Study On Cost Increase in Road Construction Industry: Final Report

The European Unions Framework Contract
FWC BENEF 2009 Request no. 2010/244729
Study on Cost Increase in Road

Construction Industry
Mozambique
Final Report
July 2011
This project is funded by:
A project implemented by:
The European Union
Grontmij | Carl Bro lead Consortium on

Lot 2: Transport and Infrastructures
Report of the Consortium lead by Grontmij | Carl Bro A/S

For an assignment implemented by the Consortium:
Grontmij | Carl Bro A/S, ILF GmbH, RINA SERVICES S.p.A & SIM S.p.A. - GICO Branch
LOT 2: Transport and Infrastructures
FRAMEWORK CONTRACT BENEFICIARIES 2009
EuropeAid/127054/C/SER/multi
Study on Cost Increase in Road

Construction Industry
Mozambique
Final Report
Published
Request no
Our Project
:
:
:
1 July 2011
2010/244729
70.7000.01, section: 081
Prepared by
Checked by
:
:
Peter Barron Team Leader

Luca Baldi SIM S.p.A.
Study on Cost Increase in Road Construction Industry

Final Report
Page 1
Contents
Section
Page
1.
Executive Summary
2.
Introduction
3.
Methodology
4.
Data Analysis
4.1 Detailed Project Analysis

4.2 Summary of Analysis Results
4.3 Analysis Conclusions
9
20
22
5.
Conclusions and Recommendations
23
6.
Discussion
24
TABLES
Table 4.1 - Projects Selected for Detailed Examination
10
Table 4.2 - Equipment prices in US$
12
Table 4.3 - Average local wages (US$/h)
14
Table 4.4 - Weights of inflation Proxies in each activity
15
Table 4.5 - Estimated Costs of Transportation
17
Table 4.6 - Project characteristics impact: Project price adjusted according to baseline project
18
Table 4.7 - Index numbers of road project inflation between 2000 and 2010
19
Table 4.8 - Price increase explanation
21
Table 4.9 - Explained/unexplained increase components
23
FIGURES
Figure 3.1 - Analysis Process
Figure 4.1 - Contract & Road Only Unit Prices (Current US$)
7
11
Figure 4.2 - Observed and estimated bitumen prices (US$/Ton)
13
Figure 4.3 - Inflation indicators of road construction proxies

Figure 4.4 - Inflation indicators of road construction proxies
Figure 4.5 - Contract Current Cost Increase Compared with US CP
Figure 4.6 - Price Increase Explanation
14
15
20
22
Appendix A Project List
35
Appendix B Data Analysis Information
37
Appendix C Literature Review
42
Appendix D - Discussions with Stakeholders
47
Appendix E Assessment of Competitiveness over the study period
51

Final Report
1.
Page 2
Executive Summary
Background and introduction
The study has been motivated by concern over the increase in prices received at tender for
road rehabilitation and periodic maintenance projects in Mozambique over the ten years
from 2000 to 2010.
The study has concentrated exclusively on contracts for the rehabilitation of single
carriageway, two lane paved roads as are typically provided in the primary network of the
Mozambican road system.
The objectives of the study are:
To determine the influence of identifiable macro-economic factors (inflation) on the prices
received from Contractors over the study period from 2000 to 2010;
To determine the extent of the increases in input costs experienced by the construction
industry specifically in regard to the most critical of the materials used in road rehabilitation
projects and the impact of these cost increases on the prices submitted by Contractors;
By comparing the prices received over the study period to a base project implemented at
the start of that period determine the gap between identified and unidentified or justified and
unjustified increases in the unit (per km) cost of a typical road and the increase of this over
the period; and
To attempt to identify the causes of the increase in this unidentified portion of the increase
and to propose action that can be implemented by the road sector to control and possibly
reduce such increases.
The methodology used for the study:
The methodology used for this study can be summarised as follows:
Undertook a literature review, for lessons learned in other studies;

Compiled a database of projects contracted during the analysis period between
2000-2010, and analysed it to identify general trends;
Looked at six projects in detail, and made comparisons with a base contract in the
year 2000. This comparison required adjustments for works, inflation, quantity and
location differences between the projects; and
Met with stakeholders to solicit their understanding of the reasons for
high/increasing costs and steps that could be taken to control/reduce them
Findings:
The overall increase in prices contracted over the 2000-2010 period relative to the 2000
project for the rehabilitation of the Pemba to Montepuez Road is indicated at 365%
From the 6 projects examined in detail the real increase in Road Only prices has been
216% with input cost inflation accounting for 139% and outstripping US$CPI by 113%.

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The examination of the six projects further indicated an increase in the non-works portion of
contracted prices and a corresponding decrease in works portions from 11.5% in 2000 to
17% in 2010.
The analysis applied to the six selected projects failed to identify a definitive time related
increase in the unexplained portion of the price structures but found such unexplained
portions to vary between projects from 10% to 30% while results in three of the six projects
indicated that these had been under priced at tender/contract stage.
The literature review showed that concern about increasing road construction prices is not
confined to Mozambique. Indeed the indications are that prices in Mozambique are
somewhat lower than those in the region as a whole.
Recommendations:
The following proposals are based on consensus of the sector participants interviewed and
on the knowledge of the Consultant of the sector. A subsequent opportunity to examine in
detail a greater number of projects, a greater range of projects to include periodic and
routine maintenance and the final accounts of all projects examined would certainly improve
the accuracy of the result obtained and the pertinence of the proposals made.
The Recommendation is that the study be continued to include:
1.
The creation of expanded data bases for projects separately categorised into
rehabilitation, periodic maintenance and routine maintenance contracts;
2.
The establishment and implementation of an improved system of categorisation of

these projects;
3.
The establishment and implementation of a system of progressive updating of the data

bases;
4.
The establishment of a system to monitor and record changes in the market costs of
critical inputs including materials, labour and equipment;
5.
The establishment and implementation of a system for project cost estimation utilising
the changing input cost data determined as 4 above.
The following recommendations will be debated in the workshops proposed as part of the
study and are those that it is considered can be practically implemented by the sector, with
coordination and support from all participating parties and that will significantly improve the
risk perception of contractors and the capacity of the sector to identify and control future
cost increases:
These recommendations can be summarised as follows:
1.
Improve management of the sector by the National Road Administration and the Road
Fund through:
Reinforcing capacity in project management including specifically claims management;

Reinforcing capacity in cost monitoring, analysis and estimation;

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2.
Page 4
Establishing a user friendly system of price data bases and cost indices for the road
construction industry in Mozambique that can be updated, accessed and used by the
sector participants ;
Establish a dynamic classification of contracting and consulting companies based on
clear performance criteria;
Clarify the requirements of the sector from all stakeholders and the rules and
responsibilities of such stakeholders to meet the requirements;
Improve the knowledge of local materials by research and compilation of information

from previous works and hence enhance the opportunities for design improvements
Introduction
This Study has been motivated by the increase in prices received at tender for road
rehabilitation and periodic maintenance projects in Mozambique over the ten years from
2000 to 2010.
The prices received have frequently exceeded the various pre-tender estimates prepared
and this has resulted in a reduction in the quantity of road improvement that can be
achieved for the budgeted funding
It was recognized by the Steering Committee that the scope of activities required by the
TOR were too broad and would be impossible to accomplish within the time and budget
available for the Study.
In addition the TOR required conclusions to be given by the Consultant that were outside
the scope of the analytical process and could therefore only be addressed by the
Consultant from knowledge gained outside the process of the Study.
Consequentially the questions to which the results of the Study enable the Consultant to
respond are limited to:
What are the increases that are unusual and outside the scope of identifiable inflation?
What are the reasons for these unusual increases?
What is the real extent of these increases?
Are the prices in line with market trends?
The basis for the response to the remainder of the questions posed by the TOR has
therefore been consigned to the Discussion section of the report and outside the
conclusions drawn as a result of the Study.
This Discussion section will include the consideration of competition, market intensity and
possible collusion together with the results of such Stakeholder Consultations as have been
held.
The Contract for the Study was awarded to the consortium of Grontmij and Carl Bro A/S
which includes the Italian Company SIM S.p.A as one of the partners of the Consortium.

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Page 5
SIM S.p.A has been responsible for the provision of the personnel executing the Study and
has mobilized such personnel to Mozambique for the required duration of the various
inputs.
The Consultants initial team had to be replaced and the new team commenced work during
the last week of February 2011.
The Terms of Reference require the preparation of the following reports:
An inception report to be submitted within four weeks of commencement and to

include:
A description of the proposed methodology to be used in carrying out the required
tasks;
A detailed work plan;
The Analytical Framework.
A Draft Analytical Report to be submitted within 10 weeks of commencement.

