SERVICES OF TECHNICAL
CONSULTANTS
[FOR JOINT-VENTURE MEGA PROJECTS]
1.0 Introduction
1.1 The traditional understanding of Consultancy Services referred to
employment of
- Architects
- Engineers [C&S/M&E]
- Quantity Surveyors
Or commonly known as Technical Consultancy Services
1.2 Laws, Procedures and Guidelines have been formulated and been in existence for many decades in most countries. These cover, among others,
- Terms & Conditions of Appointment
- Basis & method of computation of professional fees & other claims
- Scope of Services to be provided
- Responsibilities of Clients and Consultants
- Categorization of various types of Projects [Buildings/Infrastructure]
1.3 Regulatory authorities were established to monitor the services of
the technical professionals to ensure that all involved parties complied
with the provisions of the laws. There were provisions for protection of
clients and they had recourse for redress in the event of any disputes.
2.0 Specialist Consultants
2.1 Consultants in specialist disciplines within the construction industry made their appearance in this country about three decades ago. Among the disciplines which became popular are:
- Project Management
- Landscaping
- Interior Decoration
- Environment Impact Studies
- Risk Management
2.2 Clients were at a disadvantage as there were no set standards or
guidelines prepared by any independent authority to monitor the
activities of these consultants and to safeguard the interest of the
involved parties. It has been generally left to the integrity and ethics
of the professionals [or their professional organizations, if any] to
ensure the quality of the expertise and the fairness of the quantum of
professional fees and reimbursables that may be claimable.
2.3 The Board of Directors, management and auditors or any other person appointed within the client’s organization, had a near impossible task to ensure that the client’s interests were protected. This was due to absence of any measurable scale of quality of service and equitable quantum of fees.
3.0 Consultants for Mega Projects
3.1 Government financed mega projects, the cost of which is in billions. [E.g. Airports, Highways, Power Projects/Plants, Bridges, Harbors, Railway Systems/Tracks, Naval Base, Integrated Facilities and University Campuses] were implemented managed and supervised in the past by in-house expertise that existed in departments with relevant expertise. External expertise was engaged when the work load exceeded the in-house capacity or the required relevant specialized expertise did not exist within the Government’s organization. Even in such cases the specialized expertise obtained from the private consultants was under the direct control of the respective government agency
4.0 Outsourcing & Privatization of Mega Projects
4.1 With the advent of the 80’s when developing countries wanted to accelerate the rate of development but did not have sufficient and relevant in-house expertise it became necessary to either totally Outsource or Privatize these multi-Million Dollar Projects or to go into Partnership with the Private Sector by having Joint Ventures.. In some cases the Government Statutory Authorities and Local Government Authorities also embarked on similar implementation methods as it had large land banks but lacked finances and expertise to develop these strategically located but grossly unutilized or under utilized extremely valuable assets. Also they were reluctant to dispose off these lands by outright sale, as they wanted a permanent source of continuous income to finance their social projects without increasing tax/levies rates.
4.2 The high value of the land made it imperative for the private
sector to come with innovative ideas. These included multipurpose
projects which included Residential, Commercial and Industrial, complete
with Integrated Facilities such as Parking, Sports, Recreational,
Entertainment, Accessibility to public transport (rail/mass
transit/buses) and a host of other aspects.
4.3 The complexity of the Mega Projects brought in the third player in the implementation of these mega projects. In addition to the existing two players i.e. client (land owner) and private sector (Proposals and Finances) the Third Player was the Contractor with the expertise to Design and Implement the Project. The method of construction generally chosen was “Turnkey” type of implementation.
5.0 Turnkey Implementation
5.1 The “Turnkey” concept requires the client to state their needs whereas the contractor designs and upon approval, constructs the project within the cost and time frame agreed. No changes to agreed designs/cost/time frame are generally permitted as any change to any component of the agreement may cost the client dearly. To ensure that their interests are adequately protected all the three players appoint their own teams of consultants. Unless the terms, fees and scope of services are properly and clearly demarcated in terms of responsibility, there is a great possibility that there will be over lapping of services resulting in differences of opinion among the three sets of consultants and increase in fees quantum which will not be in the best interest of the project or the client.
6.0 Professional Fees for Technical Consultants’ Services
6.1 The total estimated fees payable under the traditional system, which involves Architects/ Engineers/Quantity Surveyors, would be about 8%-12% of the Final Project Cost. This rate can be used as a Guideline for Budgetary Purposes under the Joint Venture System using “Turnkey” method of implementation. However, it has been observed that the percentage rate under “J.V. Turnkey” system can exceed 20% (and may go up higher). In addition there may, in all probability be a Project Manager for whom additional fee will be payable. The fee basis may be on percentage of cost, monthly rate or other negotiated basis. However as the three partners pay only their own teams of Consultants it may not be realized that the combined quantum of consultants’ fees might have exceeded the norms. The main loser in such cases will be the CLIENT who pays for all and whose interest needs the most protection.
7.0 Fraudulent Opportunities/Possibilities
7.1 The trend to outsource has been extended further and also spread to the private sector. Consequently clients are now only the financiers and do not get directly involved in the implementation of projects. This has also substantially increased the possibilities for fraudulent practices and mismanagement that result in self-enrichment and/or losses. The responsibilities of the Examining Officers [Financial/Accounting/Audit Professionals] has increased substantially and more challenging.
7.2 Another major contributor to fraudulent opportunities is the delay
in decision making process by the client as it provides an opportunity to
install equipment that was the latest at the time of the award but which
may have now become obsolete with newer items being available at lower
cost and with better facilities.
8.0 Conclusions
8.1 The Lack of Interest by these Examining Officers in the Financial Implications of the various aspects of the Construction Industry and the absence of strong Support from the Client/Management to provide relevant exposure and training could result in major frauds that could have been avoided but for the short-sightedness of those concerned in decision making positions.
8.2 Thus, the Examining Officers/Auditors/Appointed Managers [and Client should support] should go beyond the narrow confines but look at the Total Picture to ensure appointments are made based on need so that payments are not paid for services that may not be required and also not provided fully. Small-perceived savings could result in large losses. This aspect should be kept in mind when any project is being constructed under the ‘Turnkey’ System.
Advance Detailed Planning and Prompt Decisions will result in Cost-Efficiencies and Prevention of Disputes as it is cheaper and financially painless.
The Alternative could put the Client in Financial demise.
E-mail: gursharan38@gmail.com sharwant38@yahoo.com
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