Sri Lankan construction companies clarify controversy over Central Expressway Project - Section 3

Under the directives of Ministry of Highways (MoH), and the purview of the Road Development Authority (RDA), Sri Lanka’s Central Expressway Project (CEP) seeks to link the major cities of Kandy, Dambulla, and Kurunegala to the capital Colombo, based on the National Master Plan for development of land-based transport. 

Under Sri Lanka’s long-term strategy for development, the Central Expressway is a key component in providing efficient transport infrastructure that is essential for the country’s growth trajectory.

Current status of the Central Expressway (Section Three) Project

In line with successful construction of Section Two of the CEP (from Mirigama to Kurunegala and Pothuhera) by a consortium of local contractors, bids were called on 22 July 2021 by the Ministry of Highways on Design, Build, Finance, Operate, Maintain and Transfer basis, for Section Three of the project from Rambukkana (Ch. 12+890km) to Galagedara (Ch. 32+450km), with the objective of carrying out this vital national infrastructure project via a Public-Private Partnership.

Drawing from the experience of successfully completing Section Two of the Central Expressway, Lanka Infrastructure Development Consortium (LIDC) comprising Access Engineering, Maga Engineering, ICC, KDAW and NEM Construction, was formed with the specific objective of bidding for large-scale infrastructure projects which were otherwise carried out by international contractors. 

LIDC represents Sri Lanka’s top five expressway/highway contractors, who over the last three decades have delivered some of the most landmark projects in Sri Lanka. LIDC had become the only successful, technically qualified bidder for Section Three of the Central Expressway Project from Rambukkana to Galagedera.

Addressing false allegations regarding the Central Expressway (Section Three) Project

In light of the recent press and social media coverage regarding the Project, LIDC wishes to present the factual position with regard to the bid for Section Three of the Central Expressway, in order to prevent the spread of false allegations and misrepresentation attempted at intimidating those involved in the public procurement process and sabotaging this project of national importance.

At the opening of the financial bid of the project which occurred on 3 February, LIDC came to understand that bids of the two other bidders, China State Construction Engineering Corporation (CSCEC) and MCC International Incorporation (MCCI) have been disqualified on technical grounds. 

However, a press release and letter dated 10 February, on a Metallurgical Corporation of China Ltd. (MCC) letterhead (and signed by MCC) circulating in the media, purports to explain the various misdeeds in their bid in order to justify its qualification and validity.

As LIDC has reliably come to understand, the project bid in question was made by MCCI, which is a subsidiary of MCC, its parent company. It has also come to light that in an attempt to qualify for this bid, the bidder had submitted financial details and specific experience of the parent company MCC, without the parent company being a legal part of MCCI’s bid, thereby disqualifying MCCI’s bid as per the bid conditions. 

Furthermore, it has come to note that MCCI had not submitted a valid bid security, which is the most basic and fundamental prerequisite to qualify for a bid in a public procurement process, thus completely invalidating their bid and any price they have quoted.

A bid security is a monetary guarantee intended to dissuade bidders from withdrawing their bids before the end of the bid validity period, in which case they would have to forfeit the bid security amount to the procuring entity. The exact format (template and wording) and amount is stipulated in the governing procurement rules and clearly stated in the bidding document. 

It is evident that a bid without a valid bid security, as in the case of MCCI, means that the bidder could submit any price without any liability towards the employer, and may withdraw the bid at any date without any penalty. A bid price without a valid bid bond therefore carries no validity in a public procurement process.

In addition, it is also noteworthy to mention MCCI have requested that payments to them be made in dollars for the required period of 15 years, even though the bidding document has clearly stated that annuity payments can only be made in rupees. 

LIDC also further notes that there are no expressway projects previously completed by MCCI, and they do not possess any design-and-build experience.