Following submission of the draft report, two dissemination meetings will be arranged, one
restricted and one with the stakeholders.
The Final report will include such comments and inclusions as result from the dissemination
meetings.
The rest of this report is structured as follows: Chapter 3 provides an overview of the
methodology used by the consultant in consultation with the steering committee for the
study; Chapter 4 details the data analysis undertaken; and, Chapter 5 provides the
conclusions and recommendations.
3.
Methodology
An initial literature review was undertaken, (see Appendix C) into a wide range of similar
projects to see what light they would shed on this subject.
The review of other studies, especially those in Southern Africa provided valuable
information, including a useful guide to the reasonableness of the road construction prices
in Mozambique compared with other countries in the region.
It is also clear from these studies that increasing road construction prices over the study
period have been an issue of concern throughout the region, and thus the question is
whether the increase in prices in Mozambique are in-line with the experience of the region
or have other factors resulted in a greater increase in prices in Mozambique.
These studies also provide considerable insight into the practices that lead to high prices
and how these can be tackled.

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The methodology for the study was developed by the Consultant, in consultation with the
project steering committee, and comprises the following:
Project Database A database of road construction projects during the period

between 2000 and 2010 was compiled. Obtaining complete data for the projects
proved difficult and, as the most readily available data was for project contract prices, it
was decided that the focus of the analysis would be on contract prices. It was also
decided that it was best to focus any further analysis on projects of a similar nature, so
a sub-set of rehabilitation projects was used to try and determine general trends over
the analysis period of 2000-2010, in terms of the unit costs of the projects (US$/km).
The project database includes all of the following information (where available):
Contract Number; location of project, consultant, contractor, funding agency and
road length;
Feasibility Study, project estimate and date;
Engineers Estimate and date;
Tender date and selected sum;
Contract date and sum;
Final Cost and completion date;
The dates and values of the various Consultancy service contracts involved in the
projects (Feasibility Study, Design and subsequent supervision of Construction)
and the Consultant companies involved in each such service;
The list of the 28 identified rehabilitation projects used for analysis purposes is
provided in Appendix A.
Detailed Project Analysis A number of projects (6) were selected from the database
for detailed cost examination these being projects implemented at approximately equal
increments over the study period (specifically 2000, 2001, 2005, 2006, 2009 and
2010);
Of these six projects, the Pemba-Montepuez Road, for which the contract was signed
in 2000, was used as a basis for comparison with the other five projects. In order for
this to be possible and to determine the impact of inflation on contract prices over time
it was necessary to take account of the differences between all of the projects, with
respect to, project characteristics (work quantities) and location;
Once the increase in contract prices had been adjusted to account for these factors it
was reasoned that any further increase was attributable to other factors, such as, but
not limited to increased perceived risk or changes in competition in the market.
As mentioned previously, accomplishing this comparison between the base project and the
five others required consideration of the issues discussed below and shown in Figure 3.1:
1.
Road Only Prices - the focus of the analysis was on road prices so bridge structures
were excluded, as were contingencies and taxes;

Final Report
2.
3.
4.
5.
Page 7
Currency contract prices were changed to US$ values using average exchange
rates for the year the contract was signed;
Project location - the prices were adjusted to eliminate the effect of the location of the
projects and the impact of the varying materials and equipment transportation needs
for each
Inflation Equipment, Cement, Bitumen, local wages and $CPI were used as proxies
for inflation and a process that weighted the importance of these in each of six key
construction activities was used to develop inflation indices for each of the activities;
and,
Project Quantities differences in the project characteristics had to be considered as
the increase in the cost of critical materials differed during the analysis period, and the
amount used of each had to be considered.
Figure 3.1 Analysis Process

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Page 8
ContractPrice
AdustPricetoUS$usingExchange
Rate forYearofContract
ReduceContractPricetoRoadOnly
Price
DevelopInflationProxiesfor Key
Activities
AdustmentforQuantity of :
Earthworks;Pavement,Surfacing
Geographical Location of
RoadAdjustment
Step 1. DevelopWeighting of
ImportanceofProxiesinKey
Activities
Step2.Calculate Proxy inflation

(20002010)
Step3.CalculateProject
Inflation UsingSteps1&2
ComparisonWith BaseProject
To facilitate the analysis of inflation, location and quantity the projects had to be disaggregated into the following key construction activities:
Contractors Establishment;
Engineers Facilities;
Earthworks;
Pavement Works;
Surfacing; and,
Others works

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In the case of Other works, quantity differences are measured as a share of the sum of
earthworks, pavement and surfacing. The adjustments to these key activities have been
applied to the road only prices, as defined above.
4.
Data Analysis
The majority of the projects in the database were rehabilitation projects and from the full list
of contract prices twenty eight of these were used to examine the changes in prices per
kilometre over the analysis period between 2000 and 2010. This shows an overall increase
from 2000 to the maximum price received in 2010 of 685% or a seven-fold increase. Using
the average of the 2010 prices reduces this increase to 364%. The spread of prices from
the 28 projects is indicated in Table A.1 in Appendix A and for the selected six projects in
Fig 4.1 below.
These price increases cannot be considered robust. Although all of the projects listed are
classified as involving rehabilitation work, this is a broad classification encompassing
significant work variations that impact on the contract price. This would not be a problem
with sufficient data points and the same range of variations in the type of work in each year,
however, this is not the case. Almost one third of all of the project contract information was
for 2010.
Much of the detailed project analysis that is described in Chapter 4 focuses on identifying
and removing these variations in project work content and location to get to a common
basis for comparison purposes.
4.1 Detailed Project Analysis

The working assumption of the detailed analysis is that any increase in costs during the
analysis period will be fully passed through and reflected in the contract prices.
The Study team selected six projects for detailed examination based on satisfying the
following criteria.
At least one project from each of the South, Central and Northern Regions;
At least one project from each of the major financing agencies;
Projects implemented across the period of the study designated as from 2000 to 2010;
and
Projects for which the maximum amount of price and price increase data was available.
The projects selected were those shown in Table 4.1

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Table 4.1 Projects Selected for Detailed Examination

Project Road
Contracted
Date
Financing
Agency
Length
(Km)
Contract
Price inc Vat
(US$)
Global
cost/km (US$)
PembaMontepuez
NampulaNacala
2000
ADB
199.8km
23,178,558
116,009
2001
EU
198km
14,370,942
72,581
Alto MolocueRio Ligonha
2005
EU
106km
33,935,493
320,146
ER520Vilanculos
2006
WB
98km
26,007,903
265,387
MontepuezRuaa
2009
ADB/JICA
134km
74,770,335
557,988
MarrupaRuaa
2010
SIDA/GoM
68km
61,964,004
911,235
As described in the methodology section the following adjustments were made to allow
these six projects to be compared on a like-for-like basis:
The Contracted prices (Contract Sums) and the prices of the constituent activities were
converted to US$ at current exchange rates using the average official exchange rates
for the year of contracting;
Road Only prices were determined in current US$ eliminating bridge works,
contingency allowances and taxes;
.
4.1.1 Currency Adjustments
To facilitate the analysis all of the contract sums were subdivided as follows and converted
to US$ at an exchange rate average for the year the contract was signed:
Contractors Establishment;
Engineers Facilities;
Earth Works;
Pavement Works;
Surfacing; and
Other costs ( inclusive of day-works and social & environmental expenditures
4.1.2 Road Only Prices

In order to eliminate the significant variations in bridge prices these were removed from the
prices considered.

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Additionally, contingencies and taxes were eliminated, since these are not determined by
the bidding contractors and are not consistently provided for in the price structure of the
submitted tenders.
Road only prices in US$ are shown in Figure 4.1 And Table B1 (Appendix B) converted to
US$ using official (IMF) average exchange rates for each contract year. Fig 4.1 also shows
the variation between the contracted and road only unit prices.
Figure 4.1 Contract & Road Only Unit Prices (Current US$)
4.1.3 Inflation
The next step in the analysis process to facilitate the comparison between the base project
and the five others was to eliminate inflation, by discounting the contract prices to the year
2000.
To do this it was necessary to look at key construction activities (as indicated in Table B.1
in Appendix B): Contractors Establishment; Engineering Facilities; Earthworks; Pavement;
Surfacing; and Others.
These key activities were disaggregated into a set of components considered as proxies for
the activities for inflation purposes. Each of these components has differing inflation rates
over the analysis period, and these were considered when evaluating the impact of inflation
on the project prices over time.

