Costs Bleeding Infra Projects and What EPC Companies Should Do?
The National Infrastructure Pipeline (NIP) is the most comprehensive registry of all infrastructure projects currently in progress in India. It lists more than 2400 active projects across 34 sectors in the country. However, a report amid the second pandemic wave in May 2021 recorded more than 470 projects suffering from project overruns. The total excess budget required was more than 61% of original estimates. It is likely that due to multiple factors, and not just the pandemic, this number is higher today.
Compliance: The main risks can be classified as technical or acquisition-related for the government. Construction technology estimates can change according to execution time, while delays in land acquisition can wreak havoc on the overall project timelines. We have to factor in social and environmental concerns in the acquisition phase that could have a spillover effect.
Private Partner/Contractor: The significant risks associated with the private partner are time or cost overruns. Material costs could fluctuate during the project completion timeframe; financing issues could affect raw material and labor access, while the lack of contingency planning can lead to time delays.
Lending Institution: For the lender, timely recovery of capital is of paramount interest. The recovery phase of the project (through tolls and other forms of revenue) begins after the completion and deployment of the entire project. Input-output cost variations and other financing risks can significantly increase the timeframe of returns.
How Can EPC Companies Minimize Exposure to Overruns?
As the saying goes, failure to prepare is preparing to fail. Large-scale infrastructure companies have to deal with internal and external factors during the project lifecycle. Large projects typically have multiple vendors supplying an even more extensive portfolio of materials, human resources and support services.
Managing multiple vendors without a unified, digital and accessible platform is not ideal anymore. Intelligent, data-driven supply chain management platforms like ours offer infra companies many benefits like a predictive course correction, single-window reporting and consolidation of vendors. By digitizing the project supply chain, EPC companies can limit their exposure to primary risks with large infrastructure projects.