CHAPTER 24
DEPARTMENT OF URBAN DEVELOPMENT

National Buildings Construction Corporation Limited

Faulty tendering for fetching a contract for construction of cooling towers for the Thermal Power Plants of Punjab State Electricity Board contributed loss of Rs.3.10 crore to the Company.

National Buildings Construction Corporation Limited (Company) secured (January 1995) a lump-sum contract for construction of two cooling towers for the Thermal Power Station at Bhatinda of Punjab State Electricity Board at a negotiated price of Rs.21.77 crore. While tendering, the Company estimated a net profit of Rs.1.17 crore from this contract.

It was noticed in Audit that tendering of the Company was faulty as despite knowing that the water table in the area around Bhatinda was low, the Company’s offer did not provide for the expenditure towards laying of Plain Cement Concrete (PCC) over the entire Reinforced Cement Concrete basement floor to prevent up-thrust of water. In execution of the work, the Company had to incur an expenditure of Rs.1.27 crore in laying PCC layer.

Similarly, the quantity of the steel to be consumed in this project was also incorrectly estimated and the actual expenditure (Rs.4.99 crore) exceeded the tender estimates (Rs.3.53 crore) by 41 per cent due to fault of the design consultant. The extra expenditure of Rs.1.45 crore on 1253 MT of steel was partly off-set by the penalty of Rs.50 lakh recovered from the design consultant and the Company had to bear the net extra expenditure of Rs.95.39 lakh.

Apart from the above, the Company was not having its own equipment required for construction of the shell of the cooling towers. The Company’s anticipation that it would be able to take the equipment on hire from another party could not materialise and it had to deploy additional funds of Rs.1.26 core on fabrication of the equipment and Rs.96.92 lakh towards obtaining of related know-how from a German party for the execution of the project. Failure to anticipate the possibility of such an eventuality and to tender accordingly resulted in increasing the incidence of unanticipated expenditure on depreciation (Rs.27.64 lakh) and write off (Rs.47.05 lakh) of cost of know-how relating to the new equipment to the tune of Rs.74.69 lakh. Estimation of the depreciation on plant and machinery, other equipment and tools/stores also proved erroneous. Incidence of depreciation on plant and machinery etc. exceeded the estimates by Rs.29.46 lakh.

The Company also erred in making a realistic allocation of Rs.3.50 lakh towards interest on funds to be borrowed and employed by the Company as against actual interest allocation of Rs.1.56 crore. Interest on working capital also exceeded the estimates by Rs.54.37 lakh.

Thus, despite savings of Rs.1.13 crore on certain items of work, the Company was saddled with a loss of Rs.3.10 crore against the estimated net profit of Rs.1.17 crore on completion of the project in March 2000 due to faulty estimation at the tendering stage.

The Board of Directors directed (October 1999) to fix the responsibility on the officials responsible for the faulty estimation at the tendering stage. The Company intimated the Board of Directors in April 2000 that only one Chief Project Manager was responsible for this tendering and that he had taken voluntary retirement. It was observed in Audit that the said official had been relieved on 9 September 1997 after submission of resignation by him on 4 September 1997.

The Management accepted (June 2000) the facts and the Ministry concurred (April 2001) with the views of the Management.

National Buildings Construction Corporation Limited

Faulty tendering for fetching a contract for construction of cooling towers for the Thermal Power Plants of Punjab State Electricity Board contributed loss of Rs.3.10 crore to the Company.

National Buildings Construction Corporation Limited (Company) secured (January 1995) a lump-sum contract for construction of two cooling towers for the Thermal Power Station at Bhatinda of Punjab State Electricity Board at a negotiated price of Rs.21.77 crore. While tendering, the Company estimated a net profit of Rs.1.17 crore from this contract.

It was noticed in Audit that tendering of the Company was faulty as despite knowing that the water table in the area around Bhatinda was low, the Company’s offer did not provide for the expenditure towards laying of Plain Cement Concrete (PCC) over the entire Reinforced Cement Concrete basement floor to prevent up-thrust of water. In execution of the work, the Company had to incur an expenditure of Rs.1.27 crore in laying PCC layer.

Similarly, the quantity of the steel to be consumed in this project was also incorrectly estimated and the actual expenditure (Rs.4.99 crore) exceeded the tender estimates (Rs.3.53 crore) by 41 per cent due to fault of the design consultant. The extra expenditure of Rs.1.45 crore on 1253 MT of steel was partly off-set by the penalty of Rs.50 lakh recovered from the design consultant and the Company had to bear the net extra expenditure of Rs.95.39 lakh.