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Equipment Proxy
The inflation index for equipment prices has been developed using prices acquired from
Barloworld Mozambique Lda, the local Caterpillar Agency. Barloworld provided prices from
2003 to 2010 in US$. Table 4.2 shows the prices obtained and the year- on -year increase
in their average value.
Table 4.2 - Equipment prices in US$
Machine
type/year
140H
Grader
D6
Bulldozer
D7
Bulldozer
CS76 roller
35
Traxcavator
Average
2003
2004
2005
2006
2007
2008
2009
2010
150,640
164,101
170,503
173,154
175,972
191,549
196,276
202,186
156,365
160,006
180,089
192,826
208,522
227,423
241,250
251,479
235,001
242,307
252,716
261,452
266,819
292,922
300,599
306,189
86,158
130,377
89,561
142,247
94,077
153,123
98,510
160,044
104,575
167,374
112,085
172,177
121,942
182,420
131,970
187,704
153,608
161,484
170,282
177,197
184,852
199,231
208,497
215,906
Estimates for equipment prices in the years 2000, 2001 and 2002, were developed using
regression analysis1 . This process produced the following estimates for the missing years:
2000: US$124,553
2001: US$133,695
2002: US$142,832
Bitumen Proxy
The inflation index for bitumen prices was developed using a shorter time series obtained
from various contractor sources and the SA Bitumen Association for the period 2004 2010. A similar method as described for equipment was used to estimate the missing years
of the time series. The regression results2 allowed the calculation of the prices for the
years 2000 to 2003. Fig.4.2 shows both observed and estimated values for all years, in the
case of the estimates from the regression results.
The resulting regression is : Equipment Price =[-138.9 + 18.3 LN(Years)] X 106 ; R2 = 0.991, t (LN(Years)) = 28.6
The regression results are: Bitumen price (US$/Ton) = .664,232 + 87,400 Ln(Years) ; Adj. R2 = 0.736, t(intercept) = 4.2

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Figure 4.2 Observed and estimated bitumen prices (US$/Ton)

600
500
400
300
200
100
0
1998
2000
2002
2004
2006
BitumenObs.
2008
2010
2012
BitEst
Cement Proxy
Information on unit prices for Cement (OPC) was difficult to acquire. Prices were obtained
from various contractor sources but the data was limited and the numbers erratic. Only
prices for the period 2006 to 2010 were available. The prices obtained ranged from
US$4.5$/sack in 2006 to US$7.9 /sack in 2008 and dropped to US$6.07sack in 2010.
The results of the regression analysis were so poor as to be considered unusable. For the
missing data (i.e. 2000 to 2005) the assumption made was that the average price change
between 2010 and 2006 (i.e. 6.1% per year) could be applied to the remaining elements of
the time series. This provided a value of US$3.09 /sack for year 2000.
Local wages Proxy
Local wage rates have been difficult to estimate due to the differences between legislated
minimum wages and those effectively paid by the contractors. Consequently the variation
over time of the wage levels rather than the wage value has been considered based on the
day work rates provided by a single contractor in the various selected projects.
Table 4.3 shows the unit wage rates obtained as described above in three different projects
in 2000, 2005 and 2009 for three work positions: unskilled worker, skilled worker and
ganger.
Table 4.3 - Average local wages (US$/h)
Work Position
Unskilled
Skilled
Ganger
Pemba Montepuez
(2000)
0.5
0.72
0.9
Alto Molocue Rio

Ligonha (2005)
1.1
1.13
3.72
Montepuez Ruaca
(2009)
1.84
1.99
3.51
Imported goods and services

The inflation indicator for International traded goods and services has been assumed to
follow the CPI (Consumer Price Index) of the US as shown in the right hand column of
Table B2 in Appendix B, since the majority of these goods and services are paid in US$ or

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at US$ related prices. For determining the inflation index for these internationally traded
goods and services the IMF inflation of US CPI index has been used.
Inflation indices of each activity
Table B3 in Appendix B and Fig. 4.3 below provide tabular and graphical summaries of all
the inflation indices. As can be seen from both the Table and the graph, the inflation index
for bitumen has greatly exceeded the index for the other proxies used.
The inflation proxies used for these activities were: Equipment; Cement; Bitumen; Local
Wages and US$ CPI. The use of the US$ CPI indicates the extent to which the goods are
traded or non-traded, or influenced or not influenced by international markets.
Once the relative weights of the proxies in each of the key activities had been established
the next step in the process was to investigate the price inflation of the different proxies
between 2000 and 2010. The sections that follow explain this process.
Figure 4.3 Inflation indicators of road construction proxies
Each of the five proxies have different weights in each activity comprising the price.
Table 4.4 illustrates the relative weight of each proxy in each activity.
Table 4.4 - Weights of inflation Proxies in each activity
Activities
Contractors
Establishment
Engineers
Facilities
Earthworks
Pavement
Surfacing
Others
Equipment
Cement
10
5
80
30
30
10
Bitumen
CPI US$
Total
Local
Wages
30
55
100
10
30
55
100
35
100
100
100
100
50
60
35
20
20
10
20

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Table B4 in Appendix B and Fig. 4.4 show the resulting inflation indices of each of the key
construction activities. These have been generated using the weighting for the inflation
proxies shown in Table 4.4.
Figure 4.4 Inflation indicators of road construction proxies
+
The results of this analysis are used in conjunction with quantity factors and project
characteristics, examined in section 4.1.5, to determine project specific inflation rates
4.1.3 Location Factors
The varying locations of the projects examined impacts significantly on the cost as an
influence to the transportation of materials and equipment from the operational base to the
project site.
Tables B4 and B5 (Appendix B) and Table 4.5 below respectively indicate the estimated
volumes/weights of material to be transported to each project and the cost of this
transportation transposed into 2000 value US$.
The weights of materials and equipment to be transported and shown in Table B4 have
been estimated by the Consultant based on information supplied by the Contractors
consulted and by assessment of the project needs and the historic and current
transportation rates have been provided by local transport and shipping operators.
The estimates have provided for the transportation of following:
1.
2.
3.
4.
The number of estimated housing units, office and laboratory units and vehicles;
The quantity of cement and bitumen abstracted from the bills of quantity
The estimated type and number of items of equipment required; and
The volume of fuel estimated to be required and correlated with the volumes indicated
in the available project completion reports in relation to the price adjustments claimed.

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Table 4.5 Estimated Costs of Transportation

Project
Total Wt
Tonnes
Total Cost
Constant
(Mil US$)
1,735,328
396,228
2,446,539
Current
Costs (US$
Per/km) of
Road
8,685
2,001
23,080
Constant
Costs (US$
Per/km) of
Road
8,685
1,829
14,286
Pemba-Montepuez
Nampula-Nacala
ER520-Vilanculos
Montepuez-Ruaca
Marrupa-Ruaca
40,640
14,840
34,160
38,755
69,230
49,920
3,807,678
9,193,744
8,361,600
38,854
68,610
122,965
20,696
28,286
45,226
The values shown in Table 4.5 for the 2001, 2005,2006, 2009 and 2010 projects are
reproduced in Table 4.8 having been adjusted in relation to the value of the 2000 project.
4.1.5 Quantity
In comparing different projects it is necessary to take into account the quantative/ qualative
differences of the selected projects. It is not possible to compare two projects having
significant differences in earth works volumes or in the quantity/quality of pavement and
surfacing.
To provide for these variations the methodology adopted compared
quantity/quality between a benchmark project (the year 2000 Pemba- Montepuez project)
and the other selected projects. These differences can be priced using the benchmark
project (at constant 2000 prices) and the resulting values (which will differ only because of
quantity) compared with those of the bench mark project. This allows an evaluation of the
contribution of project characteristics (quantity) to price differences.
It should be noted that these project characteristic factors (quantity factors) can result in
project price increase or project price decrease adjustments.
In order to evaluate the impact of this quantity factor, the quantity values considered related
to:
Earthworks (cubic meters)
Pavement (cubic meters) and
Surfacing (square meters)
Within each of these three main divisions, sub divisions were also considered and weighted
according to the price differences shown in the benchmark project
As far as other prices are concerned the assumption was made that the total price is the
share of the sum of the three work items as it is stated in the contract documents with
prices for Contractors Establishment and Engineers Facilities assumed not to vary and
are taken as stated in the contract documents.
Tables B7, B8 and B9 (Appendix B) illustrate the quantity factors for each project related
respectively to earth works, pavement works and surfacing.
These quantity factors are weighted in comparison to the quantities from the base project
and valued at the base project unit rates. This results in the quantity adjustments relative to

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the base project and which remove the variation in quantity between that base project and
the other five projects.
Normalising Project Costs for Quantities
Using the normalizing factors from the previous section (price breakdown at constant 2000
prices), Table 4.6 shows the impact of quantity differences in the considered projects.
Table 4.6 - Project characteristics impact: Project price adjusted according
to baseline project
Project
YYear
UNIT PRICES $/km
Constant
US$
Quantity Adjusted
PRICE VARIATIONS
$/km
Quantity
Impact
%
Change
to
Constant
Price
PembaMontepuez
22000
104,000
104,000
NampulaNacala
22001
50,165
73,739
30,261
60.32%
Alto
MolocueRio Ligonha
22005
148,884
93,462
10,539
7.08%
ER520Vilanculos
22006
175,086
146,569
-42,569
-24.31%
MontepuezRuaca
22009
244,014
210,959
-106,958
-43.83%
329,462
188,425
-84,425
-25.63%
MarrupaRuaca
2010
The quantity adjustment facilitates a better understanding of the impact of inflation on the
projects analysed, assuming that all projects have been contracted in the year 2000.
These quantity impact values reflect the different project characteristics in terms of
quantity/quality of the work performed. If these 2000 values are used in conjunction with
the construction activity indices developed in Table B4 in appendix B and shown in Figure
4.4, the result is the project current price in each year between 2000 and 2010. Table 4.7
shows the index numbers of current unit values for each project in the last 10 years and, in
turn, gives the impact of inflation on road works. The last column of table 4.7 summarises
the inflation impact over the time span considered and Fig. 4.5 provides a graphical
representation, and the numbers shown along the graph are the average road project
inflation numbers compared with US CPI
On average the indices show an increase in unit prices between 2000 and 2010 of 139%

Final Report
Page 18
Table 4.7 - Index numbers of road project inflation between 2000 and 2010
Year
2000
PembaMontepuez
2001
Nampula
Nacala
2000
100
100
2005
Alto
Molocue
- Rio
Ligonha
100
2006
ER520Vilanculos
2009
MontepuezRuaca
2010
Marrupa
Ruaca
Average
100
100
100
100
2001
112
112
109
110
109
108
110
2002
124
124
118
120
118
116
120
2003
136
138
128
130
127
125
131
2004
148
149
138
141
137
135
141
2005
163
166
150
154
149
146
155
2006
179
182
163
168
162
158
169
2007
209
214
191
195
190
182
197
2008
245
253
222
227
220
209
229
2009
233
238
218
221
217
210
223
2010
255
261
229
238
228
222
239
Fig 4.5 below shows the index relationship of inflation between the road only prices of the
projects contracted and the growth of the US CPI over the 2000-2010 period to be that the
project prices have grown at a rate (real inflation) equivalent to 139% greater than the CPI.

