Aggregation Study Report [CoST-Ethiopia]

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Aggregation Study Report [CoST-Ethiopia]Aggregation, Analysis and Synthesisof Disclosure and Assurance Reports ofconstruction projects covered by CoST-EthiopiaSTUDY REPORTAddis Ababa, Ethiopia November 2016Page i 40

Aggregation Study Report [CoST-Ethiopia]Construction Sector Transparency Initiative - EthiopiaAGGREGATION, ANALYSIS AND SYNTHESIS OF DISCLOSURE ANDASSURANCE REPORT OF CONSTRUCTION PROJECTS COVEREDBY CoST – ETHIOPIASTUDY REPORTStudy TeamAsmerom TaddeseHagos AbdeaKasiem Seid (ST leader)Addis Ababa, Ethiopia November 2016Page ii 40

Aggregation Study Report [CoST-Ethiopia]CONTENTSCONTENTS . IIILIST OF ANNEXES . VLIST OF FIGURES . VLIST OF TABLES . VIACRONYMS AND ABBREVIATIONS . VIIEXECUTIVE SUMMARY . VIIII.INTRODUCTION . 11.BACKGROUND . 12.OBJECTIVES OF THE STUDY . 13.SCOPE OF THE STUDY . 24.DESCRIPTION OF COST PROJECTS . 35.STUDY PROCESS . 3II.EXTRACTION, AGGREGATION, AND ANALYSIS . 41.COMPLETENESS OF PROJECT STUDIES . 42.TENDER PROCESS . 43.2.1Delivery Strategy . 52.2Mode of Procurement . 62.3Level of Competition . 72.4Procurement Efficiency and Sufficiency of Bid Floating Period . 92.5Procurement Length and Project Implementation Periods . 10CONSTRUCTION COST . 123.1Cost Overrun . 123.2Reasons of Cost Overrun . 133.3Price Escalation . 144.PROJECT DEVELOPMENT COST ASSESSMENT . 155.CONSTRUCTION TIME. 166.III.5.1Time Overrun . 165.2Reasons for Time Overrun . 17CAUSES FOR CONCERN. 18KEY FINDINGS . 201.COMPLETENESS OF PROJECT STUDIES . 202.TENDER PROCESS . 20Page iii 40

Aggregation Study Report [CoST-Ethiopia]3.CONSTRUCTION COST OVERRUN . 214.CONSTRUCTION TIME OVERRUN . 225.CAUSES FOR CONCERN. 22ANNEXES . 23Page iv 40

Aggregation Study Report [CoST-Ethiopia]LIST OF ANNEXESAnnex 1: Procurement efficiency for design contract [SCI]; in days . 23Annex 2: Procurement efficiency for supervision contract [SCII]; in days . 24Annex 3: Procurement efficiency for Works contract [WC]; in days . 24Annex 4: Minimum, maximum, and average procurement length by subsector . 25Annex 5: Project details . 26Annex 6: Summary of updated cost and time overrun records . 29LIST OF FIGURESFigure 1: Linear representation of the study process. 3Figure 2: Completeness of project studies in terms of Project Identification Studies . 4Figure 3: Project delivery strategy by subsector . 5Figure 4: Mode of procurement and bidding methods (services & Works contracts) - building subsector . 6Figure 5: Mode of procurement and bidding methods (services & Works contracts) - road subsector . 6Figure 6: Mode of procurement and bidding methods (services & Works contracts) - water subsector . 7Figure 7: Level of competition in the procurement process - building sector . 8Figure 8: Level of competition in the procurement process - road subsector . 8Figure 9: Level of competition in the procurement process - water subsector. 8Figure 10: Project implementation durations (days) - building subsector. 10Figure 11: Project implementation durations (days) - road subsector . 10Figure 12: Project implementation durations (days) - water subsector . 10Figure 13: Project implementation durations (days) at industry level. 11Figure 14: Design period and total implementation period ratio. 12Figure 15: Cost overrun values aggregated from Assurance Reports . 12Figure 16: Updated average cost overrun. 13Figure 17: Reasons of cost overrun . 14Figure 18: Average price escalation payment as compared to their respective total project cost by sector . 15Figure 19: Services, works, and project cost ratios . 16Figure 20: Weighted average time overrun (Assurance Reports) . 16Figure 21: Updated average time overrun . 17Figure 22: Reasons for time overrun . 18Figure 23: Summarized causes for concern. 19Page v 40

