The Dulhasti Power Plant
Harsh geographical conditions pose challenges to producing accurate cost estimations due to the unforeseen costs of supplying the area with adequate resources. For instance, the Dulhasti Power Plant is in a region that has inadequate infrastructure to support such a large undertaking. Rather than simply supplying the project with raw materials such as concrete, wood, stone and steel via trucking or railway it had to rely on said shipments to be brought in by aircraft which is incredibly expensive. Another variable to harsh geographic conditions in the case of the power plant were political. Due to unrest between the separatist forces from Pakistan and the Indian Army, the disputed border region where the plant was constructed needed constant security which was a huge extra cost. Original cost estimations had overruns twenty five times greater, geographic conditions were certainly a large part of the reason. 2.
By choosing a “fixed price” contract the Indian government must have thought the advantages of this type of contract outweighed the disadvantages. The advantages for them were that the French consortium who organized the project would face the full brunt of all overruns that were in their contract. Right away the French consortium requested an upward price revision which the Indian government refused and opened a second bidding process. The second attempt prompted more stiff competition and accepted the French yet again but at a lower price. This makes certain that the French had other tricks up their sleeves. The Indian government ended up spending one billion on the project and the French consortium pulled out before finishing. This time and budget catastrophe is definitely one of the disadvantages of the “fixed price” contract. Another is the possibility of the French assigning liquidated damages to the Indian government to ensure the functionality of the project. After the relationship ended between the two, the...
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