Delhi PWD asks contractors to estimate cost increase in construction projects
Delhi’s Public Works Department (PWD), which is working on some of the Capital’s most important infrastructure projects, has asked concessionaires to evaluate and estimate cost increases in ongoing projects due to the lockdown, and submit a report in the first week of June.
PWD officials said that the tentative increase in the estimated cost of the projects is likely to range between 10% and 12% for the current quarter.
Experts have said any potential increase in costs would also likely delay the respective project, because the revised estimates would require government approval.
The officials said the cost of construction material has increased due to the nationwide lockdown, in place since March 25 to curb the spread of Covid-19.Hiked duties on diesel and petrol in Delhi also made transporting construction material costlier.
With these factors together playing a role in bumping up the cost of the projects substantially, officials said the evaluation exercise will give the department an idea of the “financial health” of the projects.
The Delhi government had, on May 5, raised value-added tax (VAT) rates on petrol and fuel.
“At present, the duty on petrol and diesel has been increased, so the transportation cost of construction material will also go up. The cost of construction materials such as stone grits, steel, iron, and others have also increased. These will most definitely escalate the cost of infrastructure projects,” a senior PWD official said.
The official said stone grits are procured from Rajasthan, but mining is yet to re-start properly in the state due to a shortage of labour, which has made available materials more expensive. “We have asked our concessionaires to evaluate costs and file a report by the first week of June. The average cost escalation of major projects is expected to be around 10% to 12% for the current quarter,” the official said.
Another PWD official explained that costs will only escalate in long-term projects, which usually take more than 18 months to complete.
“Small-scale projects are unlikely to be affected. Long term projects such as the Barapullah Phase-3 elevated corridor will face the impact of cost escalation,” the official said.
He explained that, for instance, the estimated cost of Barapullah Phase-3 project so far is ₹1,260 crore. If a cost escalation of 10% is projected, its revised cost will end up being ₹1,386 crore.
The PWD is working on projects such as construction of a 1.2-km tunnel between Purana Qila Road near Mathura Road and Ring Road, which is part of the ITPO Pragati Maidan Redevelopment Project; Barapullah phase-3 elevated corridor; Ashram underpass; flyovers at Seelampur and Shastri Park; and Benito-Juarez Road underpass in south Delhi.
Construction at a majority of infrastructure projects was on hold since November last year, when the Supreme Court banned work due to toxic pollution levels in the city.
That ban was fully lifted only in February. But work was stopped only weeks later on March 25 when the nationwide lockdown came into force.
The Centre had, last month, asked states to allow construction work at important infrastructure projects after April 20, an order that did not extend to Delhi due to the rising number of Covid-19 cases in the Capital. The Delhi government gave its nod to resume construction activities on infrastructure projects on May 3.
Sewa Ram, professor at the School of Planning and Architecture (SPA) said that apart from costly construction materials and high transportation cost, slow pace of work also results in a project’s cost escalating.
“Cost escalations also cause hindrances in the progress of the project, because it requires approval from the government which further consumes time. Resource mobilisation will be a big problem for the government as well. In some projects that are yet to start, the government may relook some of the projects or halt them temporarily,” Ram said.