International Conference & Exposition on Construction

CIDC in association with Planning Commission and Ministry of Statistics & Programme Implementation hosted an International Conference & Exposition on September 23-25, 2004 at Pragati Maidan, New Delhi. The Conference was inaugurated by Hon’ble Union Minister of Defence, Shri Pranab Mukherjee (who was the first Patron of CIDC) on 23rd September 2004 at India Habitat Centre, New Delhi. Hon’ble Dy Minister of Roads & Transport, Ghana, Mr. Emmanuel Adjeiboye and Hon’ble Minister of State for Home Affairs, Shri S Regupathy were Guest of Honour at the Inaugural Function.

Theme of discussion in this conference shall be:

• To give the right focus to issues involved in Construction Opportunities in Asia- Pacific, Middle East & African Regions.

• Globalization of almost all business activities related to Construction Industry having direct / indirect impact on construction in general & physical Infrastructure growth in particular.

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The New Agenda & Trade Blocks

As economic agendas of Nations are taking the front seat over geopolitical concerns, physical boundaries of nations are becoming blurred and political boundary barriers between countries are breaking down. The onslaught of economic drivers is forcing countries to review existing priorities to meet the aspirations of their countrymen. Construction activity is the main driver of economic development of any Nation, and with the ongoing changes globally, a paradigm shift in formation of work strategies, policies, and the direction of action is needed, albeit taking in consideration the exigencies arising out of regional dynamics

Of the total construction business being conducted by several regional blocs, share of business in the regions, yet to see development, is minimal. However, while assessing the growth gradient in future these regions have the distinction of being the potential business growth domains.

The emergence of SAFTA has provided the countries of South Asia, the opportunity to realize their capabilities vis-à-vis the emerging opportunities. However, to achieve these desirable goals, a large number of issues would need to be focused, deliberated on and solutions evolved, implemented and monitored. Lessons can be learnt from the success stories and stumbling blocs in the other regional blocs.

For India, the obvious step is to consolidate the Construction Industries of the SAARC. Nations, inter-alia working to network & develop the markets in other developing regional blocs. As an obvious sequel this would require deliberations to assess the strengths, Weaknesses potentials in the context of various divergent issues related to technology, work practices and operating systems.

The Opportunities :

The Asian and African region is in its infancy as far as the development of physical infrastructure is concerned. The capabilities of respective Industries are also inadequate to really realize the full potential in terms of their ability to become an economic power house. The speed at which the solutions to the impediments are evolved & implemented, will eventually decide whether this growth rate can be maintained & accelerated

The specific segments of physical construction in which huge opportunities are available can be identified easily as :

1. Power Sector

2. Ports & Inland Waterways

3. Airports

4. Agriculture

5. Roads & Highways

6. Railways

7. Housing

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Impediments and Challenges:

By its very nature, the Construction Industry is constrained by the social, economic, political & geographical environment of the locale where it operates. Every construction site needs a confluence of favorability of all these factors to enable the stakeholders to do their job. The specific issues which will need to be addressed to enable cross-border operations by countries of the region are

1. Divergence of Technology, Quality, Safety & Environment standards.

2. Divergence of accounting standards, norms & regulation.

3. Divergence of financing systems for the industry.

4. Absence of comprehensive facilitating Bodies specifically for the Construction Industry.

5. Multiple clearance standards in the various states of each country.

6. Low level of harmonized systems for evaluation of stakeholders and for disclosure norms.

7. Diversity of standards of Engineering qualifications and practicing engineers.

8. Lack of certified, skilled workers in Construction Industry.

The event therefore is designed to deliberate on the cited issues, make an assessment of Strengths and Weakness in isolation and also in conjunction of multi Industry / multi Nation operation and has following structure.

The working Sessions, apart from the plenary & Valedictory Sessions shall have Six technical Sessions which are delivered in the following subjects:

The focus for deliberation shall include case studies, views of experts, and evolution of a work strategy.

The Annual General Meeting of SAARC-CIC was held on 29th January 2004 at Colombo, Sri Lanka in which Shri. P R Swarup, Director General, Construction Industry Development Council (CIDC) was inducted Chairman of SAARC-CIC, taking up the baton from Mr. Eddie de Zylva of Sri Lanka.