Final Report
Page 19
Figure 4.5 Contract Current Cost Increase Compared with US CPI

Final Report
Page 20
4.2 Summary of Analysis Results

Table 4.8 summarizes the results for all projects considered, showing the value and
shares of the impact on prices of the three factors considered.
Table 4.8 - Price increase explanation
Projects
PembaMontepuez
NampulaNacala
Current Road Only

Price ($/Km)
Inflation
Constant
Price
Location Impact
Quantity Impact
On-costs
Total Impact on
constant price
Normalised Constant
Price
% change
104,000
ER520Vilanculos
MontepuezRuaca
MarrupaRuaca
55,714
Alto
MolocueRio
Ligonha
263,162
250,362
528,365
757,025
0
104,000
5,549
50,165
88,076
175,086
101,478
148,884
284,351
244,014
427,563
329,462
0
0
0
0
6,856
30,261
9,279
46,396
-5,601
10,539
1,235
6,173
-12,011
-42,569
-13,645
-68,225
-19,601
-106,958
-31,640
-158,199
-36,541
-84,425
-30,242
-151,208
104,000
96,561
181,259
80,659
85,815
178,255
-7.2%
74.3%
-22.4%
-17.5%
71.4%
Figure 4.6 summarizes the price impact results excluding the Pemba Montepuez as
the base project.
The process of normalizing the price structure of the 5 selected projects to that of the
2000 Pemba-Montepuez project produced variations from the target 2000 Road Only
price (US$104,000/km) as follows:
71.4% above in respect of the 2010 project;

17.5% below in respect of the 2009 project;
22.4% below in respect of the 2006 project;
74.3% above in respect of the 2005 project; and
7.2% below in respect of the 2001 project.
The process has identified the portion of the increases in Road Only Contracted unit
prices that is attributable to Inflation and project characteristics and thus the residual or
unexplained portion of the increase can be seen as the gap between the normalized
costs and $104,000.

Final Report
Figure 4.6 Price Increase Explanation
Page 21

Final Report
Page 22
Table 4.9 compares the contracted Road Only unit prices for each project with the
similar price for the base project and identifies the respective explained and unexplained
portions of the difference between these as a percentage of the Contracted price.
The result shows that the unexplained portion has varied erratically over the period from
2000-2010 and that there is no indication that this is time related.
There is some reason to assume that the base project was under priced (the tender
price was 20% lower than the next lowest bid) and if the results were adjusted for this
the unexplained portion would range from 6.6% to 49.4% or from 6.6% to 29.8% if the
2005 project result was ignored.
Table 4.9 Explained/unexplained increase components
Project
Year
Row 1
PembaMontepuez
Contract
Road
Only
Price
US$/km
Difference
between Project
and base project
price US$/km
(row 3A-3)
Explained
portion of
Difference
Residual
Difference
US$/km
Residual as
% of
Contracted
price
US$/km
2000
104,000
NampulaNacala
2001
55,714
-48,286
-40,847
-7,439
-13.4%
Alto
Molecue-Rio
Ligonha
2005
263,162
159,162
81,903
77,259
29.4%
ER520Vilanculos
2006
250,362
146,362
196,216
-49,854
-19.9%
MontepuezRuaca
2009
528,365
424,365
442,550
18,185
-3.4%
MarrupaRuaca
2010
757,025
653,025
578,770
74,255
9.8%
4.3 Analysis Conclusions

The results of the analysis in terms of identifying an unexplained factor in the pricing of
the projects since 2000 make a definitive conclusion difficult. The unexplained factor is
clearly there but given its variability it cannot clearly be identified as something that has
grown over time.
The results are sensitive to the pricing of the 2000 project and the tender results for that
project indicate that it may have been under-priced by up to 20%, being the amount by
which the contracted price was below the next lowest tender.
It may be that these unexplained contract prices are due to issues such as declining
confidence in the sector or competition issues and the increase over time is masked by

Final Report
Page 23
the random variations due to a small sample size. Expanding the number of projects
that are analysed may produce a clearer picture.
5.
Conclusions and Recommendations

The results of the Study are less than definitive. The analysis performed indicates a
range of values of the unexplained portion of price increases, and certainly indicates
the existence of such portion but fails to definitively show a time related increase in this
from 2000 to 2010.
The project list assessment which shows a probable average increase in contracted
prices of 365% over the period is tangible evidence of the general increase trend and the
relationship of this to the increase in road only prices from the six examined projects in
constant (year 2000 US$) of 216%.
Inflation in input costs over the period of the study has increased prices by 139% and
has outstripped the increase in US$CPI by 113%
The review of similar studies carried out in the region indicates that the prices submitted
against tender in Mozambique are not higher than those in the region. The 2008 study of
115 road projects in 15 Sub Saharan countries showed average prices for two lane
single carriageway road to be US$581,278/km. This is more than the average price
received from the tenders received by ANE in 2010.
The study has also identified the increase in price allocation from the works content of
the price structures to the non-road works portion from 11.5% in 2000 to 17% in 2010.
This movement is indicated as generally time related.
The most definitive conclusion is that the subject warrants significantly more examination
than has been possible through the time available in this study and that an in depth
examination of a significantly increased sample of projects, including both periodic and
routine maintenance works, is essential for such an examination to be beneficial. Such
an expanded examination will enable the progression to the establishment of a road
construction cost index for Mozambique and a range of tools for price forecasting, tender
evaluation and project management.
Recommendations:
That the study be continued to include:
6.
The creation of expanded data bases for projects separately categorised into
rehabilitation, periodic maintenance and routine maintenance contracts;
7. The establishment and implementation of an improved system of categorisation of
these projects;
8. The establishment and implementation of a system of progressive updating of the
data bases;
9. The establishment of a system to monitor and record changes in the market costs of
critical inputs including materials, labour and equipment;
10. The establishment and implementation of a system for project cost estimation
utilising the changing input cost data determined as 4 above.

Final Report
6.
Page 24
Discussion
The Conclusions and Recommendations made in Section 5 have been limited to those
conclusions and recommendations resulting specifically from the Study and the price
and cost analyse carried out.
There are various aspects relating to the possible implementation of actions that would
contribute to the better control of and even reduction of price increases, some of which
are observations by the Consultant and some of which have resulted from discussions
held with both Consultants and Contractors that are active in the Road Sector.
These aspects have been consigned to this separate section of the Report since they
are not the direct result of the analytic study and indeed are not subscribed to by all of
the participants in the sector.
It is anticipated that these comments will promote wider discussion on the issues
presented here.
There is a general acceptance that the tender documentation provided in the road sector
is largely inaccurate and sometimes confusing.
The Consultants interviewed largely agreed with this criticism and sight the absence of
clear requirements in the Terms of Reference for Consultancy proposals for design in
the road sector, claiming these are generally constraining in terms of the extent of input
that the Consultant can provide. Typically the TOR fall short of the input that Consultants
know is required but to price for providing a service in excess of the TOR risks failure to
secure the appointment;
The consequences of poor pre tender services include the absence of identified, tested
and quantified material sources leading to claims for delay, additional haul distances and
often redesign. The absence of detailed surveys pre tender result in delays while this is
completed and in inaccuracy in earthworks provision in the tender documents.
The resulting tender documents effectively pass the risk factors inherent in a project
where insufficient pre tender investigation has been done onto the bidders and this risk
is inevitably transformed into increased prices;
The Consultant wishes to record here that not all the participants in either the sector or
indeed this study subscribe to the above comments.
The research and development that is required to efficiently utilise the materials
available for road construction in Mozambique has not been carried out adequately. It is
not practical to undertake such investigation on each project and this needs to be done
on a sector basis;
The specifications used tend to attract increased prices. Examples of this proposed by
both Contractors and Consultants include:

