Margalla Avenue project: Contractor refuses to submit bank guarantee

Exerts pressure on CDA high-ups to release payment.

ISLAMABAD:

The owner of a construction company, which is currently executing the Rs588 million Margalla Avenue project, has failed to submit a bank guarantee, a prerequisite for any scheme.

The firm, Rakhshan, which is owned by a sitting senator of the Pakistan Peoples Party, had submitted insurance guarantees with the Capital Development Agency (CDA) as performance and mobilisation advance, instead of submitting a bank guarantee (equivalent to 10 per cent of the total bid amount) in violation of rules.

“In development projects, a bank guarantee is submitted, so in case the contractor defaults or fails to complete the project on time, the department can encash the guarantee,” said a senior CDA official.

The contract of the project was signed during the tenure of former CDA chairman Farkhand Iqbal. When the contractor approached CDA for the project’s approval, it transpired that he had not to submitted the bank guarantee even after a year.

“As per rules, it is mandatory for contractors to submit bank guarantees. Sometimes to win a contract, a contractor files lower rates and later demands compensation for cost escalation. One can deal with such tactics if there’s a bank guarantee,” said a CDA board member.



In this case, the firm won the contract by offering to undertake and complete the project at Rs588 million instead of Rs1,042 million, which was estimated in the PC-I, around 21 per cent below the scheduled rates of the National Highway Authority in 2009, he added.

The board member said though the contract had been signed, the project needed formal approval from the CDA. “When the contractor was asked to submit the bank guarantee, he refused and started exerting pressure on city managers.” The contractor called CDA high-ups and asked for payment for the work done, he added.

“We are in a fix. If the CDA releases the payment, FIA or NAB will intervene.” It is feared that the contractor will either default or ask for cost escalation and the CDA has nothing in hand to encash in the absence of bank guarantee, as the contract demands,” the board member said.

He said that though the contract needed formal approval, CDA has already released Rs88 million to the contractor as mobilisation advance. “But now further payments to the contractor will be made on the provision of the required bank guarantee,” he added.

The nine-kilometre-long-road Margalla Avenue project, once complete, will connect Sector D-12 with GT Road near Sangjani. The groundbreaking ceremony took place in May, 2012. The completion date of the project is June 30, but on ground, only 35 per cent work has been done.

CDA Member Engineering Sanaullah Aman, told The Express Tribune that the contractor had submitted insurance guarantees against both performance and mobilisation advance. “The submission of insurance guarantee was approved by former CDA chairman after the contractor produced a letter issued by the Pakistan Engineering Council in favour of an insurance guarantee instead of the bank guarantee, which is mandatory,” he said.

Aman dispelled the impression that the contractor may default. “The contractor has completed almost all the earthwork on the site,” he said. “Now it is up to the current CDA chairman to endorse the flawed decision of the former chairman or follow the rules.

Published in The Express Tribune, June 15^th, 2013.