SAARC Chamber Construction Industry Council (SAARC-CIC) was established in 1998 by the SAARC Federation of Chamber of Commerce & Industry. This association was formed to develop and strengthen the relationship between the SAARC Governments and the participants in the Construction Industry with a view to finding mutual beneficial solutions to problems. SAARC-CIC provides the platform for such activities, which may culminate in development and adoption of good practices, development of Human Resources, and also pave the way for sound economic growth of the region through regional cooperation.

A large number of issues affect the regions Construction Industry and for the sector to improve cooperation & develop synergies, the following issues were highlighted by the incoming Chairman and deliberated by the Council:

(1) Evolution of a Harmonized Contract Document / Contract Conditions applicable for the projects in SAARC region

Inequity in Contract Conditions and the clauses is a major bane in smooth and efficient execution of the construction contracts. Time & cost overrun in execution of projects has become a rule rather than exception, and is an obvious outcome of lack of standardization. Apart from being a major impediment in the growth of Construction Industry from SAARC Region, this also adversely affects the health of State revenues. It is therefore proposed that a Standard and harmonized contract document / contract conditions be evolved expeditiously.

(2) Determination of the Construction Cost Indices for the SAARC Countries

With clearing of the way for efficient business and ushering in the concept of free trade among SAARC Nations, by introduction of SAFTA, necessity of understanding the economic dynamics of the region on stand alone basis and in context of multi regional approach, is paramount.

Determination of Construction Cost indices for various regions, gives a macro perspective to enhance the over all understanding.

The indices could be worked out for various segments of Construction Industry, viz, Housing, Roads/Highway, Core Sector Construction etc. and for the major cities of the SAARC nations.

(3) Harmonizing the content of engineering education and articulating the benchmark of professional processes, somewhat on the lines of according licenses to the professional engineers in the USA, or elsewhere

Under GATS /WTO provisions related to trade in services and to safeguard the interest of the engineering personnel from SAARC nations, harmonization of the content of Engineering education and also the professional experience has become essential.

The practice of certifying Professional Engineers as in USA, Canada, and other developed Nations needs to be introduced in SAARC region. Construction activities encompass almost all disciplines of engineering and SAARC CIC should initiate the process of harmonizing the benchmark and registering professional engineers expeditiously.

(4) Formation of working groups for the support service organizations, such as the Banks/ FI’s, Insurance Companies, Legal firms, from our regions to focus on evolving SAARC specific good practices to support the Construction Industry of SAARC region

In order to support the laudable initiative of introducing SAFTA by all SAARC nations governments and to serve the Construction Industry of the region, it is imperative that all the support/ service providing organizations be coalesced for a smooth transaction of business in the region. Banks, Financial Institutions, Insurance Companies, & Legal Firms from various SAARC Nations, have been providing services to the Constituents of Construction Industry operating in their respective countries. With the changed scenario, the services would expand to cover other nations too. SAARC CIC, therefore needs to consider constituting working groups to evoke and facilitate an operational dynamics which needs to be more “Regional” than “ National”.

(5) Environmental issues affecting Construction Industry

Rising awareness about environmental concerns is a reality, however has it’s negative side too, or the construction business. SAARC CIC needs to initiate necessary Studies and garner support of various Stakeholders to mitigate the negative impact of such initiatives.

(6) Establishing Equipment Bank for SAARC Region.

(7) Establishing a Construction Guarantee Fund for SAARC Region.

(8) Establishing an Organization for Housing Warranty for SAARC Region

CIDC’s Construction Workers Training & Certification programme has been made exempted under Section 35AC of Income Tax Act 1961 for the assessment year 2004-05, 2005-06, 2006-07. A copy of the circular may be obtained from the CIDC secretariat.

Rising steel prices push construction cost up:

Construction Industry Development Council (CIDC) has computed Construction Cost Indices (CCI) for Delhi, Mumbai, Kolkata, Chennai, Bangalore & Hyderabad. The CCI represents variation in cost of construction. CCI are computed from the cost of various inputs that go into construction works and since the weightage of these inputs such as cost of cement, steel, sand, wood etc, wages & salaries and cost of equipment vary for various sectors of the economy where construction plays a major role, the indices are computed for the 11 sectors as given in Table 2, 3 & 4. Table 2, 3 & 4 give the CCI for the period January, February & March 2004 respectively. The averages are computed for the cities given in Table 1 along with the National Average

Table 1: Average Construction Cost Indices
Base = 100.00, Jan 1998

The index rose by 2.19% in the fourth quarter (Jan-March) of 2003 – 04 with reference to the third quarter. The index rose primarily due to increase in prices of steel.

