THE reality of escalating prices seems to have finally struck the government as contractors suspend work on all low-cost, public-sector housing schemes owing to project cost overruns on the back of a spike in construction material rates. A senior federal housing ministry official has informed the Public Accounts Committee that the contractors have stopped work on every housing project being funded by the PTI government through the Federal Government Employees Housing Authority and the Pakistan Housing Authority Foundation in Lahore, Islamabad and Rawalpindi since August last year until project costs are revised upwards to compensate them for the phenomenal surge in construction material prices, especially steel and cement. So far the housing ministry is refusing to accept the demand as the escalated charges are much higher than the benchmark set by the PAC and Public Procurement Regulatory Authority rules in such events. The matter has now been referred to the Planning Commission to suggest a way to pay the cost escalation difference to the contractors so that they can resume work on the projects. The longer it takes to find a way out, the higher the cost overruns will be.

The delay in the completion of these projects will indeed deal a blow to the prime minister’s plan to provide low-cost housing to government employees and low-middle-income families. But it is difficult to find fault with the contractors in this case. The cost of construction material — particularly steel — has soared sharply over the last several months due to both a global commodity price surge, and the rise in domestic demand with the housing and construction boom in the country. No one could have factored in such a large jump in project costs over such a short period of time. The housing ministry official’s testimony before the PAC also brings to the fore a serious issue in the government’s outdated procurement rules: the lack of a mechanism to compensate contractors and service providers in such contingencies so that project delays and attendant cost overruns can be avoided. That the cumbersome PPRA rules have become a major impediment to quicker and cheaper procurement of goods and services by the government is known to all. Yet no government has changed them for fear of criticism by political opponents. It is time that the rules governing the procurement of goods and services by the public sector are updated to align them with new market realities.

Published in Dawn, March 5th, 2022