contracts – Rural Water Supply Network

Attracting the best: Why some experienced consultants and drilling contractors are no longer willing to work for district local government

This is the third in a series of four blogs entitled Professional Borehole Drilling: Learning from Uganda written by Elisabeth Liddle, and a RWSN webinar in 2019 about professional borehole drilling. It draws on research in Uganda by Liddle and Fenner (2018). We welcome your thoughts in reply to this blog below.

Several recent reports have raised concerns over the quality of the boreholes that are being sited and constructed in rural sub-Saharan Africa (UNICEF/Skat, 2016, Bonsor et al., 2015; Anscombe, 2011; Sloots, 2010). If high-quality boreholes are to be sited and constructed, skilled experienced personnel are needed to conduct this work. Recent research in Uganda, highlights that a number of the most experienced consultants and drilling contractors in Uganda (those who have been in business for fifteen – twenty years) are no longer willing to bid for district local government contracts (Liddle and Fenner, 2018). This is concerning, given that district local government projects accounted for 68% of new deep boreholes drilled in the financial year 2016/17 (MWE, 2017).

In this blog I outline why these consultants and drilling contractors are no longer willing to work for districts.

1. Low prices

A number of the consultants and drilling contractors interviewed are simply dissatisfied with the prices that district local governments are willing to pay compared to that of non-governmental organisations (NGOs). The consultants interviewed, for example, stated that districts are typically willing to pay UGX 1 million – UGX 2 million (US $276 – $552[1]) for siting and supervision, while NGOs are typically willing to pay UGX 2.5 million – UGX 3.5 million (US $691 – $967) for the same work. The price districts are willing to pay is reportedly not realistic, and as a result, these consultants would have to take shortcuts in their work. The same issues were reported among the drillers who are no longer willing to work for the district local governments. These consultants and drillers are not willing to undertake sub-standard water points for communities, take shortcuts in their work, nor tarnish the reputation of their companies.

2. Misuse of ‘lump sum, no-water-no-pay’ payment terms

As explained in blog “Turnkey contracts for borehole siting and drilling”, drilling under a turnkey contract was found to be common during this research: 26 of the implementing agencies interviewed in Uganda (n = 29), for example, were procuring the private sector for the implementation work, 19 of whom were using turnkey contracts for the siting and drilling work and paying the driller via lump sum, no-water-no-pay payment terms. Typically, under these combined ‘lump sum, no-water-no-pay’ payment terms, if a borehole is unsuccessful (is dry or low-yielding), the driller is not paid. If the borehole is successful, the driller should be paid the full lump sum price, regardless of the costs incurred on-site. A number of districts, however, are deviating from lump sum, no-water-no-pay payment term norms. Instead of paying the full lump sum as they should do, they are only paying for the actual work done and materials used (known as BoQ payment or admeasurement payment in Uganda). While this may be specified in the driller’s contract, it is concerning given that the whole premise behind lump sum no-water-no-pay payment terms is that, while drillers will lose money on unsuccessful boreholes, they will be able to recover these costs from the full lump sums they are paid for the successful boreholes. Without full lump sum payment, drillers are unable to their losses..

3. Bribes during the bidding process

Demands for bribes are reportedly common when bidding for district local government contracts. When a bribe is demanded, consultants and drillers struggle to account for this cost: if they account for this in their quote, their quote will be too high, thus, they will not win the contract. If, however, they do not account for the price of the bribe in their quote, the consultant or driller will then need to recover this cost at some stage, usually through taking shortcuts on-site. If consultants and drillers do not want to take shortcuts in their work they will not bid.

4. Late payment

Receiving the full payment from districts for completed works can be challenging, with several drilling contractors reporting that in some cases, they had to wait over a year to receive their full payment. This makes business difficult; it is much easier to only work for NGOs who are known for paying on time.

The following quotes help to exemplify the above issues:

“But I tell you, for the last few years I have not bided for a district job because the bidding process is just so silly. You know, they will already know who is going to win the contract before they even advertise…And the terms and conditions in the contract are very unfavourable to the driller… So I have not drilled for the district for the last five years as there is no guarantee that they will pay us, this is not a viable business model for us…They only pay on time 50% of the time. Even when the borehole is successful, they will say, oh we don’t have any money, we’ll have to pay in next quarter. Sometimes this has gone on for a whole year. It was with a district that it took 14 months for me to be paid once… The guarantee of receiving payment is frustrating” (Drilling Contractor).