The CCI (National Average) rose by 7.7% during the financial year 2003-04. This rise in construction cost has been to a larger extent, due to increase in cost of steel & cement and to a lesser extent, due to increase in cost of aggregates & bricks and wages.

Table 2: CCI for Jan 2004
Base = 100.00, Jan 1998

Table 3: CCI Feb. 2004
Base = 100.00, Jan 1998

Table 4: CCI for March 2004
Base = 100.00, Jan 1998

The 10th AsiaConstruct Conference which is organized annually is scheduled to be organized at Sri Lanka on 21-22 September 2004. CIDC shall be presenting a Country Report on Construction during the conference. The Country Report highlights various economic indicators related to the national economy and to the construction industry. It also presents a report on the opportunities, policies, WTO issues etc . The CIDC secretariat is in the process of preparing the report.

The second EDP was organized in association with IIT, Madras on the topic “Project & Construction Management” on 15th & 16th July, 2004 at IIT, Madras. The programme had a huge response with 70 participants.

Shri Pant, in his capacity as our Patron, had guided and encouraged CIDC to fruitfully accomplish several of our chartered objectives. Therefore, to acknowledge his support to CIDC & to Indian Construction Industry a Farewell programme was organized on May 28, 2004.

Scheme 1: Discounting of Bills of Contractors

A large number of contractors work as sub-contractors to construction companies that take up construction of large projects such as construction of Power Plants, Dams, Buildings and Highways. The sub-contractor also has good local experience, which the main contractor utilizes for its operations. The main contractor may also hires subcontractors for specialized works such as fabrication and erection works, civil works, earth-works, drain work, and laying of sewer pipes.

The sub-contractor submits interim bills for work done at regular intervals to the main contractor. The interim bills may include payment for work done, materials brought at site, etc. The bills are raised as per the terms and conditions of the agreement between the two companies. SIDBI has brought out a scheme for discounting the interim / running bills of such sub-contractors by way of sanctioning a credit limit to the main contractor. The credit limit is utilized by the main contractor to ensure timely payments of the bills of sub-contractors.

Scheme 2: Equipment Financing

In addition to the guarantees, the contractor may require certain specific equipment to be purchased for the execution of a particular contract/ongoing contracts. SIDBI considers financing of the equipment by way of term loan depending of future cash flow. Deferred credit facilities through discounting of bills for purchase of equipments are also extended on co-acceptance of bills of exchange by commercial banks. Assistance through Technology Development and Modernization Fund Scheme (TDMFS), and credit linked Capital Subsidy Scheme (CLCSS) are also available for financing the purchase of equipments by eligible SSI units.

Scheme 3: Guarantees

Construction contractors are required to furnish performance guarantees in the shape of an assurance to the project developer / authority to fulfill the terms and conditions of the contract failing which appropriate damages can be levied. SIDBI is exploring the possibility of launching a scheme to extend such guarantees to select contractors and is in active discussions with CIDC and ICRA on this count.

Terms of Extension of the Scheme

The Collateral Security: Reasonable collateral security, based on the performance appraisal of the borrowers to be furnished.

The Guarantee Commission & Margin Money: The guarantee commission & the margin monies to be provided by the borrowers would be worked out on the performance appraisal of the borrower.

Rate of Interest

Rate of interest on the borrowings would be decided on the performance appraisal of the borrowers through a credit risk rating model.

CIDC-ICRA Credit Rating / Grading & Performance Appraisal of construction company

A construction company may source loans to purchase equipments and bills finance directly from SIDBI besides performance guarantees once Scheme 3 indicated above is finalized. In order to gauge the creditworthiness of the company and to avail competitive rates of interest on the loan amount, it will have to get itself credit rated under the CIDCICRA Rating Scheme & Assessment for small & mid sized construction companies. Prospective borrowers may seek information on Credit Rating / Grading & Performance Appraisal by CIDC-ICRA from SIBI, CIDC and ICRA