DH Exclusive | BBMP likely to pay Rs 38 cr for works never done

The BBMP faces the rare scenario of having to pay Rs 38 crore of taxpayers' money for works that were never done.

This is because the civic body didn't honour its agreement with construction firms for the third phase of the white-topping project despite knowing that it would lose an arbitration battle. It was put in this tricky situation by a change in government three years ago.

In 2019, the BBMP decided to white-top 89 roads at a cost of Rs 1,154 crore by dividing the works into six packages under Phase 3 approved by the Congress-JD(S) coalition government.

After completing the tender process, the BBMP awarded work orders in two packages and issued letters of acceptance for three others. The last package was pending approval from the government. Four contractors paid the bank guarantee or security deposit, a standard procedure before starting work.

Read | 39 roads to be covered in 3rd phase of white-topping in Bengaluru

But before the groundwork could begin, the government changed. B S Yediyurappa, the newly sworn-in chief minister, put the entire project in cold storage, citing irregularities.

Sources who were privy to the development say the decision to shelve the project was taken because most of the 89 roads were located in assembly constituencies represented by non-BJP MLAs.

Fresh proposal

In October this year, the BBMP sought permission from the Urban Development Department (UDD) for building 39 concrete roads at a cost of Rs 1,450 crore and recommended cancelling the old tenders.

The UDD sent back the file, asking the BBMP to find out whether scrapping the tenders floated in 2019 would attract legal complications and an arbitration suit.

In response to the UDD's letter, BBMP Chief Commissioner Tushar Girinath — after consulting the legal cell and an empanelled advocate — wrote a detailed letter to the UDD.

DH has seen a copy of the letter.

The letter admits that scrapping the previous tenders may cause a loss of Rs 38.34 crore in the arbitration battle because the contractors will likely demand compensation for not honouring the agreement.
According to the legal cell, contractors may claim up to Rs 38.34 crore, or 10 per cent of the contract value, by citing overheads, loss of machine and manpower, blockage of prospect tender capacity, etc.

As per this calculation, Package 2 (JSP Projects) and Package 5 (RPN Infratech) — where work orders were issued (Rs 320 crore) — may get Rs 35.29 crore as loss of profit (10 per cent) and interest. Package 3 (BSCPL Infrastructure) and Package 6 (RPP Infra Projects) along with Package 2 and Package 5 will get Rs 3.05 crore as interest on the Rs 35.12-crore security deposit they paid in 2019.

Package 1 (JMC Projects) and Package 5 (Ramalingam Constructions) get nothing because they didn't pay the security deposit and the tender process wasn't completed.

The 11-page letter, however, states that the BBMP would save Rs 287.61 crore overall by not going ahead with the previous tenders. The BBMP arrived at the financial benefit of Rs 287.61 crore by incorporating a 5 per cent cost escalation plus GST on the project cost. The civic body compared the financial cost of staying with the previous tenders and floating new ones. It recommended the latter, stating that many roads that were part of the old tenders have since been asphalted or are under development.