“Construction is an integral part of process and growth,” says panellist Amit Bansal, partner at Deloitte, who participated in the session on “Role of Experts in Major Construction Project For Delay and Cost Overruns Claims” at the Inter-Pacific Bar Association (IPBA) conference in February this year in New Delhi. He sat down with India Business Law Journal, explaining his views.
India Business Law Journal: How would you explain the issue of delay and cost overrun claims to laypeople?
Bansal: According to what statistics indicate, almost 75% of projects that are delayed have cost overruns. And the balance 25% never see the light of day. Why are the cost overruns and delays so inherent?
I think the fundamental issue starts from project preparation. It requires different kinds of studies to be done prior to the project being planned. These include studies of the land, soil, site, utilities and other things that may be below the ground.
The delays happen because there are a lot of uncertainties, which the construction companies deal with. These uncertainties come in the form of surprises. Suddenly a utility below comes up, or a rock, or underground water, which were never thought about.
When these uncertainties come up, it means designs and specifications have to change, which impact the cost. All of this requires approval from the project owners, which goes back and forth.
Additionally, none of the construction companies do things entirely in house. There are vendors. So it’s a multi-layered structure, which we are dealing with.
IBLJ: What are the best practices that are must haves to avoid these delays and cost overruns? What kind of things do experts put in place so that such issues arise less or not at all?
Bansal: Saying that these issues do not arise at all, is not possible. However, what separates a good project from bad ones is preparation. How prepared are we to deal with those situations.
The first step is good project preparation, having all the technical studies done, alignment, land acquisition, all environmental approvals, regulatory check and compliance filings and all approvals are in place. Some of these things are not in your control. Especially in the Indian context, you don’t know when the approvals will come.
All preparations and checks need to be done proactively so that when you are left dealing with things that are in your control, you are looking at putting a good project plan in place.
After laying the foundation, moving on structure and setting realistic timelines. Then, estimating the resources, this includes materials and machines at every stage. Then, the supply chain needs to be tied up thoroughly to ensure timely delivery of these resources.
Doing all this will reduce the surprises, though will not ensure that there aren’t any.
IBLJ: Project managers seem to have a big role in this. Would you like to elaborate?
Bansal: The project managers need to be sensitised, and they need to immediately escalate whenever those surprises come in. Often we have seen that project managers think, “This can be managed. We will manage it.” And they keep on delaying till the last moment, and the small thing tends to become bigger.
Timely intervention for the surprises and nipping them in the bud is important. This is proactively managing the surprises, which ensures that you are significantly keeping the risk of time overruns and cost overruns in check.
IBLJ: What are the ripple effects of cost overruns and delays in a construction project?
Bansal: It really depends upon what’s the nature of the project. It can mean project delays. A delayed project means possibly higher procurement costs, or interest costs, which means increases in the project cost, and ultimately means the buyer shells out more. Buyer dissatisfaction is also there. Customers always end up paying.
For example, an infrastructure project for a road or an airport is going on and a delay has caused the cost to go up. Ultimately, the developer is not going to pay from his own pocket. Part of it is funded by debtors, by lenders, part of it through its own equity, and then it is built into the tariffs, so cost to the economy goes up. Costs to the customer goes up.
The economic cost of these delays is severely high.
IBLJ: What kind of role do you see technology and artificial intelligence (AI) performing in construction projects?
Bansal: For project preparation and planning to be seamlessly integrated, you need a robust tech platform. In the age of AI, you have ways and mechanisms to capture data in real time. Manual supervision has been replaced by supervision through remote cameras or through drones. The site pictures get shared with the project manager on a real-time basis. Companies can make project delivery more efficient by efficient use of data.
AI can help in cost and project management. But the company needs to be ready by having the right tech backbone to capture the data for AI to be used.
Rome was not built in a day and construction guys know this very well. No building gets constructed in one day. They have a vision for a building and, brick by brick, they need to do this for tech as well.