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Page 25
Cement stabilisation and the specification requirements for this which have shortened
productivity in terms of curing times and have increased cement contents over the study
period. With escalating cement prices this inevitably increases the end cost; and
Some aspects of the standard specification requirements could be relaxed. Specifically
blade finishing of sub base layers is unnecessary. Compaction and finishing of a sub
base by sheep-foot roller would leave a surface which would be easier and quicker to
construct and would additionally provide a better bonding with the overlaying base
course;
With the powers of the Engineer vested in the Employer, it is necessary for the
response to recommendations from the Supervising Engineer to be prompt, informed
and decisive. The alternative is claims for delay, disruption of the completion process
and additional cost;
Consultants are concerned about the delays in payment from ANE and many have been
attracted away from Mozambique and specifically the Road Sector by the surge in work
opportunities available in the 2008-2010 period in South Africa from the World Cup
programme;
Many Consultants and Contractors are currently attracted to Mozambique by the
prospect of private sector work specifically in the Tete Coal boom and many are still
reluctant to participate in the public sector and especially in the road sector;
The above comments on the administration and management of the road sector
contribute directly to the final cost of individual road projects and to the contracted or
tendered prices by association.
To date all contractors interviewed have sighted the delays in procurement and
payment, inadequate pre tender investigations and resulting inaccurate tender
documentation as the prime cause of increases in costs and high assessment of risk.
The Contractors all criticised the quality of the consultants supervision on projects and
specifically the response to and management of contractual claims.
Of the two South African Contractors consulted both sighted poor experiences in the
Mozambique road sector as the reason for ceasing top operate in Mozambique coupled
with the indications of profitable work in South Africa in connection with the World Cup
infrastructure works.
Both expressed intentions to return to Mozambique but not to participate in the road
sector.
The original Terms of Reference required the Consultant to respond to certain specific
questions targeting the control and limitation of price increases. The following comments
are as noted not the direct consequence of the study but are included here for the sake
of recording the requested response. Certain of these questions have been referred to in
Section 5 (Conclusions and Recommendations). Responses to the remainder follow:

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Page 26
Is it possible to better define and describe the required end product (the road)
in order to avoid such increases as are the result of mis-conceptions or
interpretations in the documentation used in the procurement process?
Certainly there are various aspects of the tender documentation that can be clarified and
certainly the tender documents can be improved dramatically in terms of the accuracy
with which they reflect the works.
The failings of the accuracy of the pre tender input needs to be corrected and can be
corrected by ensuring through improved Terms of Reference and performance
monitoring that the consultants do carry out all of the investigations, surveys, designs
and estimates that are critical to ensuring that the tender documents better reflect the
road that is required to be built or that these provide for better management of the
inevitable changes that will occur as a result of the nature of the road construction
industry.
By definition and by the implicit nature of re-measured works contracts, all of the preconstruction quantative and financial estimates are less than totally accurate. The
improvement that should be targeted is to reduce the inaccuracy to within the range
anticipated by the contract documentation (15%) and to provide better capacity to
manage such changes as are inevitable and necessary to the maximum benefit of the
project.
The generally held concept that the tender documents are not sufficiently accurate leads
the bidders to assume that there will be changes during the implementation phase; to
assume that these will involve extensions of time; to assume that extensions of time are
predominantly the claims that are accepted and that there is potential benefit in
escalating the time related costs that will in turn escalate the value of time extension
claims.
Correcting the pre tender input deficiencies will increase the budget requirement for the
pre works consultancies and will increase the time required for these. This in turn will
require improved planning of the sectors programmes.
Such increases are certainly good value for money if they improve the capacity to more
beneficently implement and complete the works.
Are the methods used to describe the required input to the final product in
terms of design and construction correct and do they produce the best result
in terms of that final product or can they be improved and if so how?
The specifications used are generally accepted and acceptable. Those changes that
have been made to the standard specifications and that have resulted in increased
prices at tender are those that have affected productivity of activity or that disrupt the
programmed strategy of the project. Such increases are generally inevitable.
Mozambique suffers from a lack of good natural road materials (gravels etc) and
certainly designs and construction techniques that utilise the more readily available
materials will have a beneficial effect on both quality and price.

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Page 27
Such design and construction innovations cannot be done on a single project but require
investment by the sector in research and development.
Is the end product the correct one for the performance required of it and if not
can we achieve better value for money and as good or better performance of
the end product through changes in the specified nature of the product?
The design and specification of a road is related not only to its physical function in terms
of traffic volume, characteristic and load, but to its performance over a required life cycle.
This requires a balance between quality of construction and quality of maintenance.
Maintenance of a network that in large extent is rural and isolated (and this includes the
primary network in Mozambique) is logistically problematic and designs must take
cognisance of the balance.
Where maintenance is of a low standard either this has to be practically improved or
designs have to be as maintenance free as possible.
Improving maintenance efficiency requires planning and contractor development or
direct labour implementation and all of these aspects require management and
administration.
If maintenance is improved and can be dependable and sufficient, it might be practical to
stage the rehabilitation of roads, possible applying lower quality surfacing, until traffic
increases warrant additional measures.
This requires both planning to foresee the need and secure funds and maintenance to
keep the structure of the road intact while the lower quality surface is in use.
To elaborate on this:
Can the paved lane widths be reduced?
Only at the expense of more maintenance and more costly maintenance and of general
traffic safety and comfort.
For the traffic volumes on many of the primary network roads, a single lane carriageway
with overtaking facilities would suffice. This may be a medium term method to reduce the
road sector budget but will require significantly better planning for future extensions than
presently exists.
Is it necessary to provide surfaced shoulders to the primary paved roads?
Not if an efficient maintenance regime can be implemented that will enable the
maintenance of the surface edge and the shoulders. In reality unsurfaced- shoulder
maintenance and road edge repairs are not effective and are costly.

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Page 28
Are the pavement designs over designed for the traffic loads to be imposed?
To some extent yes. But alternatives must be available to the designers and this
requires sector research and development.
Is the quality of the surfacing excessive for the traffic loading imposed?
In many cases yes but reduction from double seal to single seal will require a significant
increase in the maintenance capacity if structural pavement damage, dangerous driving
conditions and subsequent costly repair is to be avoided.
Can the road marking and road signing be reduced?
Certainly but these represent the only input available to the sector to reduce accidents
and the consequential social and economic impacts. Whether they are effective or not is
beyond the scope of this study.
Does the product we specify perform according to the expectations we have

of it?
Generally roads do not perform as intended and do not provide the required
performance over the intended design life cycle. This can be explained by poor project
implementation management, inappropriate design especially in connection with
materials used, poor supervision of construction and ineffectual maintenance.
The allocation of responsibility for the generally poor performance of the roads is difficult
to assess. The system in use in the sector is Consultant sensitive.
The Contractors are bidding against documentation prepared by Consultants;

The selection of the Contractor is vested in the Employer and its Consultants;
The site management of the works and the assessment of its compliance with
specification and validity for payment is vested in the Consultant;
The Consultants consider themselves obstructed by the Terms of Reference which
are compiled by other Consultants.
It is difficult in this system to apportion responsibility for the poor end results of the
roads to any participant other than the Consultants.
The criticism of the Contractors that they are poor managers is valid but the system that
selects them allows that poor management to be accepted.
The contractors administration of the contracts is generally not as good as it should be
but again that is able to be adjusted by the Employers interacting with them.

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Page 29
The Contractors are the tool that the sector has at its disposal. The sector can accept
them or not but it has to accept responsibility for getting the required results from the
available constructors.
Are the expectations we have of the final product realistic based on the
physical environment in which the product is used?
Certainly there are no reasons why roads that are able to perform against the design use
and physical environment cannot be constructed and maintained in order to perform as
intended. However this requires that the designs and specifications are appropriate to
the use and to the available materials and that maintenance must be efficiently and
timorously provided in order for the performance of the road to be as intended.
In addition the construction supervision must be able and empowered to ensure that the
construction is entirely as specified and that the selected contractor has the capacity and
intent to perform as required.
Recommendations for changes that could assist in controlling prices and

ensuring performance:
1.
Sector Programme Planning:
To facilitate any control of the sector implementation programme it is essential that

long and medium term planning based on the overall transportation and economic
development needs is in place.
Consistent with this it is recommended that the Master Project List is extended and
that a data base for the sectors implementation programmes is established and
through this an effective Road Construction Index for Mozambique.
The establishment of a unit within the sector to manage the data base and
construction index.
Planning at this level needs to be coordinated with the Ministry of Public Works and
through that Ministry with the Ministries of Planning and Development and Finance
and in close coordination with the sector funding agencies.
The absence of an integrated transport policy and a transport master plan will
continue to be a hindrance to the totally effective planning for all of the constituent
transport sectors.
Pre tender Consultancies:
All participants in the sector concur that the quality and accuracy of the pre tender input
to these projects is defective in both scope and accuracy. To ensure that this is