Aggregation Study Report [CoST-Ethiopia]LIST OF TABLESTable 1: Key variables for the study . 2Table 2: Number of CoST projects by disclosure phase and subsector . 3Table 3: CoST projects by total initial contract prices . 3Table 4: Summary of consultancy service cost and project cost ratio. 15Page vi 40

Aggregation Study Report [CoST-Ethiopia]ACRONYMS AND ABBREVIATIONSATAssurance TeamCoSTDBConstruction Sector Transparency opian Construction Project Management InstituteEIAERAETBICBICPEnvironmental Impact AssessmentEthiopian Roads AuthorityEthiopian BirrInternational Competitive BiddingInitial Contract PriceIDSInfrastructure Data StandardMOEMPIMoWR/MoWIEOB - ICBMinistry of EducationMaterial Project InformationMinistry of Water Resources / Water Irrigation and EnergyOpen Bidding under International Competitive Bidding ProcedureOB - NCBOpen Bidding under National Competitive Bidding ProcedureNCBNational Competitive BiddingPEPMRB - ICBProcuring EntityProject ManagementRestricted Bidding under International Competitive Bidding ProcedureRB - NCBRestricted Bidding under National Competitive Bidding ProcedureRIBRFPRFP - ICBRestricted International BiddingRequest for ProposalsRequest for Proposal under International Competitive Bidding ProcedureRFP - NCBRequest for Proposal under National Competitive Bidding ProcedureRNBSCIRestricted National BiddingService Contract I – Design Consultancy Service ContractSCIISSSService Contract II – Construction Supervision Consultancy Service ContractSingle Source SelectionSTStudy TeamTORTPCTSB - ICBTerms of ReferenceTotal Project CostTwo stage Bidding under International Competitive Bidding ProcedureTSB - NCBTwo stage Bidding under National Competitive Bidding ProcedureUSDWB-COUnited States DollarWorld Bank Country OfficeWCWorks contractWWCEWater Works Construction EnterprisePage vii 40

Aggregation Study Report [CoST-Ethiopia]EXECUTIVE SUMMARYThe Construction Sector Transparency Initiative (CoST) is a country centered initiative to improvethe value for money spent on public infrastructures by increasing transparency in the delivery ofGovernment financed construction projects.Disclosure of Material Project Information (MPI) or Infrastructure Data Standard (IDS) by itslatest name is one of the three essentials of CoST. Assurance of the disclosed information anddemand for accountability based on the disclosed information are the other basics of the Initiative.In its course, CoST-Ethiopia has disclosed 52 construction projects from building, road, and watersubsectors. All the projects covered by the disclosure have their own specific Assurance Reportsof which findings are short of providing better and comprehensive representation unlessaggregated and interpreted. Hence, this report is prepared to document the process and the resultof the study conducted to aggregate, analyze and synthesize the findings of the Assurance Reportsin light of the key variables such as completeness of project studies, tender process, constructioncost overrun, construction time overrun, causes for concern, and other relevant issues that theAssurance Reports have revealed.The study has aggregated, analyzed and synthesized the important project information of ten (10)building, ten (10) water and thirty two (32) road subsector projects covered by the disclosure andassurance process of CoST – Ethiopia. The total initial contract prices of the study projectsamounts to Ethiopian Birr 36,475,343,121 (USD 3,268,239,130.51). As indicated in this report,the building, water and road subsector projects account for 19, 19 and 62 percent of the totalvolume of the sample size respectively.The study has considered solely the availability of Feasibility and Environmental ImpactAssessment (EIA) studies to assess the completeness of project studies. In this regard, both thedesign and construction of ninety (90) percent of the building subsector projects are carried out inthe absence of feasibility and environmental impact assessment studies. Contrary to this, almostall water and road subsector projects are implemented having conducted feasibility andenvironmental studies that form parts of project identification studies.Design-Bid-Build (DBB) accounts for ninety (90) percent the strategy adopted in the delivery ofbuilding subsector projects and the implementation of 78 percent of the DBB projects hasinvolved separate contracts for SCI and SCII. Similarly, the study reveals that DBB is the onlystrategy adopted in the delivery of water subsector projects while 60 percent of the sample projectsapplied combined consultancy service contracts. Unlike and building and water subsectors, 17percent of road subsector projects were delivered on Design-Build (DB) arrangement while 76percent of DBB projects involved separate contracts for SCI and SCII.Building subsector has outsourced more than 75 percent of design and supervision contracts to asingle consultant while it procured the majority of Works contracts through open bidding usingNational Competitive Bidding procedure. Request for Proposal and open bidding methods wereapplied widely in road subsector to procure Design, Supervision, and Works contracts,respectively. Seventy (70) percent of design, 87.5 percent of supervision and 87.5 percent ofWorks contracts in water subsector are directly awarded to respective firms thus showing that thesubsector adopted single source procurement as a preferred mode of procurement in the waterPage viii 40

