Cost escalation in road contracts: AGP, NHA told to calculate overpayments in 60 days

The sub-committee of the Public Accounts Committee (PAC) has given 60 days to the Auditor General of Pakistan (AGP) and the National Highway Authority (NHA) to evolve a mechanism to calculate overpayments on escalation cost in various road contracts awarded in the past. Sardar Ashiq Hussain Gopang convened a meeting of the sub-committee of the PAC, which examined the audit reports of the Ministry of Communications for the year 2007-08.
The Director General Audit Civil Works argued before the committee that Rs 325 million overpayments have been granted to contractors of different projects by NHA in violation of laid down rules and regulations. Chairman NHA said Audit have different formulas to calculate overpayments to contractors on escalation which need to be reconciled.
Audit objected that NHA violated a letter of the Planning Commission. The commission vide its letter dated December 9, 2006, withdrew its previous letter date November 2, 2006 for incorporation of cost escalation in contract agreements of on-going projects to adjust increase in price of construction material, POL and labour. Due to withdrawal of earlier letter from its issuance date, the escalation paid was required to be recovered from the contractors.
Project Directors NHA (RYK-TMP Bahawalpur section-I and section II) and (Kalat-Quetta-Chaman) enhanced the adjustable portion from 40 percent to 45 percent and revised the factor 'C' of high speed diesel from 0.10 percent to 0.18 percent. This resulted in overpayment of Rs 152.768 million.
In another case, audit pointed out that NHA (Project Director, Okara Bypass Project) made amendment no.3 dated April 6, 2005 for price escalation. The post bid amendment was contrary to the contract. This resulted in overpayment of Rs 103.6 million. In yet another case, NHA (M-8 Project Section II-A) enhanced weightage of factor C for high speed diesel (HSD) and labour from 0.10 to 0.18 and 0.07 to 0.13 respectively and made payment in Escalation Payment Certificate (EPC) no. 7 at enhanced factor. Payment already made up to EPC no. 6 at agreed factor was also adjusted. Enhancement in the agreed weightings in violation of contract clause resulted in overpayment of Rs 54.9 million.
NHA on M-8 Project section II-A made payment on account of price escalation of bitumen and cement on the basis of actual consumption of these items instead of agreed formula given in the contract agreement. Non-adherence to contract clause resulted in overpayment of Rs 16 million. NHA again in Kalat-Quetta-Chaman Project worked out and paid escalation on total value of work done. This resulted in overpayment of Rs 13.5 million.