Cost and time overruns

Cost and time overruns

1032. Cost and Time overruns:

Cost overruns occur mostly due to delays in decision making and procurement.

The following steps should be taken to reduce the lead time and accelerate spending under this plan head.

a. CMEs should generate a 10 year Master Plan for replacement on age-cum condition basis – indicating machines to be replaced on chronological basis

for all departments.

b. Proposals to be carefully thought out and fine tuned. Once a machine is sanctioned, there should be no road blocks like essentiality certificate etc.

c. While advising Budget sanctions for new M&Ps, both in Plan Head 41 and 42, the category of the item (Para above refers) as decided is clearly indicated, so that procurement action by the concerned agency is organized in time

d. Once the ------- Budget is approved, procurement action for Category A items should be instantly initiated by COFMOW, without any need for long waits in processing of indents by the users. Minor clarifications from the Zonal Railways for site details or other technical requirements can be obtained by COFMOW, in case they are necessary, through the respective nodal officers of the user Railways.

e. Debits must be passed on to the Railways or PUs, after the machines are commissioned. For this purpose COFMOW should be ------ sanctioned a suspense fund as the “Capital at charge”.

f. Category D items and category C items wherein dispensation is received from COFMOW should be directly procured by the concerned user Railway or PU.

g. All M&P indents should be accompanied by a site drawing, keeping it clear

at the time of indenting -- except in rare and extraordinary circumstances.

h. Excess over estimates: COFMOW should make a compendium of rates for all categories of machines, duly including taxes and duties. This information shall be available in COFMOW’s interactive portal (www.irmnp.com), to enable the users to indicate realistic estimates at the time of initiating the proposals, duly avoiding delays in getting sanctions for Excess over Estimates. Irrespective of the value, excess over estimates for category A items should be sanctioned by Board and for other items by the General Manager. SOP should be modified accordingly.

i. The Tender (AT) documents should

1. Have clearly phrased the warranty clause, plugging loopholes.

2. Spell out conditions for the terms “Commissioning Certificate” and “Proving test certificate” unambiguously, binding not only the consignor but also the consignee. In order to minimize the delays caused by mismatching creation of various items of an Industrial facility, either through plan head 41 or through other related plan heads, the following execution methodology must be considered.

a. Greenfield projects should preferably be executed through turn-key route. Components of a project can be grouped into 2 or more sub-projects so that each group in itself is a complete facility.

b. Likewise facilities of setting up an assembly line must also be preferably executed through turn-key route.

c. All individual M&P items requiring associated facilities such as extensive foundations, sheds, track linking, substantial power supply etc. must be executed through turn-key route, as spelt out in para 318 & para 426 stores code and in “Rules for entering into supply contract”.

d. In Brownfield projects also where the area has to be vacated for installing new facilities and M&P may also be executed on turn-key basis.

One single factor that invariably inflicts heavy “time and cost over runs” undeniably, is inadequate application of mind at the proposal stage. Quite often, a lump sum cost based on past experience is assumed for inclusion in the Pink Book. Detailed estimates are tailored to stay around this ad-hoc figure. More than a year or two lapses before the various formalities are gone through. The problem gets compounded if cost escalations manifest in complete revision of estimates.

It is therefore necessary to order a feasibility survey and obtain a Detailed project report (DPR), particularly in green field projects, such as a new workshop or diesel shed costing Rs 50 Cr and above. The DPR should bring out:

a. Various options to meet the demand

b. Investigations for pre-investment decision by examining these options, including optimization of existing facilities to decide the best alternative from financial and operating point of view to make an ideal investment decision.

c. Fairly detailed plans of the best option so chosen

d. Approx cost in current prices

e. Expected benefits

f. Project evaluation which may involve economic analysis, (cf. Para 235-F)or Social Profitability Analysis, in addition to financial appraisal;

g. Assessment of deliverables

Sanctioning of mega projects must therefore not precede a detailed survey, butmust be its natural corollary. After a Survey is included in the sanctioned Budget, the General Managers can sanction Survey Estimates costing up to Rs. 5 lakhs.