Aggregation Study Report [CoST-Ethiopia]subsector. The other contracts were procured through open bidding using ICB procedure as amandatory requirement of the financer, the World Bank.Though many factors are deemed to be considered, the lack of data has compelled the study teamto evaluate the scope of competition observed in the procurement of service and Works contractsby comparing the number of bidders who submitted their bids to the total number of applicants. Inline to this, the study shows that the majority of design and supervision contracts in building androad subsectors are procured in bidding environment characterized as "No Competition" and "FairCompetition", respectively. The scope of competition that prevailed in the procurement therespective Works contracts happened to be "fair" and "low". In general, water subsectors exhibitedrelatively a much lower level of Competition.The comparison of procurement related information availed in the Assurance Reports against therequirements prescribed in the procurement regulation show that: all subsector contracts are signed after the expected timeframe; all subsector design contracts allotted sufficient bid preparation period. Adequate time wasgiven for all projects of ICB contracts and for 75 percent of the projects of NCB contracts; the Procuring Entities have conducted the evaluation of the majority of design bids withinthe expected timeframe; road subsector have provided sufficient bid preparation period for most of supervisioncontracts; and building and road subsectors have given sufficient bid preparation periods for their NCBWorks contracts.For design consultancy service contract, the average time for procurement and design period isrespectively 245 and 311 days and for Works contract, the average time for procurement andcompletion period is respectively 307 and 990 days. If projects are successively implemented inthis manner, the total implementation period of construction projects could be 1787 calendar days(nearly five years) without considering delays in design service and construction works. Thestudy also reveals that building, water and road subsectors have allotted 22.8, 27.0 and 21.13percent of the total implementation (design and construction) time for design services,respectively.On the basis of the data obtained from the Assurance Reports, the aggregate cost overrun at thetime of disclosure of both pilot and full-fledged projects at industry level is 17.09 percent whilewater, building and road subsectors exhibit 65.18, 6.81 and 3.18 percent, respectively. These costoverrun figures, however, do not represent the current conditions of the subsectors and theindustry. At the time of preparation of the Assurance Reports, considerable number of projects didnot attain a status of substantial completion, thus were at early stage to render final-phase time andcost related information. In alignment with another similar study, the cost overrun data have,therefore, been updated (by taking recent data from projects covered in both studies) to result inaverage figures of 106.50, 175.79, 16.43 and 42.10 percent, at industry, water, building, and roadsubsector levels, respectively.Ninety two (92) percent of the reasons for cost overrun in the building subsector are attributed todesign change, incomplete designs and change in quantity while design change takes the leadshare in road subsector. In the water subsector; design, scope and quantity changes account for 78Page ix 40

