Absence of Price Variation Clause is creating difficulties for contractors

Engr. Saeed Shamsi, Chairman, Potential Group talks to Engineering Post

In the past few years the incumbent government has introduced some new policies without regard for the true situation on ground which is resulting in a truly difficult situation for the EPC contractors and companies working on government projects.

To understand the real problems of the sector, Engineering Post went to Mr Saeed Shamsi, CEO Potential Engineers (Pvt) Ltd for his insights. Mr. Shamsi, during the conversation highlighted that the most troublesome issue is the absence of price variation clauses in the new contracts being executed. The price variation clause suggests that the price of the contract be adjusted subject to variation in the prices of inputs being used for the project. “With the current market volatility and increasing price of US Dollar and fuel, the removal of the price variation clause makes it nearly impossible for the contractors to estimate a fixed price of the contract,” said Mr. Saeed Shamsi during the exclusive conversation. Resultantly when the contractors cannot complete the projects in the given price parameters the government threatens to encash the bonds of the contractors. “To be honest the encashment of Bond represents about 10% loss while completing the project at that price could result in much greater loss for the contractors,” explained Mr Saeed Shamsi “When one looks at the bigger picture here, this does not mean that only the contractors have suffered a loss, it actually means that the government, with its inflexible stance has set itself up in such a way that the benefits of completion of works are not made available to the people. Especially in case of Transmission Lines, power cannot be evacuated from the Power Stations in time resulting in huge penalties to be borne. Secondly when the tender is reinvited for the same project the bidding will come in at double the price. So in the end the loser is the government and taxpayers,” he added.

During the conversation, Mr Saeed Shamsi highlighted how the local contractors are being cornered, “There used to be a clause that all foreign contractors need to have at least 30% partnership with a local company. This clause has now been removed by the government as well,” he added. The removal of this clause makes it easier for the foreign investors to walk over the local companies.

Another aspect that Mr. Saeed Shamsi mentioned during the discussion was the training of labour and utilisation of modern tools. “The foreign companies need to hire skilled labour and teach them so that our human resource is also developed along with the development projects,” he said. A skilled labour using the latest tools can easily perform the work of two people which means an overall reduction in cost for the project which is beneficial for everyone. The government needs to ensure that such skill development is done by the companies.

“Another important step that is the need of the hour is the implementation of the PEC approved standard forms of agreement in letter and spirit. By solving the grievances of the people, the government stands to gain more not less,” concluded Mr Saeed Shamsi.