THE reality of rising prices appears to have finally hit the government as contractors suspend work on all low-cost public housing projects due to project cost overruns due to a spike in building material prices . A senior Federal Housing Ministry official informed the Public Accounts Committee that contractors have halted work on all PTI government-funded housing projects through the Federal Government Employees Housing Authority and the Pakistan Housing Authority Foundation in Lahore, Islamabad and Rawalpindi since last August. until the costs of the projects are revised upwards to compensate for the phenomenal surge in the prices of construction materials, in particular steel and cement. So far, the Ministry of Housing refuses to accept the request because the increased charges are well above the benchmark set by the rules of the CAP and the Public Procurement Regulatory Authority in such events. The matter has now been referred to the Planning Commission to suggest a way to pay the cost escalation difference to contractors so 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 realization of these projects will indeed be a blow to the Prime Minister’s plan to provide low-cost housing to state employees and middle-low income families. But it is difficult to criticize entrepreneurs in this case. The cost of building materials – particularly steel – has risen sharply in recent months due to both a surge in global commodity prices and increased domestic demand with the housing boom and construction in the country. No one could have factored in such an increase in project costs over such a short period of time. The testimony of the Ministry of Housing official before the PAC also highlights a serious problem in the government’s outdated procurement rules: the lack of a mechanism to compensate contractors and service providers in such eventualities in order to avoid project delays and the resulting cost overruns. That the cumbersome PPRA rules have become a major impediment to faster and cheaper government procurement of goods and services is well known. Yet no government has changed them for fear of criticism from political opponents. It is time for the rules governing the procurement of goods and services by the public sector to be updated to bring them into line with new market realities.

Posted in Dawn, March 5, 2022