Final Report
Page 30
corrected requires the system to be planned as described above to provide both time
and finance for pre tender consultancies. Among the actions that can be taken are:
Improve the Terms of Reference for the relevant Consultancies and ensure through
monitoring that these works are appropriately executed. Possible consideration of
performance based contracts with consultants.
Specifically ensure that the Engineers estimates are produced through a process
that includes identification of the required resources and thus parallels the process
most generally used by the tenderers and that facilitates the progressive updating of
these estimates as necessary until the time of tender;
Improve both Consultant and Contractor selection procedures. Consider use of

select lists which will execute the pre-qualification before the tender process and
that will enable an assessment of the available resources of the contractors at the
planned implementation period for specific projects;
Provide the capacity to manage projects from inception to completion, either through
in house appointments or through outsourcing of the project management function;
Implement the assessment and identification of material resources nationally and

the research and development necessary to determine the best system of utilisation
of available materials in the design of the road network;
Improve the clarity of the tender/contract documentation and possible workshop

these changes with the contractor community to reach a consensus of
understanding.
3 Design Standards:
There are certainly aspects of the designs that subject to the research and development
proposed in Section 3 above, could be considered as supportive of changes in material
and process specifications.
There are systems of constructing roads within constraining edge structures (marginal
haunches or similar) that will facilitate the use of granular materials with lower
stabilisation requirements and there are materials that can be used for such stabilisation
that are more cost effective if promoted than the cement/lime products currently used.
Among these are recycled rubber products, the residue from urban garbage processing,
lower/reject grade oil residues and proprietary chemical stabilisation agents.
Tender/Selection Process:
Certain aspects of the accuracy of the tender documentation have already been
discussed and the corrective measures will be in the revisions recommended to the

Final Report
Page 31
Consultancy Terms of Reference. There are other aspects of the tender process that are
recommended:
The provision for flexible start times thus allowing contractors to better plan the use
of their resources;
The prior qualification of contractors as a separate exercise to the tender

submission and evaluation;
The consideration of the resources actually available to contractors within the prequalification/ selection process including such specific items as the source of the
equipment required for specific projects;
The use of master estimates as described above to enable better evaluation of

tenders received and the better management of contracts in progress;
Consideration of using the improved estimate basis to better evaluate tenders and
thus improve the selection process;
The rejection of non-responsive tenders and as necessary the re tendering of

projects if the range of bids received are unacceptable based on updated and
competent estimates;
Consider options to the implementation process such as design-construct-maintain

contracts, giving due attention to the tender processes required for this;
Supervision Consultancies:
Revise the Terms of Reference to accommodate the market reality of sourcing

adequately experienced Resident Supervisory staff and provide for resident staff
with lesser expertise to be supervised by adequately experienced personnel on
periodic visit basis;
Improving the support provided from the Employer to the supervision process in
terms of response to proposals from the resident site staff. This can be achieved
either by extending the project management facility to the project internally or by
outsourcing or by delegation of the powers of the Engineer to the resident
supervision staff;
Project Management:

Final Report
Page 32
The requirement from Project Management input is to ensure that the project is
completed on time, on budget and on quality
Project Management Consultancies can be appointed on a performance related basis,
the Consultant can be required to appoint specialist consultants and select contractors
subject always to the procurement regulations imposed by the Employer but it is
essential that the Employer is prepared not to impose regulatory requirements that will
obstruct the Consultants opportunity to use its expertise in the management of the
project or projects assigned to it.
In general it is considered that one experienced project manager could manage three
projects of the type and size considered under this Study consistent with available
access to technical and administrative support staff and the vesting of the necessary
responsibilities in the assigned project manager.
In reality the primary project related function of a Road Administration or Authority is the
management of the projects within its sector programme consistent with the outsourcing
of such risk areas as append to the sector activities.
It is common cause that the public sector should not attract risk in its activities including
the risk appended to project management. There is good reason to propose that project
management should be outsourced either as an in house activity or as a contracted
service.
6
Contract Management and Administration:
These functions are included under the responsibilities of Project Management but need
to be facilitated by the internal procedures of the Employer and the financing agency.
The most obvious of the activities is to ensure that payments are processed efficiently
and within the timeframe that the contractor will have used for the estimation of its cash
flow projection and the response to claims submission.
Since delays in payment are often the result of constraints on both Employer and
Funding agency consideration should be given to establishing the facility to make regular
payments that comply with the contractors submitted cash flow, adjusted monthly in
arrears. This will avoid the consequences of late payments and both enable the
Contractor to rely on a regular income and to better manage the project to match the
tendered intention;
The response to and management of claims is an area that needs improvement both
from the Employer and Contractors. The strategy of claims submission and process and
indeed the interpretation of the contract documentation is something that can be
mutually improved by a programme of interaction with the participating contractors.
This needs to be done together with a revision of the texts relating to the most commonly
conflicted aspects of contract documentation including the payment of advances and the
associated obligations and responsibilities of both parties regarding the payment of
minimum certificates and content provision for P&G items.

Final Report
Page 33
Specific Actions that can practically be implemented to address the above

deficiencies include:
a.
Prepare a strategy for sector programme planning based on national economic and
development needs. This will provide for better lead times for the pre tender
consultancies and hence time in which the wider scope of activities can be
implemented leading to better accuracy in the documentation;
b.
Create a data base for the sector and a road construction index system together
with a unit within the sector to manage and monitor these. This will provide a
planning tool and a facility against which to assess both estimates and tenders;
c.
Prepare revisions to the Consultancy Terms of Reference in conjunction with the

funding agencies and the participating consultants;
d.
Consider a select list approach to consultant and contractor selection and with the
approval and support of the financing agencies prepare a strategy for this. Such a
strategy could include variations in the basic selection concepts including
assessment of contractors available resources and track records.
e.
Select list acceptance of contractors has the advantage of enabling contractors that
fail due to poor performance to be removed from the tender lists. Other systems
provide that facility but it is rarely used to effect;
f.
Consider the removal of non- core contractor activities from the scope of works and
implement these through separate contracts for such inputs as resettlement of
populations, negotiations for and provision of access to quarries and borrow pits;
g.
Prepare revisions to the special conditions of contract that provide more clarity on
certain identified issues and workshop these with the contractor community;
h.
Prepare general revisions to the tender/contract documentation that will improve the
clarity and understanding of these;
i.
Negotiate revisions to the interim payment process with the funding agencies;
j.
Prepare a strategy for the use of project management expertise and when the
strategy is in place recruit this either as in house appointments or through
consultancies;
k.
Implement a claims workshop with the participating contractors and clarify/improve

those areas that promote complications to the process;
l.
Implement a research and development programme to address the problems of

material sources and the standardisation of designs using these resources in the
most cost effective manner.

Final Report
Page 34

Final Report
Appendix A Project List
Page 35

Final Report
Name
Km
EUR
98.0 MZM
26,201,594
N1 - Nova Mambone + Save Bridge

Guija-Chibuto
Nampula - Nacala
Imbaputo - Goba
Rio Save-Muxungwe
Vanduzi - Changara
Chissano - Chibuto
52.5
60.9
198.0
31.3
106.0
154.0
38.8
Nampevo - Alto Molocue

Namacurra - Nampevo
117.0
153.0
ER520-Vilanculos
Mapapa - Maniquenique Chilembene
Massinga-Nhachengue
Currency
363,670,079,790
199.8
Alto Molocu - Rio Ligonha
Contract Price
MZM
US$
US$
MZM
Mtn
EUR
Mtn
Mtn
EUR
EUR
US$
Pemba - Montepuez
Manhia - Incoloane
Currency
Page 36
36.0
106.0
YEAR
US$
currentprices
Current
perkm
2000
2001
2001
2001
2002
2002
2003
2004
2005
2005
2005
23,178,558
9,727,329
7,713,044
14,370,942
4,107,554
8,227,574
12,715,855
9,515,690
11,166,554
18,243,081
18,680,303
116,009
185,282
126,651
72,581
131,232
77,619
82,570
245,250
95,441
119,236
518,897
587,291,136,701
2005
2006
33,935,493
26,007,903
320,146
265,387
9,727,329
7,713,044
297,606,195,932
97,196,814
8,080,509
302,425,318
214,876,239
14,462,575
23,627,873
18,680,303
69.0
Mtn
216,462,695
2006
8,664,897
125,578
57.0
Mtn
Mtn
Mtn
Mtn
Mtn
Mtn
Mtn
Mtn
EUR
EUR
EUR
Mtn
1,096,741,095
2009
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2009
40,954,839
49,488,236
42,031,334
39,459,940
62,315,210
76,121,968
61,964,004
26,671,591
62,632,584
61,022,092
35,104,527
74,770,335
718,506
380,679
420,313
464,235
346,196
400,642
911,235
266,716
745,626
709,559
746,905
557,988
Canicado-Combomune-Lote 1
130.0
Combomune - Mapai -Lote 2:
100.0
Mapai - Chicualacuala-Lote 3
85.0
Sussundenga - Espungaberra-Lote 2
180.0
Oasse-Moc. Praia -Palma-Namoto
190.0
Marrupa - Ruaa
68.0
Macomia-Oasse
100.0
Mocuba-Milange
84.0
Mocuba Namanjavira
86.0
Namacurra - Nampevo
47.0
MontepuezRuaca
134.0
1,638,569,336
1,391,669,240
1,306,529,660
2,063,274,058
2,520,419,662
2,051,645,506
883,103,841
45,377,307
44,210,506
25,433,230
2,474,898,102