Therefore, it is evident that MCCI’s bid has been disqualified for the total violation of the bidding process, including not complying with some fundamental requirements of the Government procurement guidelines, thus showing scant disregard for the tender process. As such, the bid price is not known to the public. In their futile attempt to mislead the evaluation process in order to sabotage the project, MCCI now seems to be quoting any arbitrary price in public. 

Therefore, it is evident that MCCI’s agenda is simply to circulate wrongful information in the media to tarnish the image of the project and to tamper with the Government procurement process.

Strength of local contractors’ proposal for Section Three of Central Expressway

With regard to the bid put forward by LIDC, it is our firm belief that LIDC’s bid for the Central Expressway Section Three will bring forth distinctive advantages to the Government of Sri Lanka and the people. 

The bid entails a very prudent investment option, for what may be the single largest investment project in Sri Lanka to be carried out by a consortium of Sri Lankan companies.

The distinct benefits of LIDC’s proposal

1. Removing financial burden

LIDC’s proposal to Design, Build, Finance, Operate, Maintain and Transfer is a 100% investment project with a debt-equity ratio of 80:20, where 80% of debt will be provided by a consortium of Sri Lankan banks, and the balance 20% invested by the respective consortium of contractors as equity. 

This financing mechanism will guarantee that there is no immediate burden to the Sri Lanka Treasury in terms of financing the project, where the repayment will occur over the course of the 15-year Operation and Maintenance period of the project. 

LIDC’s bid for the project has been based on a two-year construction period and 15-year Operation and Maintenance Period.

 

2. Saving foreign currency

In the event the contractor is a foreign entity, the Government will have to make annuity repayments in dollars, which will result in the country having to bear the burden of dollar repayment over a period of 15 years, whilst the foreign contractor will require to eventually repatriate these funds from Sri Lanka to overseas.

This payment in dollars alone would result in a substantial increase in the real cost of the project. Since the revenue from the highway operation will be in rupees, this would burden the Government to source additional dollars through export revenue or further borrowing.

The bid submitted by LIDC, which proposes annuity payments in rupees, thereby seeks to prevent critical foreign currency outflow for the Government of Sri Lanka during the repayment period.

 

3. Price competitiveness

As mentioned above, this bid has been a culmination of the collective knowhow and experience possessed by these five companies, coming together to deliver this project as a consortium. As such, the technical and financial contents of LIDC’s bid is a result of a deep and comprehensive study of the project. 

The prices quoted have been formulated after detailed computation of Bill of Quantities, up-to-date analysis of present market prices, and application of sound construction norms.

 

4. Development of local economy

LIDC’s proposal for the project is geared towards building a strong and sustainable local economy, which is the need of the hour: More than 80% of the resources used to design and build this expressway will be sourced and engaged from within the country, significantly boosting Sri Lanka’s local economy and regional value-chain in the process, whilst cascading project benefits down to the smallest supply chains, local communities and households.

Furthermore, all required funds for the project will be generated via Sri Lankan banks and circulated and retained within the local economy, helping create a robust financial system in the process. In addition to this, the project will also create 50,000 direct and indirect employment opportunities for Sri Lankan citizens. 

In sharp contrast to this, the Expressway projects implemented by foreign contractors have largely utilised foreign inputs and expertise, in the process of extracting more than 60% of the value of projects as outflow from Sri Lanka.

 

5. Advancement of local construction sector

The construction sector plays an integral role in driving Sri Lanka’s economy forward. This project, especially, will become a timely and significant catalyst within the local construction industry, further enhancing the collective capacity of the country’s leading contractors, as well as other specialist and associated contractors of the project, who will acquire the required experience (i.e., pre-qualification status) to undertake similar projects overseas. 

In this context, a project of this nature signals the next logical step for the local construction sector and will ensure its natural progression: to compete in the international construction arena, and become one of Sri Lanka’s top foreign exchange earners in the near future.

As a consortium of responsible local construction companies, LIDC is committed to deliver landmark projects of national importance in the best interests of all Sri Lankans, while developing the country’s construction sector and supporting national growth and development.