“Symbolic Protest” by the Railway Contractors due to Non-Redressal of Pending Issues

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An Memorandum of “Symbolic Protest” given by the IRIPA – Pan Indian Railways on 25th October 2021 due to Non-Redressal of Pending Issues – Standard GST Neutrality Formula, Price Variation Clause (#PVC) in Works Contracts Costing Less Than 5.0 Crores, Bid Capacity Formula and Abnormal Hike in Prices of Steel etc – by Railway Administration and Government of India.

The members of Indian Railway Infrastructure Providers Association (IRIPA) are committed to join hands to progress infrastructure development in Indian Railway. Association is continuously raising various issues from time to time but still remains unresolved.

The members were hopeful that under the dynamic leadership of Shri Ashwini Vaishnaw, Minister for Railways will achieve the new heights in every field as his innovative decisions and actions in the passenger/goods/other fields such as in the areas of the passenger amenities, punctuality, safety as well as technical innovations.

This is in reference to the numerous representations made by IRIPA for past 2-3 years for the various unresolved issues which are hurting the contractors financially & mentally and pushing the small contractors on the verge of insolvency.

The recent unprecedented hike in prices of Steel, Cement & Fuel coupled with Covid-19 pandemic has led to a breakdown situation for the small contractors and in order to save the contractors which have served the Railways since the inception, Railways has to mandatorily, morally & ethically come forward and take immediate action as described in the memorandum.

The pain points described herein below are so acute & material that non-treatment of such issues will lead to mass unemployment, bankruptcies, suicides, project failures etc.

IRIPA have unceasingly brought these matters to the notice of Railway Board and Railway Ministry; however, no action has been taken and all the issues are dumped into cold storage. As repeated written requests are not producing any heed from Railways, so IRIPA are now compelled to announce a 4-hour symbolic protest on 25th October, 2021 across all 16 Zones & 68 divisions of Railways.

Post such symbolic protest, all Railway contractors will work while wearing Black Badge in protest until following issues are not resolved.

Unlike the past situation, current scenario is neck pressing and therefore presented before the Minister as a serious alarm –

A. PVC must be made applicable for all contracts above Rs. 50 Lakhs: As of now, Railway only allows PVC on contracts above Rs. 5 Crores, however, the largest number of contracts are below 5 Crores and they are performed by small contractors which have limited financial capacity & they are sensitive to even little hike in prices of inputs.

As railway minister may be aware about recent hike in prices of Steel, Cement & Fuel, such hike has led to unimaginable losses to the contractors and it is now almost impractical for them to continue to work.

During the past year, a whopping number to railway contractors has succumbed to suicides to financial crunch & mental distress caused due to abnormal rise in prices followed by pressure from railway official to conduct the work at any cost.

Only Railways is the party which is profiting from rise in prices, as their Asset Value is multiplying day-by-day in proportion to rise in prices of construction commodities. They are paying Rs. Y (tender rate) to the contractor and getting the asset of Rs (Y + inflation over the time) (market rate) in return.

However, IRIPA would like to remind that wealth generated at the cost of other human lives and tears of their families is akin to sin. Hence, IRIPA request the Railways to kindly drop their stubborn nature and allow PVC on all running & future contracts above Rs. 50 Lakhs.

In case it is not possible for Railways to allow PVC on all contracts above Rs. 50 Lakhs, then IRIPA request it to kindly foreclose contracts below Rs. 5 Crores on Administrative Grounds upon
confirmation from the concerned contractor.

B. Link PVC formula of Steel, Cement & Fuel to the actual market rate : Even the existing PVC formula of Railways is faulty and does not transfer the true inflation impact to the contractors. The ratio used for different component is also impractical and needs to be revised. In order to allow Real Price Variation to the contractors, following amendment needs to be done in existing PVC method-

i. For Steel Component тАУ As per current formula, market rate of Steel has been derived from “Ex-works price” of Steel as per SAIL. However, SAIL has now discontinued to disclose the Ex-works price on its website due to which Railway Board themselves issue “Ex-works” which nowhere reconciles with actual market price. In order to make calculations more transparent, steel prices must be linked with official MRRP data released by SAIL on its website which will allow more justified and commercially viable payments to contractors. Linking with MRRP of SAIL must be done on immediate basis on
all running & future contracts.

ii. For Cement Component тАУ Actual market price of cement must be taken from open market in the relevant area as WPI rarely reflect the change in the prices.