“I strongly believe bidding is just a procedure for most projects. In most cases the districts are giving contracts after they [the bidder] has paid them for the contract. So, say it is a contract for 100 million, they will want 20 million during bidding. This problem is with district, not NGOs, not the ministry… So I have stopped drilling for districts, it was too expensive” (Drilling Contractor).

“I don’t like working for the district. To be honest they are simply corrupt. It is very hard to get a contract from them, you’ve often got to bribe to simply get the contract. They’ll always ask for extra money. It is disturbing. If you don’t agree to pay them, they will find a way of explaining why you did not get the contract” (Consultant).

Districts are now beginning to notice this issue as well, as explained by one district water officer below:

“So many of them [drillers] are so business orientated that even during the time of bidding they under quote so they can win the contract…now because of that they have made serious drillers pull out of district work as they cannot win government contracts. Most of the serious drillers are now dealing with NGOs because they know the procurement process is much more transparent and they will be able to get the money that they need to do a good job. But for local government, they cannot. So we have lost some really good drillers because of this, because they cannot compete and most times most local government want to select the lowest bidder… So we have a big challenge here because we don’t want government to lose money by selecting the more expensive driller but this means the really high quality ones have left district work” (District Water Office).

These quotes highlight the long-term consequences for district local governments who are known for engaging in practices such as paying low prices, offering unfavourable payment terms, soliciting bribes, and making late payments. Finding solutions to these problems is essential to ensure that experienced consultants and drilling contractors are willing to support district work going forward.

What do you think?

So what do you think? Do you have experiences of unrealistically low prices (or the opposite), unfavourable payment terms, bribery in the procurement process or late payments. Or can you share any particularly promising practices with us? You can respond below by posting in the reply below, or you can join the live webinar on the 14th of May (register here).

References

Anscombe, J.R. (2011). Quality assurance of UNICEF drilling programmes for boreholes in Malawi. Lilongwe, Malawi: Ministry of Agriculture Irrigation and Water Development, Government of Malawi, Available from http://www.rural-water-supply.net/en/resources/details/509

Bonsor, H.C., Oates, N., Chilton, P.J., Carter, R.C., Casey, V., MacDonald, A.M., Etti, B., Nekesa, J., Musinguzi, F., Okubal, P., Alupo, G., Calow, R., Wilson, P., Tumuntungire, M., and Bennie, M. (2015). A Hidden Crisis: Strengthening the evidence base on the current failure of rural groundwater supplies, 38^th WEDC International Conference, Loughborough University, UK, 2014, Available from https://wedc-knowledge.lboro.ac.uk/resources/conference/38/Bonsor-2181.pdf

Liddle, E.S. and Fenner, R.A. (2018). Review of handpump-borehole implementation in Uganda. Nottingham, UK: BGS (OR/18/002). https://nora.nerc.ac.uk/id/eprint/520591/

MWE (2017) Sector Performance Report 2017, Ministry of Water and Environment, Government of Uganda, Available from https://www.mwe.go.ug/sites/default/files/library/SPR%202017%20Final.pdf

Sloots, R. (2010). Assessment of groundwater investigations and borehole drilling capacity in Uganda. Kampala, Uganda: Ministry of Water and Environment, Government of Uganda, and UNICEF, Available from http://www.rural-water-supply.net/en/resources/details/133

UNICEF/Skat (2016). Professional water well drilling: A UNICEF guidance note. St Gallen, Switzerland: Skat and UNICEF, Available from http://www.rural-water-supply.net/en/resources/details/775

[1] May 2017 exchange rate.

Photos

photo #1: “Bidding process poster on display in a District Procurement Office” (Source: Elisabeth Liddle).

Acknowledgements

This work is part of the Hidden Crisis project within the UPGro research programme – co-funded by NERC, DFID, and ESRC.

The fieldwork undertaken for this report is part of the authors PhD research at the University of Cambridge, under the supervision of Professor Richard Fenner. This fieldwork was funded by the Ryoichi Sasakawa Young Leaders Fellowship Fund and UPGro: Hidden Crisis.

