Time to control variance costs

Editorial, Normal

The National, Thursday 11th April, 2013

 THE spending of a total of K14 million on variance costs in the National Housing Corporation (NHC) saga, as highlighted by Housing Minister Paul Isikiel in Parliament last month, leaves much to be said about how project delive­rables and their associated funding are managed by the government.

The National has previously pointed out the importance and the urgent need for creating build capacity and empowering the IDA entity within the works department. 

Staff IDA with certified project managers and give them the responsibility to ensure impact projects for the state are delivered on time as budgeted and within the agreed scope of the project.

Why do we get variances in a project or any infrastructure projects? 

In project management, there is never a perfect plan. But with experienced and certified project managers overseeing the end to end delivery, they can mitigate the associated risks and variance costs, because at the end of the day, it is their core role.

When a project is identified, its plans and designs are put out for tender. 

The tendering process can be an open public bid or a closed bid (to invited bidders only).

Closed bids should be called depending on the magnitude and the requirements of the project deliverables; when there are not many suppliers who can meet the requirements; or it requires only very specialised suppliers. 

Once the winning bid, usually the best value bid, is accepted, the contract is then signed.

A variance usually comes about when there are alterations to the deliverables in a project.

Mostly, changes are asked for by the customer and the contractor will decide if they are within the scope of the contract.

If not, the customer will be asked to pay for making the changes to the contract.

Now focusing back on the NHC issues, the bidding processes would have been such or as the minister has highlighted in Parliament. 

After the bidding process, the contracts were awarded by the Central Supply and Tenders Board (CSTB) and the successful contractors began work. 

Some finished, some did not, while one came back with variance costs. 

Why? What were the reasons for the cost variance? 

The usual best practice in project delivery management would be such that the customer (NHC) should have been the one requesting for changes. 

Maybe they wanted additional houses to be built or changes to the design of the type of the houses to be built. Whatever the reasons, the NHC should know.

If the variance came from the contractors, then we should ask why?

 Did the CSTB ensure that contracts awarded for the said price were not open to cost variables such as exchange rate fluctuations, interest, inflation rates, etc, on building materials? 

Did CSTB entertain such terms and conditions when awarding the contracts? 

If so, it is a loophole at the CSTB and they should also be investigated because signing these cost variables is legally binding and NHC would have to pay as the contractor has legal rights to claim cost variance. Was that the case? 

Certainly, these questions in Parliament have now opened the door for investigations to get to the root of the problem. 

If CSTB has not entertained variable cost factors when awarding the contracts, then there is the possibility of foul play. For that reason, there should be more resources put into overseeing projects from beginning to end.