Final Report
Appendix B Data Analysis Information
Page 37

Final Report
PRICE ITEMS
Contractors Establishment
Engineers Facilities
Sub Total
Earthworks
Pavement
Surfacing
Others
Works Sub total
TOTAL Works$Social
Contract Price
% Change
2000
PembaMontepuez
15,379
6,776
22,155
11,134
42,657
16,407
11,647
81,845
104,000
116,009
10.35
2001
Nampula Nacala
9,787
8,340
18,127
1,479
22,532
9,490
4,085
37,587
55,714
72,581
23.24
Page 38
2005
2006
2009
Alto
ER520MontepuezMolocue Vilanculos
Ruaca
- Rio
Ligonha
UNIT PRICE US$/Km
40,371
47,210
115,204
19,962
7,800
22,440
60,333
55,009
137,644
14,382
26,110
53,568
99,974
94,852
191,816
27,648
38,646
50,177
60,825
35,745
95,160
202,829
195,353
390,721
263,162
250,362
528,365
320,146
265,387
557,988
17.80
6.00
5.30
Table B1 - Project unit prices in US$ (current $ at average exchange rate)
Table B2 - Unit wage price increase

Years
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Unit wages ($/h)

Unskilled
Skilled
0.50
0.72
0.59
0.79
0.69
0.86
0.80
0.94
0.94
1.03
1.10
1.13
1.25
1.30
1.42
1.50
1.62
1.73
1.84
1.99
2.09
2.29
Ganger
0.90
1.05
1.24
1.45
1.70
1.99
2.29
2.64
3.05
3.51
4.05
Local wages Index Number

Unskilled
Skilled
Ganger
Crew
100
100
100
100
117
109
117
113
137
120
137
129
160
131
161
146
188
143
189
166
220
157
221
189
250
181
255
217
285
208
294
249
324
240
338
286
368
276
390
329
419
318
449
378
2010
Marrupa
- Ruaca
183,612
35,765
219,377
85,376
305,716
79,972
66,585
537,648
757,025
911,235
16.92

Final Report
Page 39
Based on a linear wage increase over time, Table B1 shows wages inflation over time
and the local wages inflation index numbers. In the last column of the Table the standard
crew average wage increase is calculated assuming that the crew is composed, in terms
of wage costs, by unskilled workers comprising 20%, by skilled workers comprising 50%
and by 30% comprising gangers.
Table B3 - Inflation indices of road construction proxies

YEARS
Equipment
Cement
Bitumen
Local Wages
CPI $
2000
100
100
100
100
100
2001
107
106
150
1113
103
2002
115
113
199
129
104
2003
2004
2005
2006
2007
122
129
137
144
151
121
129
137
146
201
249
278
342
400
462
146
166
189
217
249
107
110
113
117
120
2008
2009
2010
159
166
173
256
219
197
589
447
607
286
329
378
125
125
127
Table B4- Inflation indices of road construction activities

Years
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Contractors
Engineers Earthworks Pavement Surfacing Others
Establishment Facilities
100
100
100
100
100
100
107
107
109
108
133
107
113
113
117
117
167
113
121
121
127
126
200
121
130
129
137
136
222
130
140
140
147
147
265
139
151
151
159
159
305
150
166
169
171
196
348
177
183
188
184
233
430
207
195
197
199
225
351
203
210
211
214
226
454
206

Final Report
Page 40
Table B5 - Estimate of the quantities to be transported on site (Tons)

Project
PembaMontepuez
NampulaNacala
ER520Vilanculos
Alto
MolocueRio
Ligonha
MontepuezRuaca
MassingaNhachengue
Mocuba
Milange
MarrupaRuaca
Contract
Est
100
Eng
Facilities
40
Equipment
Bitumen
MC30
Cement
Fuel
100
10,000
1,500
17,500
11,200
100
40
100
7,000
1,500
1,000
5,100
50
30
60
5,215
800
27,000
5,600
60
40
60
4,400
700
22,800
6,100
80
50
80
6,000
900
54,420
7,700
30
20
50
30,000
500
25,000
3,300
50
30
100
45,000
1000
8,000
4,800
40
20
100
3,000
450
42,250
4,060
Table B6 - Conversion of Transport Costs from Current to 2000 US$

Project
Sea
Freight
Cost
USc/tn
Road
Freight
Cost
USc/tnkm
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
Cost
per km
of
road
2.20
2.04
1.89
1.76
1.63
.51
1.40
1.29
1.20
1.11
1.03
Current
Constant
20
18.0
16.2
14.6
13.1
11.8
10.7
9.6
8.6
7.8
7
PembaMontepuez
Cost
Index
5.75
100
8,685
8,685
NampulaNacala
Cost
Index
5.63
110
5.10
100
2,001
1,829
Cost
Index
3.88
162
3.53
147
3.20
133
2.91
121
2.64
110
2.40
100
23,080
14,286
ER520Vilanculos
Cost
Index
13.1
188
11.8
169
10.7
152
9.6
137
8.6
123
7.8
111
7.0
100
38,854
20,696
MontepuezRuaca
Cost
Index
7.15
243
6.48
220
5.86
199
5.31
181
4.81
164
4.36
148
3.95
134
3.58
122
3.24
110
2.94
100
68,610
28,286
Marrupa-Ruaca
Cost
Index
8.97
272
8.11
246
7.33
222
6.63
201
6.00
182
5.43
165
4.91
149
4.45
135
4.02
122
3.64
110
3.30
100
122,965
45,226

Final Report
Page 41
Table B7 - Earthworks
Activity
Unit
Unit
Price
(constant
2000
US$)
Cut/Borrow to fill
m3
1.31
Cut to spoil
m3
2.75
Road bed preparation
m3
0.68
Overburden in Borrow Pits
m3
0.74
EARTH WORK QUANTITY FACTOR
2000
PembaMontepuez
2001
Nampula
- Nacala
2004
ER520 Vilanculos
560,000
345,000
77,000
102,000
1
162,400
19,300
0
0
0.147
133,800
91,000
58,800
90,000
0.294
2005
Alto
Molocue
- Rio
Ligonha
420,000
280,000
135,000
20,000
0.788
2009
MontepuezRuaca
2010
Marrupa
- Ruaca
1,043,260
60,180
314,500
102,980
1.007
710,100
113,000
129,350
125,000
0.785
Table B8 - Pavement quantity factor

Activity
Unit
Unit
Price
(constant
2000
US$)
m3
1.61
Select layer
m3
1.64
Sub base
3
m
1.79
Base
m3
0.37
Stabilisation
PAVEMENT QUANTITY FACTOR
2000
PembaMontepuez
2001
Nampula
- Nacala
2004
ER520 Vilanculos
2005
Alto
Molocue
- Rio
Ligonha
2009
MontepuezRuaca
2010
Marrupa
- Ruaca
29,900
191,794
129,045
283,945
0
58,280
277,240
0
2,000
92,400
162,500
359,900
208,000
275,000
64,500
275,000
256,992
264,360
241,600
505,960
179,000
226,000
112,000
338,000
0.847
0.828
1.436
2.099
1.409
2009
MontepuezRuaca
2010
Marrupa
- Ruaca
1,123,000
544,800
0.594
0.288
Table B9 - Surfacing quantity factor

Activity
Unit
Unit
Price
(constant
2000
US$)
m2
Single Seal area
m2
Double Seal area
SURFACING QUANTITY FACTOR
2000
PembaMontepuez
2001
Nampula Nacala
2004
ER520 Vilanculos
2005
Alto
Molocue
- Rio
Ligonha
1,891,000
1,310,640
976,450
50,000
820,000
0.798
0.516
0.462

Final Report
Appendix C Literature Review
Page 42

Final Report
Page 43
A literature search was undertaken to identify other studies of a similar nature that have
been undertaken in recent years that would provide some insight in terms of methods
used and findings that might be relevant to this study. The outcome of this search was
that a number of studies were identified as possibly being relevant and were examined
in greater depth to identify the applicability of the approach used and the usefulness of
the findings. Of particular interest were regional studies that indicated that rising costs
during the analysis period are not unique Mozambique. This Appendix summaries the
purpose, methods used and findings of these studies.
The Study of Road Road Maintenance & Construction Unit Costs in Uganda3 was
undertaken by Royal Haskoning in 2004.
The Reason for the study - there was concern amongst Government Departments
in Uganda that the cost of road construction had been rising sharply over the last
few years, moreover, disproportionally so compared with neighbouring countries.
The objectives to better inform the dialogue between the Government and road
sector stake holders; Investigate unit cost; establish the causes of higher costs; and,
develop strategies to mitigate and possibly reduce unit costs
Method Used comparisons of Engineering Estimates/Contract Prices/Final Costs;

Develop unit costs for maintenance, rehabilitation and construction work; Compare
prices with other countries; and develop a construction price index
The study findings - that the variation in contract prices compared to engineers
estimate formed a normal distribution and was not a cause for concern. Final costs
could not be determined. Construction costs were higher in Uganda than other
countries due to higher fuel costs and taxes.
Applicability to this study the study is old and is really looking at a period that
pre-dates our analysis time frame. There are exceptional issues in the case of
Uganda, which resulted in their costs being higher than other counties. The study
looked at the cost escalation within projects rather than between projects over time,
so the approach differs from this study. The study is useful, in that it identifies the
reason for high construction costs in Southern African countries, identifying issues
that remain valid today. One other aspect of the study that is relevant and of interest
is that it included the development of a construction price index which was to be
maintained over time.
The FHWA study undertaken by David Tornquist, entitled Growth in Highway

