reference to the websites of the Ministry of Finance and Planning Commission where most of the guidelines can be seen. For the preparation of the revised manual Ministry utilized the services of CIDC.

Time is the essence of project management, therefore the system of monitoring based on the monitoring of milestones drawn from the PERT/CPM charts of projects. The Ministry is concentrating on the time management aspect of projects through resolution of problems coming in the way of implementation and providing latest information without time lag to all concerned authorities and agencies to take immediate action. MOSPI has in place On-Line Computerised Monitoring System (OCMS) since 2005 which has a unique database of its kind in the world. At present, 90% of the projects report online which can be processed in a two- week time. Reports are submitted to the higher authorities with exceptions requiring attention and supports resolution of problems to keep the projects on proper track.

Besides the creation of awareness and system improvements, Ministry organises the training programmes and seminars in association with institution in the project management field to enhance knowledge of Project Managers and also share best practices experiences across sectors.

Lessons learnt from the implementation of infrastructure projects are going to lead the future strategies to improve project implementation scenario of central projects. These lessons are:
  • Monitoring is not enough to ensure timely completion of projects it must be backed with action oriented solutions and also it will require improving system and procedures,
  • the system must be backed up with latest management tools and techniques,
  • adequate financial and administrative powers be given at the enterprise and field levels,
  • remove constraints in obtaining multiple clearances,
  • re-engineering the process of obtaining approvals and posting of information on-line,
  • a system of reward and punishment is necessary to improve performance,
  • capacity building in the area of Project Management is vital to improve delivery and
  • top Management support is necessary for timely action, and
  • establishment of Committees at the Chief Secretary level to deal with land acquisition and clearances required from the State Governments.

About the Author:

Shri J.L. Narayan, Joint Adviser, Infrastructure and Project Monitoring Division of the Ministry of Statistics and Programme Implementation, with wide experience in Project Formulation, Implementation, Planning, Appraisal, and Control. He is B.Sc. (Mech. Engineering), Mechanical, Msc. Economics and MBA served Industry in Public Sector for 6½ years, & Government of India for 28 years, UNDP for 2 years as Management Expert and Commonwealth for 2 years as Economic Adviser. He has presented several papers in International forums, trained over 4000 Project Managers in last 10 years. He has been instrumental in preparation of Standard Contract Clauses and Bidding documents for Domestic Bidding. He authored the Project Implementation Manual released by the Government of India in 1989 and revised in June, 2010. Mr. Narayan has been the Member of PMI, USA and he is a founder of PMI North India Chapter. He is a qualified Project Manager and also an Institutional Member of International Project Management Association.

NBMCW January 2011

Benefits of Project Management in Developing India’s Infrastructure

During the past couple of years, India has enjoyed the privilege of being amongst the most favored investment destinations of the world. With the sharp vision of Prime Minister Narendra Modi and compelling Read More ...

Arbitration and Conciliation (Amendment) Ordinance 2015 Provisions & Legal Issues

In a significant development for Indian arbitration law, the President of India has formally adopted the Arbitration and Conciliation (Amendment) Ordinance 2015 (the "Ordinance"), which will bring about major and long-awaited reforms to arbitration in India. The Ordinance amends Arbitration and Conciliation Act 1996 and seeks in particular to eliminate Read More ...

Redefining India – Accelerating Infrastructure Projects Through Project Management

Raj Kalady
In the last two decades, India has emerged as one of the fastest-growing economies in the world. According to a Citi group report, following the reforms undertaken by Government of India, the GDP is Read More ...

A Study of Constructability Issues Related to Various Stages of Design and Construction Process

The increasing levels of competition and the introduction of manufacturing concepts within the industry led to specialization. Such specialization led to the separation of design and construction facilities. The increasing complexity of many projects makes it more and more difficult for the designers to be fully aware of all the implications of their Read More ...

Model for Processing Construction Claims

Construction Claims
With growing standards, advanced technologies, and owner-desired additions and changes, construction projects are becoming more and more complex, while the successful completion of projects has been thought to depend mainly Read More ...

Obligations of Parties & Provisions of Claims in Modern Construction Contracts

Construction contracts usually contain notice-of-claim provisions. The contractor must, within a stated period of time, notify the project owner in writing of any occurrence which may give rise to a claim for additional compensation under the contract. The policy behind these requirements is sound. Owners should have the opportunity to respond to Read More ...

Termination of Contract Under Old FIDIC

Termination of Contract
Most commercial construction contracts include provisions allowing either party to terminate a contract for cause (also referred to as a termination for "default"). Unlike terminations for convenience, Read More ...

Position of Engineer & Independent Engineer In Standard Forms of Contracts

The engineer is generally responsible for issuing the completion certificates and supervising any tests that have been contractually agreed as well as establishing that payments to the Contractor can be made, in funded Read More ...

Study on Project Schedule and Cost Overruns - Expedite Infrastructure Projects

The KPMG in India – Project Management Institute (PMI) study was initiated on the request of MoSPI, which highlights the major reasons for schedule and cost overruns across major sector's infrastructure Read More ...

PPP Audit of Infra Project - Importance and Implication

Purnima Bajpai, Reliance Infrastructure, Pune.A contentious issue in the context of PPP arrangements and their audit relates to the scope of audit by Supreme Audit Institutions (SAI), in Read More ...

Modern Data Collection Techniques for Management of Road Assets

It is now well established that decision on maintenance, rehabilitation and upgradation/ improvement measures needs to be based on an objective assessment (with an analytical approach) to Read More ...

Management of Quality Quantity and Speed

Management is the need of today. Management has been included in various specialised fields now like environment, tourism, hotel, information technology etc. apart from traditional courses like finance, human resource, operation and marketing. In the management concept, management sets the goals based on quantities for individuals and performance Read More ...

An Innovative Tool to Teach and Train

The world is expanding and indeed expanding at a breath neck pace, Expansion of our world requires construction of new Industries and Production process from commissioned industries. No Read More ...

Infrastructure Projects Through Project Management

India is only second among the emerging economies next to China. With an average GDP rate of 7.5% and upside, the demand to improvise infrastructure is magnanimous. The average spending capacity Read More ...

Safety Planning and Administration

Theoretically Safety means the absence of danger at work which is made possible by eliminating hazards that create danger. ILO, in one of their documents, state "A thing is provisionally categorized as safe if the risks are deemed known, and in the light of that knowledge, judged to be acceptable. However, generally, safety is adjudged in terms of an Read More ...

A Legal Analysis of Some Clausal-Related Disputes in Construction Contracts

The contractor under a construction contract is invariably required to carry out and complete the project by a specified date. This requirement is often accompanied by an obligation to produce a construction programme and to keep it up to date. There may be a contract administrator with powers to approve the programme. This paper identifies matters in relation Read More ...
NBM&CW

New Building Material & Construction World

New Building Material & Construction World
MGS Architecture

Modern Green Structures & Architecture

Modern Green Structures & Architecture
L&ST

Lifting & Specialized Transport

Lifting & Specialized Transport
II&TW

Indian Infrastructure & Tenders Week

Indian Infrastructure & Tenders Week