Thank you to those of you from Makerere University and WaterAid Uganda who provided logistical and field support while I was conducting the interviews for this report (especially Dr Michael Owor, Felece Katusiime, and Joseph Okullo from Makerere University and Gloria Berochan from WaterAid Uganda). Thank you also to all of the respondents for being eager and willing to participate in this research.

Turnkey contracts for borehole siting and drilling

This is the first in a series of four blogs entitled Professional Borehole Drilling: Learning from Uganda written by Elisabeth Liddle, and a RWSN webinar in 2019 about professional borehole drilling. It draws on research in Uganda by Liddle and Fenner (2018). We welcome your thoughts in reply to this blog below.

Drilling under a ‘turnkey contract’ has become increasingly common across sub-Saharan Africa. Recent research in Uganda by Liddle and Fenner (2018) found turnkey contracts to be the most common contract type when the private sector provides new rural handpump-boreholes, although this has not always been the case. In this blog we provide an overview of what turkey contracts are, why they are being used in Uganda, and the benefits and challenges associated with their use in Uganda.

What is a turnkey contract they and why are they being used in Uganda?

Under a turnkey contract a drilling contractor is responsible for both the siting and the drilling/installation work. Turnkey contracts are paid via ‘lump sum no-water-no-pay’ payment terms. If the borehole is successful, the driller will be paid the full lump sum price, regardless of the costs incurred on-site. If, however, the borehole is unsuccessful (dry or low-yielding), the driller will not be paid at all.

Turnkey contracts rose to prominence in Uganda in the mid-2000s as implementing agencies (District Local Governments and Non-Governmental Organisations) became increasingly frustrated with the number of unsuccessful boreholes that were being drilled when consultants were conducting the siting work. Because the consultant was telling the driller where to drill, if the borehole was unsuccessful, the implementing agency had to pay the driller for all the work done and materials used, i.e. according to a Bill of Quantities (BoQ). Unsuccessful boreholes were blamed on the quality of the consultants’ siting work, with briefcase consultants (meaning those with no formal geology or hydrogeology training) having flooded the market. Because of the low prices they offered, coupled with a lack of regulation, these consultants were gaining siting contracts.

Paying for unsuccessful boreholes was challenging and it was becoming difficult for District Local Governments to meet their targets for new safe water sources. Project managers were being made to look inept. Moreover, political leaders failed to understand that some unsuccessful boreholes were a common part of drilling, hence, if a driller was paid for an unsuccessful borehole, politicians saw this as corrupt. Some district water officers were even threatened with jail.

The solution found was to remove the consultant and hand over all of the responsibility for finding water to the driller. If the driller then drilled an unsuccessful borehole, they would not be paid as they were the ones responsible for siting the borehole. The risk of finding water of an inadequate yield fell squarely on the driller.

Benefits and challenges of turnkey contract use

Turnkey contracts have greatly simplified the procurement and contract management process for project managers in Uganda. Under turnkey contracts, implementing agencies only need to procure and manage a drilling contractor. Furthermore, as the amount the drilling contractor will be paid if the borehole is successful is determined during the tender process, there are no surprise costs for the implementing agency. Additionally, under the no water, no pay payment terms, agencies do not have to directly spend any money on unsuccessful boreholes; money is only being spent on boreholes that are declared successful.

While turnkey contracts have notable benefits, several concerns were raised among those interviewed in Uganda as to the quality of the work:

