Challenges of
Nepalese Construction Industry
Presented By
Er. A. D. Lama
(Deputy General Secretary)
and
Er. Birendra Raj Pandey
(Coordinator, International Coordination Committee)
Federation of Contractors’ Associations of Nepal (FCAN)
Challenges of Nepalese Construction Industry
Macro Level
•Soaring Construction Demand (both Private and Public Sector)
•Continuing Openness of the Market to International Players (WTO etc.)
•Capacity Building (Financial, Technical and Human Resources,
Mechanization and New Technologies)
Micro Level
•Prevailing Procurement Practices
•Project Formulation and Design
•Contracts Administration
Challenges (Micro Level)
Prevailing Procurement Practices
•Qualification Criteria
•Provision for Price Adjustment
•Slicing and Packaging of Contracts
•Excessive low bid
•Provision of Central Data Bank of Contract Details
•Works up to 6 million for user's group
•Contractors Specialization of Works
•Promotion of Domestic Contractors
Project Formulation and Design
•Estimation of Project Period
•Estimation of Project Cost
•Adequacy of Design
Contracts Administration
•Allocation of less budget & Late Payment
•Lengthy Tender Evaluation & Variation Process
•Force Majeure (Band, Fuel and other Construction Material Shortages)
Procurement Practices - Qualification Criteria
Present Qualification Criteria
Average Annual Turnover of best 3 years out of
3/5/7/10year = 1.5~2xV/T
Specific Construction Experience
= at least 1~3 Contracts of estimated value
within last 3/5/7/10 years
Bid Capacity
= Working Capital x (5~10) + Lines of Credit – (40%
of) Current Contract Commitment
Procurement Practices - Qualification Criteria
Present Real Practices
Make joint venture with other companies to meet the
qualification criteria (more than 95% projects)
Execute the project singly (more than 95% projects)
Pay1%-7% commission to Joint Venture partners and
take the power of attorney from them
Submit highly qualified but unavailable personnel's
bio-data at the time of bidding (including expired,
abroad, government officials)
Procurement Practices
Provision for Price Adjustment
Sudden Price fluctuation in construction materials and fuel
Price adjusted only in major construction materials beyond
10% of contracts of construction period less than 15
months
Project period unreasonably reduced to 15 months just to
avoid risk of price escalation
No Price Adjustment in some projects of contract period
more
than 18 months/2 years
No price adjustment beyond 25% (Clause 119(3) of Public
Procurement Regulation 2064)
Procurement Practices
Slicing and Packaging of Contracts
No Standard Norms
Excessive Low Bid
Reasons:
to fulfill the high qualification criteria of
forthcoming project / survival in market
Execution and Acceptance of low quality works
Demand / Supply
Lack of professionalism in the industry
Procurement Practices
Provision of Central Data Bank of
Contract Details
Works to user’s group (political cadre)
Specialization of Works
Promotion of Domestic Contractors
Project Formulation and Design
Estimation of Contract Period
Estimation of Project Cost
Adequacy of Design
Contracts Administration
Allocation of less budget & Late Payment
Lengthy Tender Evaluation & Variation Process
Force Majeure (Band, fuel and other construction
mateials shortages)
Way Forward
Qualification Criteria – to enable growth
Set minimum required qualification criteria which is:
P = practical R = realistic R = reasonable
Average Annual Turnover of best 3 years out of last 10 years =
0.5xV/T
Specific Construction Experience
at least one Contract of value = 0.5 x estimated value
at least two contracts of value = 0.3 x estimated value
at least three contracts of value = 0.2 x estimated value
Bid Capacity
= Working Capital x (15~20) + Lines of Credit – (20%
of Current Contract Commitment)
Way Forward Cont.
Price Adjustment
Provision of Price Adjustment as per Nepal Rastra
Bank Index irrespective of contract period.
Excessive Low Bid
Rejection of low quality work and black listing
Strictly Implementation of bid capacity Provision
Reasonable Qualification Criteria
Award Contract who is nearest to the average of Contractors’ bid
Monitoring of proper utilization of Mobilization Advance
Reasonable Extra Performance Guarantee
Provision of Milestones
Way Forward Cont.
Slicing and Packaging shall be done based on
past experience
present bid capacity of contractors
more scientific and economic
Central Data of Contract Details
There should be a national level central data bank of all
contracts details which will help
to set qualification criteria
to decide in slicing and packaging
to evaluate the bid capacity of bidders
and many more…….
Way Forward Cont.
Estimation of Project Period
Project period shall be estimated seriously which is realistic and
more practical considering
Project location
Accessibility to the Project
Project start date/Working period
Estimation of Project Cost
Strict implementation of Clause 9(2) of Public
Procurement Regulation 2064
District Rates finalized normally in August (off season)
Normally water is not taken into consideration during cost
estimate
Way Forward Cont.
Allocation of Less Budget & Late Payment
Work shall be procured only if there is sufficient budget
Payment shall be done in time
Interest rate for late payment shall be more than bank rate
Tender Evaluation and Variation Process
Tender evaluation and variation process shall be done in time
Works to User’s Group (Political cadre)
Equipment hiring shall not allowed
Contribution of user’s group compulsory
Subletting shall not be allowed
Proper monitoring necessary
Way Forward Cont.
Specialization of Works
Contractors shall be specialized in particular works in
order to be more efficient and professional
Concern authority shall issue license accordingly
Promotion of Domestic Contractors
International contractors must have J/V with Nepali
Contractors in order to transfer the new technology.
10 % price preference to Nepalese Contractors
Relaxed qualification criteria to Nepalese Contractors
Let’s Work Together to Promote
Domestic Construction Industry
and
be Self-Reliant
Thank You!
