Contractor is the most used, misused and abused word when one talks of Government to Business transactions.For common public , contractor is stereotyped as someone whose aim is only to maximize private profit at the cost of public money.It is also one of those words that have got very little image makeover since Independence.However, there is a need to revisit the ‘definition’ and ‘character’ of the word ‘contractor’ if India wants to ramp up its economic growth.
A contractor is one who is awarded a particular work for some consideration in exchange.After the work is completed, the contractor transfers the ownership of the asset to government.Thereafter, it is government’s responsibility of maintaining that property.Thus a ‘Contractor based system’ has two important features.One, transfer of ownership once the asset is created especially in case of works or goods contract.Secondly, a contractor has no interest in the asset after completion of contract period.
The above mentioned system was better suited in times where level of outsourcing in the Government was low and government had enough staff to maintain the assets.However,things have changed drastically post liberalization and FRBM (Fiscal Responsibility and Budgetary Management) act,in a way that most of the public organizations have drastically cut their staff strength and depend heavily on outsourcing.At the same time, there is a huge demand for improving the quality of public infrastructure.To improve the quality, there is a need to shift to ‘Partner based system’ from the current ‘Contractor based system’.
A ‘partner based system’ spreads the ‘risk and reward’ of a project over a longer period of time in contrast to ‘Contractor based system’ where risk and rewards completely change their positions within a short span of time.In contracts where ‘asset creation and maintenance’ is clubbed , one can readily see the benefit of having a Partner rather than a Contractor.In fact most of the government organizations are doing both the work of asset creation and maintenance but both are generally separated from each other.There is a strong need to bundle the asset creation and asset maintenance and spread the period of involvement with the Partner over a longer period of time.
‘Asset Creation plus maintenance’ model will ensure that partner makes good quality asset because it will ensure a low maintenance cost for the Partner to make profit during the maintenance period.So, the profit making event shifts to maintenance period in case of ‘Asset creation plus maintenance model’ rather than being limited to ‘asset creation’ in case of unbundling of asset creation and asset maintenance activity.Further, long term bundled projects would reduce amount of tendering involved in the bidding out creation and maintenance activity separately.Also, there should be incentives in built to encourage timely completion of the contract and regular compliance of the safety standards involved.Similarly, in case of earning contracts , more than expected earnings should be shared with partner in order to encourage his workmanship.
A Partner based system shows the requirement of trust between government and industry to create good quality assets.It also questions the notion where profitability is frowned upon.It conveys that reasonable profits are acceptable and excellent works are reward-able. Windfall profits are unavoidable in some projects but it should be underlined that windfall profits are like a lottery which comes once in a lifetime.Fear of windfall should not affect the spirit of having efficiency and quality in developing and maintaining public infrastructure.
Government organizations will have to drive next generation of efficiency in Indian economy if India wants to continue to grow at 7 percent or above.The instruments of Government’s interaction with the industry i.e. the ‘contracts’ need to reflect the fresh perspective of partnership rather than containing one-sided heavily loaded conditions which are not actually serving the desired purpose.The contracts should have necessary checkpoints which should be automatically triggered in order to ensure sustainability of the project.It is equally important to bring an attitudinal change within government to see industry as a partner in development and not as a transient element in the whole process. It will in turn bring efficacy in public expenditure and lead to creation of long term good quality assets, with low maintenance cost, leaving the fiscal space for creation of new public assets over a period of time.