Aggregation Study Report [CoST-Ethiopia]percent of cost overrun. The aggregation at industry level shows that design change is the majorreason of cost overrun (35 percent) while force majeure accounts the least share (only 1 percent).The Assurance Reports have also revealed that the Procuring Entities have paid around 12 percentof the aggregate project cost as payments for price escalation.In similar way to the cost overrun, the Study Team has aggregated two sets of time overrun data:findings in the Assurance Reports and updated time overrun figures. In terms of the former, theaverage time overrun witnessed at industry level is 101 percent with respective contributions ofwater, road and building subsectors amounting 151, 48, and 105 percent. The updated summary oftime overrun shows that the industry level time overrun is 134.20 percent while that of building,road, and water subsectors turn out to be 160.70, 99.50, and 144.60 percent respectively.Design change and change in quantity account for 42 percent of the reasons for the time overrunobserved in building subsector. In the road subsector, 44 percent of the reasons for time overrunare attributed to design change and force majeure (including inclement weather condition).Incomplete design (20 percent), scope change, change in quantity (17 percent each), and designchange (16 percent) are the major reasons for delay in project completion of water subsectorprojects.Project delay, procurement problems and cost overrun are the major causes for concern that theAssurance Reports pointed out about the building subsector. In the road sector, procurementissues, project delays, contract administration issues and cost overrun are quoted as major causesfor concern. In the water subsector, procurement regulation and capacity building issues, contractadministration practices, time and cost overrun are all reported to be the causes for concern.The aggregation at industry level shows that procurement problems, project delays, cost overrun,and contract administration problems are the major causes for concern.Page x 40

Aggregation Study Report [CoST-Ethiopia]I. INTRODUCTION1. BackgroundThe Construction Sector Transparency Initiative (CoST) is a country centered initiative to improvethe value for money spent on public infrastructures by increasing transparency in the delivery ofGovernment financed construction projects. The Program builds on experience from a successfulthree year (2008-2010) pilot programs in eight countries (Ethiopia, Malawi, Philippines, Tanzania,United Kingdom, Vietnam, Zambia, and Guatemala) with sponsorship of the UK Department forInternational Development (DFID) and the World Bank (WB).CoST - Ethiopia, a founding member of the international CoST Programme, has been working toimprove the value for money spent on Ethiopian public infrastructure by increasing transparency inthe delivery of Government financed construction projects. The overall activities of the initiativehave been directed by a National Multi-Stakeholder Group Executive Committee (NMSG-EC),comprising representatives of the government, construction industry and civil society. Moreover,CoST Ethiopia procured the services of senior experts on independent consultancy service basis toverify the accuracy and interpret raw data disclosures more intelligible to the public so as to makeinformed judgments about the cost, time and procurement compliance of the projects concerned.Disclosure of Material Project Information (MPI), or Infrastructure Data Standard (IDS) by itslatest name, is one of the three essentials of CoST. Assurance of the disclosed information anddemand for accountability based on the disclosed information are the other basics of the Initiative.To meet these objectives, CoST Ethiopia, in consultation with the respective Procuring Entities,has disclosed the Material Project Information with the associated Causes of Concern to the publicthrough its website covering utmost all stages of the construction project cycles of 52 (25 and 27construction projects during the pilot and full-fledged programs, respectively) high value publicconstruction projects from the building, water, and road subsectors.All the projects covered by the disclosure have their own specific Assurance Reports of whichfindings are short of providing better and comprehensive representation unless aggregated andinterpreted. Hence, this report is prepared to document the process and the result of the studyconducted to aggregate, analyze and synthesize the findings of the Assurance Reports.2. Objectives of the StudyThe main objectives of the study are to extract, aggregate, analyze and synthesize the importantproject information of the 52 projects covered by the disclosure and assurance process of CoST –Ethiopia.It is believed that the study findings are helpful to:a) Enable Procuring Entities, Government, and other stakeholders get better and morecomplete picture of the performance of sub-sectors and the construction industry, andb) Serve the purpose of quantitative data source for further analytical works.Page 1 40