Apart from the above, the Company was not having its own equipment required for construction of the shell of the cooling towers. The Company’s anticipation that it would be able to take the equipment on hire from another party could not materialise and it had to deploy additional funds of Rs.1.26 core on fabrication of the equipment and Rs.96.92 lakh towards obtaining of related know-how from a German party for the execution of the project. Failure to anticipate the possibility of such an eventuality and to tender accordingly resulted in increasing the incidence of unanticipated expenditure on depreciation (Rs.27.64 lakh) and write off (Rs.47.05 lakh) of cost of know-how relating to the new equipment to the tune of Rs.74.69 lakh. Estimation of the depreciation on plant and machinery, other equipment and tools/stores also proved erroneous. Incidence of depreciation on plant and machinery etc. exceeded the estimates by Rs.29.46 lakh.

The Company also erred in making a realistic allocation of Rs.3.50 lakh towards interest on funds to be borrowed and employed by the Company as against actual interest allocation of Rs.1.56 crore. Interest on working capital also exceeded the estimates by Rs.54.37 lakh.

Thus, despite savings of Rs.1.13 crore on certain items of work, the Company was saddled with a loss of Rs.3.10 crore against the estimated net profit of Rs.1.17 crore on completion of the project in March 2000 due to faulty estimation at the tendering stage.

The Board of Directors directed (October 1999) to fix the responsibility on the officials responsible for the faulty estimation at the tendering stage. The Company intimated the Board of Directors in April 2000 that only one Chief Project Manager was responsible for this tendering and that he had taken voluntary retirement. It was observed in Audit that the said official had been relieved on 9 September 1997 after submission of resignation by him on 4 September 1997.

The Management accepted (June 2000) the facts and the Ministry concurred (April 2001) with the views of the Management.

National Buildings Construction Corporation Limited

Faulty tendering for fetching a contract for construction of cooling towers for the Thermal Power Plants of Punjab State Electricity Board contributed loss of Rs.3.10 crore to the Company.

National Buildings Construction Corporation Limited (Company) secured (January 1995) a lump-sum contract for construction of two cooling towers for the Thermal Power Station at Bhatinda of Punjab State Electricity Board at a negotiated price of Rs.21.77 crore. While tendering, the Company estimated a net profit of Rs.1.17 crore from this contract.

It was noticed in Audit that tendering of the Company was faulty as despite knowing that the water table in the area around Bhatinda was low, the Company’s offer did not provide for the expenditure towards laying of Plain Cement Concrete (PCC) over the entire Reinforced Cement Concrete basement floor to prevent up-thrust of water. In execution of the work, the Company had to incur an expenditure of Rs.1.27 crore in laying PCC layer.

Similarly, the quantity of the steel to be consumed in this project was also incorrectly estimated and the actual expenditure (Rs.4.99 crore) exceeded the tender estimates (Rs.3.53 crore) by 41 per cent due to fault of the design consultant. The extra expenditure of Rs.1.45 crore on 1253 MT of steel was partly off-set by the penalty of Rs.50 lakh recovered from the design consultant and the Company had to bear the net extra expenditure of Rs.95.39 lakh.

Apart from the above, the Company was not having its own equipment required for construction of the shell of the cooling towers. The Company’s anticipation that it would be able to take the equipment on hire from another party could not materialise and it had to deploy additional funds of Rs.1.26 core on fabrication of the equipment and Rs.96.92 lakh towards obtaining of related know-how from a German party for the execution of the project. Failure to anticipate the possibility of such an eventuality and to tender accordingly resulted in increasing the incidence of unanticipated expenditure on depreciation (Rs.27.64 lakh) and write off (Rs.47.05 lakh) of cost of know-how relating to the new equipment to the tune of Rs.74.69 lakh. Estimation of the depreciation on plant and machinery, other equipment and tools/stores also proved erroneous. Incidence of depreciation on plant and machinery etc. exceeded the estimates by Rs.29.46 lakh.

The Company also erred in making a realistic allocation of Rs.3.50 lakh towards interest on funds to be borrowed and employed by the Company as against actual interest allocation of Rs.1.56 crore. Interest on working capital also exceeded the estimates by Rs.54.37 lakh.

Thus, despite savings of Rs.1.13 crore on certain items of work, the Company was saddled with a loss of Rs.3.10 crore against the estimated net profit of Rs.1.17 crore on completion of the project in March 2000 due to faulty estimation at the tendering stage.

The Board of Directors directed (October 1999) to fix the responsibility on the officials responsible for the faulty estimation at the tendering stage. The Company intimated the Board of Directors in April 2000 that only one Chief Project Manager was responsible for this tendering and that he had taken voluntary retirement. It was observed in Audit that the said official had been relieved on 9 September 1997 after submission of resignation by him on 4 September 1997.

The Management accepted (June 2000) the facts and the Ministry concurred (April 2001) with the views of the Management.