‘Undue favour to contractors’

JKPCC incurs loss of Rs 1.64 cr

BILAL HUSSAIN

In yet another instance of growing nepotism in the state run corporations that results in colossal loss of tens of crores rupees, the latest audit report by the Comptroller and Auditor General of India, highlights undue favour to contractor in the Jammu and Kashmir Projects Construction Corporation Limited  in Jammu and Kashmir (JKPCC).

According to the Comptroller and Auditor General (CAG) report the allotment of work by the Jammu and Kashmir Projects Construction Corporation Limited, a government owned company incorporated in 1965, without inviting tenders and payment of unsecured interest free mobilization advance to the contractor resulted in undue favour to contractor and interest loss of Rs 1.64 crore.

The Jammu and Kashmir Projects Construction Corporation Limited (JKPCC) signed a Memorandum of Understanding (MOU) with J&K Power Development Corporation (JKPDC) both State Public Sector Undertakings in December, 2006 for construction of Motorable R.C.C Bridge at Ganpat, Doda at a cost of Rs 29.95 crore, which included 15 per cent supervision charges (Company’s share) of Rs 4.49 crore, for completion by February 2009.

An amount of Rs 5.99 crore was received in December 2006/March 2007 by the JKPCC from the JKPDC as Mobilization Advance against a Bank Guarantee for the full amount. The JKPCC allotted the work to a sub-contractor - M/S A.K. Constructions, Jammu in February 2007 at the cost of Rs 25.46 crore for completion within 25 months (by February 2009). The work, however, had not been completed as on June 2011, the report reveals.

The audit scrutiny during February 2011 revealed that the JKPCC, while sub-contracting the work, instead of following a transparent and competitive tendering process, had allotted work to the sub-contractor on the recommendation in January 2007 of a committee set up by the JKPCC which had opined that the said contractor had the capacity to undertake such works and had, in the past, already executed some of the bridge projects with the JKPCC.

The scrutiny of records, however, revealed that though the committee had recommended allotment of work in January 2007, as per records the work had already been started by the contractor in November 2006, rendering the process meaningless. The JKPCC stated in September 2011 that the work had been allotted to the firm by an MOU between the JKPCC and the sub-contractor.

The reply is not tenable as mere entering into an MOU does not absolve the JKPCC of the responsibility of following prescribed procedure laid down in the State Financial Code as well as the guidelines of the Central Vigilance Commission (CVC) with regard to allotment of contracts, which provide for transparent tendering process, the report highlights.

The CVC guidelines in October 1997/June 2004/April 2007 prohibit payment of unsecured and interest free mobilization advance. The guidelines provided that decision to provide such advance should rest at the level of Board of Directors (with concurrence of Finance) in the organization. The guidelines further provide that the advance should be released in stages depending upon the progress of the work, there should be a security by way of Bank guarantee of an equal amount, a fixed re-payment scheduled and provision of an interest element in the event of failure to repay.

According to the report in violation of the prescribed guidelines, it was seen that the sub-contractor was paid an interest free mobilization advance of Rs 5.09 crore, Rs 1.20 crore in February 2007 and Rs 3.89 crore in March 2007,  immediately on start of the work. However, no safeguards to secure the advance by way of a bank guarantee of equivalent amount were insisted upon even though the JKPCC had itself taken the mobilization advance from the JKPDC against a Bank Guarantee.

The audit noticed that out of total value of work done of Rs 13.06 crore ending June 2011, the contractor had submitted bills to the tune of Rs 3.80 crore in March 2008 and no other claim had been preferred since then. An amount of Rs 1.50 crore only out of the mobilization advance had been adjusted in March 2008 and the balance amount remained unadjusted as of June 2011. The payment of unsecured and interest free mobilization advance paid in violation of the instructions of the CVC, thus, resulted in interest loss of Rs 1.64 crore— calculated at the rates (9.5 per cent, 10.75 per cent and 11.25 per cent) charged by Jammu and Kashmir Bank on state government’s overdraft from time to time— for the period from March 2007 to March 2011 besides, extension of undue favour to the contractor.

The management in August 2011 stated that the advance had been given as per the agreement with the contractor. The reply does not justify payment of advance in violation of guidelines thereby, extending undue benefit to the contractor, CAG report mentions.

The matter was taken up with the government in July 2011; the reply was awaited till October 2011, the report said.

The audit report suggests that the JKPCC should take immediate steps for recovery of the advance and henceforth ensure compliance with the guidelines/rules in the matters of allotment of contracts and mobilization advance.