Michelle Munyanduki, Analysis
INTERNATIONAL Federation of Consulting Engineers contracts are used in a majority of large-scale infrastructure projects because they are endorsed as international best practices. As far as contractual obligations go, these contracts place risk on the party best placed to absorb it.
Borrowing countries such as Zimbabwe, Zambia, Mozambique (Borrower) et cetera use FIDIC contracts on a majority of infrastructure projects funded by multilateral development banks (MDBs) and other international lenders.
In Zimbabwe, key projects under FIDIC contracts earmarked to improve service delivery include Hwange Expansion 7 & 8 under the Zimbabwe Power Company (ZPC), which is set to improve power supply. Another project of note is the Gwayi-Shangani Dam under the Zimbabwe National Water Authority, which will improve water supply.
These projects, on completion, are expected to contribute to the overall economic growth as they reduce the energy and water deficit. Considering that they are funded by MDBs, their execution is expected to achieve value for money through efficient contract management.
The immediate challenge faced by borrowing countries such as Zimbabwe, as explained in the budget strategy paper published by the Ministry of Finance (July 2021), is the contract management skills gap. Such gaps result in “leaks” of the value-for-money component in infrastructure projects through the wastage of both money and time.
To corroborate this, the budget strategy paper acknowledges that the inherent capacity gaps in Contract Management within implementing Ministry Departments and Agencies (MDAs) undermine project execution and success.
As a funder of such infrastructure projects, institutions such as the World Bank assess the performance of a borrower on contract management. To explain, the overarching goal of contract management is to ensure that all parties meet their obligations as spelt out in the conditions of the contract.
Effective contract management is critical for ensuring the supplier/contractor/consultant, and the Borrower meets their contractual commitments to time, cost, quality and other agreed matters.
According to the World Bank, Contract Management “ . . . requires systematic and efficient planning, execution, monitoring, and evaluation to ensure that both parties fulfil their contractual obligations with the ultimate goal of achieving value for money and contractual results.”
How to fill the skills gap
So how do we fill this skills gap in Zimbabwe if projects are to retain value for money, one may ask? While importing human capital may not be necessary, Zimbabwe urgently needs to address the capacity gap through training in areas that cover contract management. For instance, in all FIDIC contracts, there are claims for cost or time.
Training in the management of claims, understanding, defending and achieving the resolution to claims, and the workings of the Dispute Adjudication Board and Arbitration is critical. Contract administration and management training that addresses issues from pre-contract award, and financial procedures to taking over works, defects notification period and contract completion is also required.
In addition, personnel must also be trained on procedures and application of the Dispute Adjudication requirements under FIDIC contracts for those working as dispute adjudicators and those who use Dispute Adjudication Boards either as an Employer, Engineer or Contractor again will be critical for the skills gap.
As such, capacity-building programmes for technical staff within ministerial departments and contractors need to be aggressively implemented to ensure the delivery of targeted projects on time and within budget.
How to identify the gap — Time Overruns
Symptoms of poor Contract Management are identified by a habit of missing deadlines and not adhering to timelines. Some recent cases of note include the NRZ Recapitalisation, ZPC-Intratek Gwanda Solar and Hwange Expansion projects.
In the contract between NRZ and the Diaspora Indigenous Development Group the contract was cancelled before work could commence. The employer was meant to go back to tender, lawsuits were threatened by the initial contractor (DIDG) and since the initial award of the contract in 2017, no works have commenced.
With the Intratek project, there were many early red flags from the time of the award; the employer went to tender twice. After the contractor was selected, the contractor and employer experienced extended delays to commence the project, caused by disputes.
It is important that when a government agency begins to see these early signs of delay they go back to the drawing board to ensure that all parties are aligned to their obligations and know what they are supposed to do and when.
Cost overruns can be caused by many factors such as incorrect invoicing, variation orders, lack of transparency in contractor costing, minimal cost penalties applied to the contractor for their delays (liquidated damaged/delay damages) and even contract amendments.
Factors that cause cost overruns need to be monitored closely to ensure that they are not repeated. For instance, cost overruns caused by variation orders might indicate that the party responsible for design might have failed to spend adequate time on the design aspect of the project before going out to tender or that there was a lack of clarity between the parties on the actual work to be done.
A contract will often spell out procedures on payment, work quality approvals, disputes et cetera but a badly managed contract will often ignore the contractual procedures because there will be little to no monitoring of contract compliance.
For example, a contract will state the dispute resolution framework to be followed in case a dispute arises. In the ZPC-Intratek matter, as an example, the dispute form-work as spelt out in the contract was ignored. The contract expected parties to refer disputes to a dispute adjudication and avoidance board. However, when a dispute arose the aggrieved party took the matter to the courts; only to be referred back years later to the contract’s dispute adjudication board.
When a contractor fails to meet the expected quality or standard, it is not only the contractor to be blamed, but it may also point to a lack of monitoring and evaluation of contractual quality obligations during the lifecycle of a project. Ultimately, where there is poor contract management there will always be confusion about who is doing what, when, how and for how much.
In conclusion, the Government needs to make a deliberate effort to address this skills gap. A developing country cannot afford to waste time and money on projects funded by borrowed money. The ordinary citizen and the taxpayer cannot afford it. Addressing this gap is an urgent matter that demands the attention of responsible Ministry Departments, Agencies, and private players.
To address this problem Vavaki Consultants in association with the Zimbabwe Association of Consulting Engineers will be holding training from the 17th to 18th of November 2022. The purpose of the training is to introduce delegates to matters relating to FIDIC contracts.
λ More dates will be released for training on Claims, Contract Management and Dispute Adjudication and Avoidance boards
λ Michelle (0772 387 585) has accredited FIDIC training in the practical approach to FIDIC contracts 1999 and 2017 editions, Management of Claims and Dispute Resolution under FIDIC Contracts and FIDIC Conditions of Contract for EPC/Turnkey Projects (1999 Editions) including changes in the 2017 editions.
She partnered with the Zimbabwe Association of Consulting Engineers (ZACE) and FIDIC to pioneer the first-ever FIDIC public training course in Zimbabwe, in June 2018. While working for Vavaki Consultants, since 2018, she has advised and facilitated the training of various state entities and private companies.