COST OF CONTRACTS IN NIGERIA

          President Goodluck Jonathan has asked the Minister of Finance, and Coordinating Minister for Economy, Ngozi Okonjo-Iweala to chair a team which should devise templates for reducing civil engineering contracts in Nigeria. The team is to propose improvements in the evaluation methodologies for construction contracts and supplies to bring cost of executing contracts in Nigeria to acceptable international, or more specifically, African standards. The team will include other stakeholders from the private sector and international consultants, and its work is intended to address and reduce the cost of governance. The President also said he plans to complete all projects initiated and awarded by his administration.

The team under Okonjo-Iweala will have a huge task ahead of it. Outside crises-ridden parts of the world, Nigeria pays more for construction contracts than any other country in the world. Construction of basic infrastructure such as roads and other physical structures and supplies also takes up almost 65% of all annual budgets. Virtually all reliable estimates show that Nigeria pays at least three times what it costs for equivalent projects in most African countries. It also takes at least four times as long to complete projects than in most African countries. And, not surprisingly, Nigeria has the highest proportion of abandoned or unfinished projects to completed projects in the world. There are no reliable statistics for the collateral damage to existing infrastructure which these high costs, delays and abandoned projects in Nigeria cause; but it is safe to assume that they constitute the most important reason why the nation’s basic economic and social infrastructure is not developing.

The team will be well advised to adopt a broad perspective in appreciating why construction contracts and supplies cost a lot more in Nigeria than anywhere else in the world. The federal government has a whole battery of control mechanisms and agencies which are meant to avoid abuse, waste and corruption, and get value for money for Nigerians; so it will be a useful starting point to ask why they fail. The government set up the Bureau for Public Procurement to set standards for costs and quality; but it has become a mere bottleneck which has usurped the basic functions of Ministries, Departments and Agencies (MDAs). It relieved MDAs of the responsibility to be accountable and prudent, without itself being accountable. It has not reduced costs, and often subverts its own rules. Its levels of transparency can be radically improved, and its relationship with the Presidency makes it extremely vulnerable to political pressure. No progress can be made towards reducing costs and ensuring value for money without addressing institutional weaknesses, and the weakest link in the chain is the Bureau for Public Procurement (B.P.P).

Another area which should provide a context for the work of the team is poor preparation of projects. Internal control mechanisms, impact analyses and financial profiling have all been jettisoned for speed and political expediency. Planning requirements, budgetary control and rigorous vetting processes for contractors, consultants and suppliers have either disappeared or have become totally weakened. Public officers whose job it is to prepare all stages of expenditure, and who have primary responsibility to account for use of public funds have become compromised and demoralized. They have largely joined the bandwagon, either as willing accomplises or victims of strong political muscles. In any case, major decisions regarding massive expenditure are taken way above them by Ministers, the BPP and the Presidency.

Corruption is the single biggest contributor to the high cost of government projects. Contractors build in huge margins into contract sums because they are expected to pay those who award them the contracts. They also build additional margins for delays and variations. Undeserving contractors build in the huge amounts they spend to secure contracts unfairly, and then build additional amounts to secure services of professionals who would otherwise do the job better, at lower costs. They build in additional costs to get supervising consultants and civil servants to overlook shoddy work, deliberate delays and questionable reviews and claims. They build in costs to cover uncertainties and risks of abandonment of the project by government. They  build in margins to cover costs of importing materials, much of which is illegal; to settle fraudulent taxation or evade genuine taxes; to cover costs for securing power, water and even access to communities at costs which are far above what they should pay. And they build in additional costs to pay new masters and leaders, in the events that they change in the life of the contract.

The best guarantee that this initiative by President Jonathan will translate into a meaningful step towards curtailing the cost of governance is for the President himself to commit to a personal, disciplined management of public funds. In practice, this would mean that he will not direct that contracts are awarded, or approve them in anticipation, unless he is satisfied that every facet of public interest is protected. He will have to make sure that Ministers consult each other; that costings have been properly done; that hidden costs have been detected and removed; and that he has someone to hold responsible in the event of failure.

This is not going to be easy. Governance has been run in Nigeria on the principles of a spoils system. Leaders accumulate wealth from elected offices. Their patrons, political allies and hangers-on make money only through contracts awarded to them which are either not expected to be executed or are so inflated that they receive their percentages up front and leave the contractor to his own devices. Elections are funded from dubious contracts, and parties which control governments are guaranteed virtual success, even if purchased. An entire industry exists around government contracts, and it will amount to a revolution to eliminate the many layers of influence and interventions, all of which add huge costs on projects. Citizens of some countries have cornered certain aspects of construction and supply contracts in Nigeria , and they have a huge political clout. They will not easily give up a livelihood they can only get in Nigeria, and billions of Naira in a country where everything is for sale.

At a time when governments say they need to remove petroleum subsidy to release more funds into areas such as the rehabilitation and expansion of economic and social infrastructure, any move towards improving the quality of management of public funds will be welcome. But reducing the cost of construction projects will be possible only if corruption is decisively addressed in Nigeria. It is both the cause and the consequence of the very high cost of contracts. Most Nigerians will be cynical that this move by President Jonathan will be supported by the required levels of political will. If he wants to, and he can do it, it will be worth making an effort, particularly at a time when Nigerians are asking why the subsidy on petroleum should be removed, when corruption around government will simple gulp the removed subsidy.