Siting based on ease of finding water: under turnkey contracts, drilling contractors need to find sufficient water in order to be paid. Consequently, it was widely reported that drilling contractors are siting boreholes where it is easy to find water, for example, in valleys, or near swamps or riverbanks. Not only are drilling contractors extremely likely to find water in these areas, hence be paid, but they will often drill to a much shallower depths than their lump sum cost estimate was based on. A greater margin can therefore be made in these areas. Boreholes situated in such areas, however, are vulnerable to pollution. While a borehole may pass water quality tests immediately after drilling, the water may be unsafe for human consumption in the rainy months as surface pollutant transport and leaching rates increase or in several years’ time as pollutants accumulate in these areas. Furthermore, community access may be limited, especially in rainy months when these areas may be vulnerable to flooding.
Short-cuts on-site: under no-water-no-pay payment terms, drilling contractors need to save money wherever possible so they can recover the losses that they make on unsuccessful boreholes. To save money, it was reported that certain drilling contractors in Uganda are known for:
Using low quality and/or hydrogeologically inappropriate materials, for example, galvanised iron rising mains rather than stainless steel in acidic groundwaters. Galvanised iron rising mains are 4-5 times cheaper than stainless steel. When galvanised iron rising mains are used in acidic groundwaters (which are common in Uganda), red/brown coloured water, unfit for human consumption is extremely likely (Casey et al., 2016).
Using inappropriate materials for the borehole design, for example, using 5″ casing when a 6/6.5″ open-hole borehole[1] has been drilled as 5″ casing is cheaper than 6/6.5″. To prevent the 5″ casing from falling into the 6/6.5″ open-hole, drilling contractors heat the base and stretch this to fit on top of the open area. 42% of drilling contractors interviewed (n = 14) admitted to this practice. While some see this as a clever trick, others were concerned that silt will accumulate in these boreholes over time, due to gaps between the casing and the consolidated rock and/or cracks that form in the thinly stretched areas of the casing. Such siltation will not only wear the handpump parts down, but it may also lead to appearance problems from the users’ perspective as this silt enters the water supply.
Stopping drilling at the first water strike. A great deal of money can be saved here; in Ethiopia, for example, drilling to 50 metres instead of 60 metres reduces the drilling cost by 13% (Calow et al., 2012). If the borehole does not penetrate the main aquifer, however, the quantity of water available post-construction may be problematic, even if the borehole passes the pumping test.
Skewing the pump test data or cutting the pump test time short to mask low-yielding, unsuccessful sites. These boreholes will inevitably be low-yielding post-construction, or in worst case, dry.

The need for drilling contractors to take the above shortcuts in Uganda is exacerbated by the fact that, in many cases, the lump sum contractors are paid for drilling a successful borehole is too low in the first instance. Furthermore, supervision by a trained hydrogeologist is rare.

Where to from here for turnkey contracts?

Opinions on whether turnkey contracts should continue to be used in Uganda differ among different actors: the majority of implementing agencies in Uganda believe the use of turnkey contracts should continue, while consultants and the Ministry of Water and the Environment (MWE) believe that they should cease, given the quality of work concerns outlined above.

MWE went so far to release a directive in January 2017 discouraging the use of turnkey contracts, instead stating that split contracts, one for siting (awarded to a hydrogeologist/consultant) and one for drilling/installation (awarded to a drilling contractor) be used going forward. Opinions among drilling contractors themselves seemed impartial; most do not mind working under turnkey contracts, they simply ask that the lump sum prices implementing agencies are willing to pay for successful boreholes increase in the future so they are not forced to take shortcuts on-site.

What do you think?

So what do you think? Do you have experiences of turnkey contracts for borehole drilling, or other practices that you would like to share. You can respond below by posting in the reply below, or you can join the live webinar on the 14th of May (register here).

References

Calow, R., MacDonald, A., and Cross, P. (2012). Corruption in rural water supply in Ethiopia. In J. Plummer (Ed.), Diagnosing Corruption in Ethiopia: Perceptions, realities and the way forward for key sectors (pp 121-179). Washington DC, USA: World Bank. Available from https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/8555.pdf

Casey, V., Brown, L., Carpenter, J.D., Nekesa, J., and Etti, B. (2016). The role of handpump corrosion in the contamination and failure of rural water supplies. Waterlines, 35(1), 59-77. Available from https://www.developmentbookshelf.com/doi/full/10.3362/1756-3488.2016.006

Liddle, E.S. and Fenner, R.A. (2018). Review of handpump-borehole implementation in Uganda, Nottingham, UK: BGS (OR/18/002). Available from https://nora.nerc.ac.uk/id/eprint/520591/

[1] Boreholes may be ‘fully-cased’ or ‘open-hole’. If a borehole is ‘fully-cased’ the entire vertical is cased, with screens in the water bearing layers. If the borehole is ‘open-hole’, however, only the unconsolidated areas of the vertical borehole are cased – the remaining consolidated rock is left ‘open’ (no casing or screens).

Acknowledgements

This work is part of the Hidden Crisis project within the UPGro research programme – co-funded by NERC, DFID, and ESRC.

Photo: “Hidden Crisis team members using a CCTV camera to undertake downhole observations of the borehole construction of a community borehole” (Source: ‘BGS © NERC. UPGro Hidden Crisis Project.’)