The Builders Association of India (BAI) is an established and recognized construction trade association representing the construction industry in India. Construction sector, the second largest sector after agriculture, providing employment to over 32 million people has no dedicated ministry to represent it in the government. In this context organizations like BAI have done yeomen service in representing the industry at various fora and has been a spokesperson for the construction industry as a whole.

Builders Association of India was established in 1941 in Pune. Presently BAI has over 100 Centers throughout the country with direct membership of over 10,000 and indirect membership of nearly 30,000 represented by affiliated associations. Its headquarters are in Mumbai.

BAI’s activities include educating and informing contractors of new construction technology, techniques and building materials through seminars, conferences and exhibitions. Its role also includes appraising the contractor about various legal and regulatory issues concerning his work. In this regard it has hosted many conventions and exhibitions. Presently it is organizing the International Construction Show and International Hardware Show to highlight the latest building hardware materials and equipment. The exhibitions are being held in New Delhi from October 6 – 10, 2000.

Vijaya Raghava Reddy, Chairman, Builder’s Association of India, Karnataka Centre, spoke to indiamarkets about the construction industry. He emphasised the need for modernisation in construction not only in terms of increased mechanisation but also in the use of newer techniques and designs. With little incentive for the contractors to mechanise, given the cost of equipment and the erratic workload, the mechanisation of construction, especially at the medium and small scale level (less than 10 –25 crores turnover) will be driven by client demand.

The government, the biggest client for the small and medium sized contractors, has realised the need to mechanise and modernise the industry, and is mandating the same standards in contract clauses. At the same time the government is also making it more difficult for the smaller contractors to get works. There is a definite trend towards awarding works in much bigger packages (of upto Rs 100 crore and more), which would effectively rule out most small contractors from bidding for them, as they would not have the capability to execute these jobs. Raghava Reddy feels that this trend would be a disincentive for them to invest in modern equipment.

He feels that in the Indian context, the bigger packages would actually lead to increase in cost. The main reason being that there are very few large contractors who would be able to compete for the big packages. This would result in less competition and the overheads for the large contractors would be higher resulting in an increase in the total cost. But if the packages are divided into smaller parts (10-25 cores) according to convenience, more contractors would be able to compete. The competition and lower overheads would lower the overall cost.

Further, in any case the large contractors would be subcontracting the works to smaller contractors. This would be on account of two reasons. The first being that the local contractors would have a definite advantage in resource mobilisation and knowledge of the area and hence it would be prudent for them to execute the works. The second being that in large projects it would make sense to subdivide works into smaller ones to make the project management task easier.

This subcontracting would be taken into account when the large bidders would be bidding and the profit of both the subcontractor and their own would be factored in. Considering all these, Reddy feels that there can be a definite 10-15 per cent reduction in cost if smaller contractors are not excluded from the bidding process. The BAI is actively working on this front.

At the same time Reddy reiterated the need for small contractors to come together and bid as a group for big packages. The government should actively promote a consortium-based approach to bidding. This will encourage the smaller players to come together. In addition, the Government should also make available bank finance to the construction sector. He mentioned that the recent announcement of industry status for the construction industry is a step in the right direction.

As regards the outlook for the construction industry, Reddy sees a large demand from the infrastructure sectors, especially roads. However, most of it would emanate from the public sector bodies and government departments as private investments in infrastructure is yet to take off.

On the financing front, it is Reddy’s opinion is that apart from the non-availability of bank finance, there are issues concerning taxes (especially works contract tax and sales tax). On account of intense competition, while quoting for a job, contractors often ignore the tax costs which they eventually have to pay. This eventually hurts the profit of the contractor and may prompt him to sacrifice the quality of work.

As regards the tendering process, Reddy said that a lot of procedures/requirements need to be modified. He mentioned that BAI is working on this front with the government. He highlighted some particular concerns like the pre-qualification criterion where for the bigger packages and past experience in executing similar works is a must. Given the fact that the trend towards bigger projects is a recent happening, even the biggest construction companies in India would not be eligible on the experience criterion to pre-qualify to bid for works!