THIRUVANANTHAPURAM: The State Government has messed up implementation of the World Bank-aided Kerala State Transport Project (KSTP) to such an extent that recourse to arbitration by the contractors could prove costly for the State without the Government enjoying any similar advantage.

A study of the documents relating to the KSTP shows that neither the project management nor the Public Works Department had cared to take appropriate legal measures to ensure that any arbitration procedure would at least be an evenly matched affair.

The Finance Department had estimated as far back as mid-2005 that the total claim from the contractors till that point of time could be anywhere between Rs.300 crore and Rs.500 crore.

The Finance Department had also pointed out that though there were also instances of the contractors having failed to discharge their obligations, the project management had not done anything at all in the matter.

This would imply that its bravado notwithstanding, the State Government is right now at the mercy of the contractors and may have to tread cautiously in the days to come.

The way the situation is loaded against the Government would become clear if one compares the likely claim from the contractors with the liquidated damages that it claims from the contractors for delays on account of the contractors' failures.

In the Government's own estimation, this would come to only Rs.25 crore to Rs.30 crore.

Every 10 per cent enhancement in costs, if sought by the contractors, would result in the State exchequer becoming poorer by Rs.40 crore to Rs.50 crore.

Interestingly, Bob Patterson, Team Leader of the French consultancy firm BCEOM, had cautioned the Government in writing about all these possibilities well before the road project ran into a major controversy over the suicide by the project manager of PATI, the Malaysian construction company.

When Finance Minister T.M. Thomas Isaac said at a news conference here the other day that the Government would be ready to pay the normal escalation costs and would waive the liquidated damages if the contractors also agreed to forego arbitration claims, he was only echoing what the consultants had told the State Government.

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