Aggregation Study Report [CoST-Ethiopia]3. Scope of the StudyThe Scope of the study includes the extraction, aggregation, analyzing and synthesizing of theproject information of the 52 projects covered by the disclosure and assurance process of CoST Ethiopia in understandable way by employing appropriate statistical methods or parameters inlight of the key variables summarized in Table 1.Table 1: Key variables for the study#1Key VariablesCompletenessofProject IdentificationPhase2Tender Process3Construction Cost4Construction Time 56Issues of ConcernAssessment of ProjectDevelopment Contracts ComponentsAvailability of Feasibility Study DocumentsAvailability of Environmental Impact Assessment (EIA) StudyDocumentsProject Delivery StrategyMode of ProcurementScope of competitionProcurement Efficiency and Bid Floating Period SufficiencyProcurement Length and Project Implementation PeriodsProject costMinimum, Maximum, and Average cost overruns at sector andindustry levelsPrice escalation at sector and industry levelsReasons for cost overrunCompletion timeTime overrun (Minimum, Maximum, and Average at sectorand industry levels)Reasons for time overrunCauses for concern at project, sector, and industry levelRoot causes on the observed problems at project, sector, andindustry levelProposed solutions to the problemsCost and time overrun in design consultancy service contractCost ratio - Consultancy services to WorksTime taken for procurement process (services and Works)NB: At the time of disclosure, considerable number of projects covered by CoST did notattain a status of substantial completion, thus were at early stage to render final-phase timeand cost related information. The coincidence of this study with the timing of anotherrelevant study (Construction Contracts Expectations and Actual Performances - GapsIdentification and Analysis, by the World Bank Ethiopian Country Office Governance GlobalPractice in close collaboration with Ethiopian Construction Project Management Institute),however, has created a favourable ground to update (get indicative recent information) bylooking into projects that are common to (covered in) both studies. For the World Bankstudy, high value projects from the three subsectors with degree of completion close to 80percent were picked.Page 2 40

Aggregation Study Report [CoST-Ethiopia]4. Description of CoST ProjectsThe study has aggregated, analyzed and synthesized the findings of the Assurance Reports of 52construction projects. As shown in Table 2, building, water and road subsectors account for nearly19, 19 and 62 percent of the sample size respectively.Table 2: Number of CoST projects by disclosure phase and ng5510No. of Projects by subsectorWaterRoad5155171032Total252752The total initial contract prices of the study projects amount to Ethiopian Birr 36,475,343,121(USD 3,268,239,130.51). In terms of cost, building, road and water subsector projects make up5.7, 71.7 and 22.7 percent of the total volume of projects, respectively.Table 3: CoST projects by total initial contract pricesSubsectorAmount (ETB)Amount dustry Level5. Study ProcessFigure 1depicts the linear representation of the study process adopted to extract, aggregate, analyzeand synthesize the findings of the Assurance Reports.Figure 1: Linear representation of the study processPage 3 40

Aggregation Study Report [CoST-Ethiopia]II. EXTRACTION, AGGREGATION, AND ANALYSIS1. Completeness of Project StudiesThe completeness of project studies is evaluated while considering solely the availability ofFeasibility and Environmental Impact Assessment (EIA) studies that form parts of projectidentification studies. Having examined the Assurance Reports of the projects in light of theavailability of these studies in the disclosure of the project information, the study team hascompiled and summarized the extent of completeness of the project studies.As shown in Figure 2, only one building subsector project conducted feasibility and environmentalimpact assessment studies. Contrary to this, almost all water and road subsector projects areimplemented having conducted feasibility and environmental studies.Figure 2: Completeness of project studies in terms of Project Identification Studies2. Tender ProcessThe findings of Assurance Reports in relation to the procurement of services and Works contractsat subsector and industry levels are extracted, analyzed and synthesized in light of the followingparameters under separate subheadings: Delivery Strategy, Mode of Procurement, Level of Competition, Procurement Efficiency and Sufficiency of Bid Floating Period, and Procurement Length and Project Implementation Periods.The procurement information is summarized for Design Consultancy Service Contract, hereinaftercalled “Design Contract or Service Contract I, SCI”, Supervision and Contract AdministrationConsultancy Service Contract, hereinafter called “Supervision Contract or Service Contract II,SCII”, and Works contract (WC) separately.Page 4 40

Aggregation Study Report [CoST-Ethiopia]2.1 Delivery StrategyDesign - Bid - Build (DBB) accounts for ninety (90) percent the strategy adopted i

Aggregation Study Report [CoST-Ethiopia] Page ii 40 Construction Sector Transparency Initiative - Ethiopia AGGREGATION, ANALYSIS AND SYNTHESIS OF DISCLOSURE AND ASSURANCE REPORT OF CONSTRUCTION PROJECTS COVERED BY CoST - ETHIOPIA STUDY REPORT Study Team Asmerom Taddese Hagos Abdea Kasiem Seid (ST leader) Addis Ababa, Ethiopia November 2016

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