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What Ails Indian Contracting Companies?
03 March 2015

V. Sridhar, a 1976 graduate in chemical engineering from Annamalai University, started his career with NDDB Anand and moved to Voltas after a three year stint, where he spent 16 years. He also worked with ETA and Bahwan Engineering. In 2002, he established Enervac, a consultancy for process cooling and other mechanical projects, whose customers include Wipro Technologies, CMC Hospital (Vellore), Kerala State Electricity Board, MICO (Nashik), SPBPC and TNPL.

In the earlier days it was lack of technology; equipment used to be built at site, involving a lot of site work. The engineer in-charge had to be well versed with selection of components and necessary engineering. The advantage was that as soon as the order was booked, the sales engineer could hand over the project to the project/construction engineer, who would recheck equipment selection and carry out the detailing again. Any discrepancy was mutually resolved at this stage and expected project profitability was worked out between the sales and project engineers. Thereafter it was the responsibility of the project/ construction engineer to execute the job to the satisfaction of the client and to meet the implied need of the customer. Many engineers of today may need to be explained what the implied need is. The implied need is the purpose of the chiller or air conditioning plant ordered by the client. In the company I joined in the early eighties, the first question a project engineer would be asked is: What job are you handling, and what is the implied need of the client? Customer satisfaction was the most important aspect, and the company used to get repeat orders from customers through its service department. We literally used to prepare and keep our quotations or offers in the ‘out tray’, and within a few days a person from our service department would come with the order and down payment! Tools like grooved piping systems, pre-insulated ducts, pre-insulated pipes, HILTI, gripple wire, etc. were either not available or their cost was prohibitive. Excise duty on air conditioning equipment was as high as 131.25%, and for industrial jobs the concessional rate against CT-2 form was 26.25%. Yet the project/ construction engineer used to have fairly good control as he was responsible for billing, resolving the client’s queries and collecting payments. He used to maintain a cost control sheet for each of his jobs, which was reviewed by his superior once a month or fortnight. Thus the engineer was an entrepreneur within stipulated limits. All the reward he would get was an appreciation letter from his boss. In the late eighties and early nineties, equipment technology improved and there was a shift towards factory assembled packages, reducing site work. At the same time, skilled field staff sought greener pastures in the Middle East, impoverishing the industry in India. Trained engineers also had high attrition rate. They were either poached by the competition after three or four years, or got attractive off ers from the Middle East. With the onset of financial reforms in 1991, a lot of multinational companies entered India. They sold products manufactured in their parent plants, their prices fluctuating with the US dollar. Due to superior product quality, substantial volumes got sold in the Indian market. Around this time, the government reduced excise duties to make equipment manufactured in India competitive. It also entered into bilateral agreements with Far Eastern countries for concessional customs duties. Although all this made quality equipment available at affordable prices, non-availability of quality skilled workers was a crucial factor that came in the way of timely completion of jobs and led to a lot of costly mistakes, resulting in rework and delays. It was rare to see a job that had a continuity of field staff from the beginning to the end. This hurt both the Indian and multinational contracting companies. By the late nineties and early 21st century, a lot of MNCs closed down their contracting business after messing up quite a few jobs across India, and limited their role to selling equipment through their dealer networks. Indian companies also started shrinking their contracting operations and downsizing the supervisory staff that used to be their core strength for maintaining job quality at sites. They started hiring supervisory staff on contract basis, which turned out to be suicidal as it resulted in frequent job changes and lack of continuity on project sites, affecting the quality of supervision. Another reason for the decline in contract execution capabilities is embracing enterprise resource planning (ERP) software like SAP, without configuring it adequately for contracting operations. Configuring SAP for a contracting company is quite tricky as the programmer has to be fully conversant with detailed operations.The two major contracting companies are today struggling to execute projects in hand for many of the reasons cited above. Although small to medium size contracting firms have come up at regional levels or in tier two and tier three cities and are doing well, their performance is heavily dependent on timely payments by the clients.


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