iii. For Fuel Component – PVC on fuel must be based upon actual market price of HSD on IOC/BPCL petrol pumps in the concerned area where the project is located. This practice is consistently followed in Ministry of Road Transport and Highways, state governments,
PWDs etc.

iv. Correcting PVC component ratio – While comparing the GCC of 2019 vs 2014, one may find that labour component has been abruptly reduced from average of 45% (2014) to 28% (2019). The reduction of almost 17% has been adjusted by introducing a new component naming “Plant & Machinery spare”, without assigning any reason whatsoever. On one hand, Government pressures business houses to provide employment on other hand Railways mandates to generate unemployment & deploy machineries, which is nothing less than mockery of system. Hence, we request you to kindly restore the PVC component ratio which are disfigured unscientifically by Railways.

v. Correcting the interpretation of Mixed Steel Component items in PVC Calculation – Major numbers of Railway Zones/officials are incorrectly calculating the PVC for Mixed Steel items by treating them as General PVC rather than Steel PVC. This wrong assumption leads to undue losses for contractors and it must be calculated by bifurcating the quantity of Steel supplied in such item & treat it as normal Steel PVC. Even some Railway Zones are allowing 100% PVC in Steel Quantity supplied in mixed item as well as allowing Labour part in such mixed item as per General PVC formula. Hence IRIPA request to the Minister kindly instruct all the Railway Zone to calculate 100% Steel PVC on actual Quantity of Steel supplied in mixed items and also allow the Labour part of such mixed items as General PVC.

C. Issue unified JPO for GST Neutrality: As on date, Railways has 16 JPOs for calculating GST Neutrality on existing contracts. Each JPO has its own different story and every Zone is just harassing the contractors by assuming the interpretations from faulty JPOs.

IRIPA have suggested the correct method of GST Neutrality and even Railway Board & their appointed consultant have accepted the blunders in existing formula and approved IRIPA’s suggested formula which truly neutralizes the impact of additional tax burden after GST on the contractors.

Being the good listeners & applying common sense, NFRailway has accepted IRIPA’s pleas and issued the revised JPO as suggested. However, all other Railways are just passing on the responsibility and doing nothing on the pretext that Railway Board will correct it.

IRIPA would to state that we have already paid the additional taxes levied upon us after GST and as per principle of Indirect taxes & Constitution of India, Railway is required to reimburse the additional taxes to Contractors.

Therefore, IRIPA request the railway minister to kindly take up this matter at Board level and issue a unified JPO for GST Neutrality as suggested by IRIPA & accepted by the Board.

D. Allow proper representation from contractors in GCC committee: Without much explanation, Railways know that current GCC conditions are one-sides and being a weaker party contractor has to sign the dotted line without any demur. We are living in Independent India, then why Railway is still following British-era contract conditions and harassing the contractors at all possible levels. In any contract major responsibilities are tied to contractors then why due rights are refrained from them.

In any contract, all the concerned parties must have a say in conditions, however Railway conditions ties the knot around the neck of contractors. In order to justified contracts, Railway must allow representatives from contractors in GCC committee for transparent & balanced conditions. Further we request to adopt FIDIC conditions in all the future contracts.

E. Revising Bid Capacity Formula: Current Bid Capacity formula of Railways is completely faulty as it neither the completion period mentioned in tenders are practical nor the multiplying factor of “1 or 1.5” are anywhere scientific in such formula. If we simply look at the Bid Capacity formula of other Government Organisations like NHAI, PWD etc. and compare it with Railway Formula, one can easily conclude that Railway formula is competition restrictive and only favours big players in the market. Hence, IRIPA request the minister to kindly revise the Bid Capacity formula either by stating practical completion period in tenders or by upgrading the multiplying factor by “4” as even suggested by IRIPA earlier.

As IRIPA unceasingly chasing these matters from almost 2-3 years, and no action has been taken by Railways, it has created a vexatious environment among contractors which is day by day magnifying. In case further no action has been taken by Railways, then apart from symbolic protest & working with black badges, contractors would be compelled to adopt tool-down strikes across India.

Copies of above memorandum also send to all these authorities –

i. CRB/CEO, Railway Board
ii. Member Infra, Railway Board
iii. Secretary, Railway Board
iv. ED/CE/G, Railway Board
v. All GMs of Indian Railways
vi. All CAOs of Indian Railways
vii. All DRMs of Indian Railways
viii. MD of RVNL, RITES, IRCON

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