Cost escalation and skilled labour shortage impede construction

Nima | Gelephu  

Cost of construction materials increased by 30 to 80 percent, according to a survey conducted by the Construction Association of Bhutan (CAB).

The industry is also impacted by lack of skilled labourers, as many left the country in the wake of Covid-19 pandemic. The available skilled workers, both local and expatriate, are not only limited, but charge a high wage rate.

Owners of construction companies that won tenders just before the pandemic started say they are impacted the most. They say they are incurring huge losses because the rates were analysed during the normal time.

A Gelephu-based contractor, Karma Nidup, said projects that started before the pandemic are facing a tough time.

He said they were not aware if the rate was increased from the source in India but hardware shops in the locality have increased rates for all materials, claiming transportation charges have gone up.

He said he wrote to authorities and procuring agencies regarding the cost escalation. “It would be difficult for us to get back to normal with the current situation.”

Karma Nidup is executing a project worth Nu 230 million to construct walls and blacktop roads, all awarded before the pandemic. “The amount would have been comfortable to complete the project before the pandemic but not now.”

CAB’s executive director, Younten Tshering, said the association asked contractors not to bid low, as the pandemic hiked the cost of construction materials. “They might have to compromise the quality and progress.”

He, however, said government agencies do not agree to that and warn them that contractors would not get work, as the budget is limited.

According to Younten Tshering, contractors executing petty works bid almost 30 percent lower than the estimated cost before the pandemic, medium contractors bid almost 20 percent less, and large contractors quote 10 percent below or equal to the estimated cost.

Contractors have, however, started quoting higher than normal times.

A medium construction company executing a mitigation wall at Mao Chhu in Gelephu quoted three percent below the estimated cost.

The supervising official at the site said that the company bids 10 to 20 percent less during the normal times. “The main hike is on labour charge. Other projects are on halt because of the lockdown.”

According to CAB, large construction companies now quote above the estimated cost while the medium-size company quotes about 10 percent less, and small contractors quote 15 or 10 percent less.

The ministry of finance in April granted a hindrance period to the construction activities and supplies affected by the pandemic as force majeure from March 2020.

The notification stated that no penalty would be imposed on the affected activities.

However, contractors have to submit an application to the procuring agency and request a time extension. The committee of the procuring agency granted the extension if the committee is satisfied with the application after verification.

The contractors could not produce the documents because it’s hard to prove, according to the officials from CAB. “Few contractors were imposed a 10 percent penalty and some were warned of termination.”

Younten Tshering said the association requested the government to do away with the penalty, as the projects did not get time to work in 2020.

He added that the time extension and support were not required for the projects awarded during the pandemic situation.

“They knew the situation. Those awarded before the pandemic are affected. We requested for supports more than eight months back but nothing was done so far.”

The construction industry employs over 9,000 people, including skilled and unskilled workers in various construction projects in the country today, according to CAB.

Meanwhile, chief engineer with Gelephu thromde, Ugyen Dorji, said there are still contractors bidding below 31 percent below the estimated cost but the number of people taking part in the tendering process has decreased.

There are only three or four bidders for a tender now. More than 10 bidders competed to win the bid before the pandemic, according to the official.

He said for projects under the thromde, completion time was extended but contractors will have to continue their projects. “There was not much escalation as per our analysis. Even if there was, procuring agencies have no authority.”

He said some projects were not executed using the pandemic as an excuse. “But, after the inspection, works started.” There are more than 14 construction activities that are executed currently under Gelephu Thromde.

A contractor based in Mongar, Karma, said the cost of transporting construction materials from Phuentsholing till Mongar has doubled.

“Earlier a truck of consignments cost Nu 25,000 but we have to pay more than 60,000 today. It takes weeks to reach the site and further delays the work ,” he said.

He also said that he was not given any time extension. “Although works continued during the lockdown,  several restrictions hampered.”

Karma said they need time extension or a facilitation for swift transport of construction material.

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