Construction and Maintenance Costs4 was published in 2007.
The Reason for the study - was concern about the perceived dramatic increase in
costs during the period 2003 to 2006 that was leading to the cancellation or delays
in highway construction and rehabilitation projects due to insufficient funds.
Study on Road Maintenance & Construction Unit Costs in Uganda, Policy Research Corporation of the
Netherlands by Royal Haskoning, 2004
4
Growth in Highway Construction and Maintenance Costs, for FHWA by David Tornquist, Assistant
Inspector General US Department of Transporation,2007

Final Report
Page 44
The objectives - were to identify the extent of the cost increases; whether they
were due to short or long term factors and if there were regional variations.
Method Used looked at various existing construction cost indices that were
available, but also at the drivers of highway construction costs specifically, and not
just raw materials, the study also looked at labour, transport, overhead, and profits
The study findings are that costs grew three times faster during the study period
than in any other three year period between 1990 and 2003. The cost increases
were mainly due to increasing commodity prices, impacting steel, cement, and
asphalt, that were considered long term in nature. There were regional variations,
due to transport costs.
Applicability to this study The study is of limited relevance, due to the

differences in the type of data available and the scope of the type of projects looked
at which are primarily construction. That said the factors that are identified as being
the cause of the increase in costs, such as cement and asphalt are internationally
traded and are impacted by the increasing fuel costs.
The study by Cantrell et al entitled Cost Overruns in Large Scale Transportation

Infrastructure Projects5 was published in 2010.
The Reason for the study - The realisation that despite very large amounts
invested there is little empirical evidence that shows how these investments have
done, in terms actual costs, benefits and risks.
The objectives Look at the actual costs of these large projects and compared it
with the original expected cost, to identify if there were significant cost over-runs
Method Used Examined the costs associated with a total of 258 rail, road and
tunnel projects in 20 nations over a period of 70 years
The study findings Cost over-runs are the norm. These cost over-runs have not
decreased over time, suggesting that we have not got any better at estimating the
costs in the first instance 2003.
Applicability to this study The study does not appear to have any relevance to
this study, given that it is looking at final costs compared with initial estimated costs
not the escalation of contract prices over time. The elements of the study that would
appear to have specific relevance are the reasons cited for cost over-runs in the
case of Nigerian projects.
The Study by Ivan Damnjanovic et Al of the Texas Transportation Institute, entitled

Evaluation of Ways and Procedures to Reduce Construction Costs and Increase
Competition6, which was published in 2008
Cost Overruns in Large Scale Transportation Infrastructure Projects, Explanations and their Theoretical
Embeddedness Charles C. Cantrell of the Delf University of Technology, Eric J.E.Molin and Bert Van Wee of
the Delf University of Technology and Bent Flyvbjerg of Oxford University
6
Evaluation of Ways and Procedures to Reduce Construction Costs and Increase Competition, Ivan
Damnjanovic, Stuart Anderson, Andrew Wimsatt, Kenneth F. Reinschmidt and Devanshu Pandit of the
Texas Transportation Insitute at Texas A&M University, 2008

Final Report
Page 45
The Reason for the study - Escalating highway construction costs during the
period between 1997 and 2006. Research focused on the role of cost reduction
methods in the project development process
The objectives there were three objectives, which were as follows:

1. Identify the impacts of factors that increase costs in bid items and methods
that help reduce the costs;
2. Develop comprehensive guidance on how to modify projects to reduce the
initial construction costs while maintaining equal or better performance
3. Indicate what can be done to improve project development and contracting
procedures, so as to improve competition
Method Used Primarily used workshops and Delphi process
The study findings Identified 56 cost reduction methods that could be

implemented
Applicability to this study This study identifies the same causes of cost inflation
that has been documented in other studies and may have some applicability, in
terms of general methods that can be used to reduce construction costs.
The study by AFRICON entitled Unit Costs of Infrastructure Projects in Sub

Saharan Africa7 2008
The Reason for the study - Develop a tool to assess the validity of project
proposals and cost estimates, clarify cost variations and indicate the value is being
received for money spent
The objectives To establish a database of cost components of standard

infrastructure interventions
Method Used Examined 115 road construction projects in Angola, Burkino Faso,
Mozambique and Uganda between 2002 -2006
The study findings General cost indicators, that are showing in Table 4.1
Table 6.1 Cost Indicators US$ per km for Sub-Saharan Africa
TYPE
Construction paved <50km
Construction Paved >50km
Rehabilitation paved <50km
Rehabilitation paved >50km
Periodic maintenance paved
Regravelling
UNIT
US$/lane km
LOWER
349,523
209,427
220,186
94,679
81,854
12,835
MEDIAN 1/4
401,646
290,639
352,613
299,551
158,009
15,625
UPPER 1/4
613,929
344,135
505,323
457,714
235,157
19,490
Also the extent and reasons for over-runs of project costs
Applicability to this study The findings of this study provide a useful guide to the
reasonableness of the costs observed in this study. The cost over-run findings are
useful as a reference point for comparison with other studies and discussions with
stakeholders.
Unit Costs of Infrastructure Projects in Sub Saharan Africa, AFRICON, for the World Bank, in 2008

Final Report
Page 46
The study by May Associates, entitled An Independent Opinion on Technical and

Legal/Contractual Matters for the Nampula-Nacala Road Project8 published in 2004
The Reason for the study - to provide ANE with an independent opinion on the
specific contractual problems on the Nampula-Nacala road project
The objectives Identify the issues that led to problems on the project
Method Used Review of all aspects of the project
The study findings that the issues that gave rise to the problems were
associated with certain pre-construction procedures
Applicability to this study relevant to the extent that it identifies issues that, if
tackled, would reduce some of the risks associated with road construction that
potentially are a cause of higher prices
An Independent Opinion on Technical and Legal/Contractual Matters for the Nampula-Nascala Road
Project, MayAssociates for ANE, 2004

Final Report
Appendix D - Discussions with

Stakeholders
Page 47

Final Report
Page 48
Contractors
The following is a synthesis of the discussions with Contractors:
To date all contractors interviewed have cited the delays in procurement and
payment, inadequate pre tender investigations and resulting inaccurate tender
documentation as the prime cause of increases in costs and high assessment of
risk.
The Contractors all criticised the quality of the consultants supervision on projects
and specifically the response to and management of contractual claims.
Of the two South African Contractors consulted both sighted poor experiences in the
Mozambique road sector as the reason for ceasing top operate in Mozambique
coupled with the indications of profitable work in South Africa in connection with the
World Cup infrastructure works. Both expressed intentions to return to Mozambique
but not to participate in the road sector.
The discussions included opinions on competition and on collusion in the tender

process. While it would be naive to assume that if collusion were rife in the process,
the participants would openly confirm this, it is noteworthy that in all cases the same
response was given, namely that collusion is not common and that cover pricing
(the practise of a contractor that does not want to succeed in a tender but does not
want to be seen not to participate asking other contractors for a price that will ensure
its failure to succeed) occurs only when the market is saturated with tenders at a
given time. In all cases the period when the Namacurra-Nampevo tenders were
being offered is quoted as a time when there were 7 concurrent tenders and that not
all the probable tenderers could bid for all of the tenders on offer and some degree
of afore knowledge of the competition was promoted. The conditions under which
collusion is most likely to become a factor is when a few qualified contractors have
exclusive access to a significant number of tenders and are able to ensure that all of
the bidders will win a share of the work available.
Consultants
In discussion with 4 of the primary international consultants engaged in the road sector
over the study period points the following points were raised:
The Terms of Reference for Consultancy proposals for design in the road sector are
generally constraining in terms of the extent of input that the Consultant can provide.
Typically the TOR fall short of the input that Consultants know is required but to price
for providing a service in excess of the TOR risks failure to secure the appointment;
The time frame available for both design and for construction is often less than that
advised by the consultant and is constrained by limitations on the budget availability
imposed on the donors. The requirement to execute works in a shorter than optimally
efficient time will increase mobilisation and operational costs and these increases will
be transferred into the proposed prices;
The consequences of poor pre tender services include the absence of identified,
tested and quantified material sources leading to claims for delay, additional haul

Final Report
Page 49
distances and often redesign. The absence of detailed surveys pre tender result in
delays while this is completed and in inaccuracy in earthworks provision in the tender
documents.
The resulting tender documents effectively pass the risk factors inherent in a project
where insufficient pre tender investigation has been done onto the bidders and this
risk is inevitably transformed into increased prices;
The research and development that is required to efficiently utilise the materials
available for road construction in Mozambique has not been carried out adequately. It
is not practical to undertake such investigation on each project and this needs to be
done on a sector basis;
The specifications used tend to attract increased prices. Cement stabilisation and the
specification requirements for this have shortened productivity in terms of curing
times and have increased cement contents over the study period. With escalating
cement prices this will inevitably increase the end cost;
Some aspects of the standard specification requirements can be relaxed. Blade
finishing of sub base layers is unnecessary. Compaction and finishing of a sub base
by sheep-foot roller would leave a surface which would be easier and quicker to
construct and would additionally provide a better bonding with the overlaying base
course;
With the powers of the Engineer vested in the Employer, it is necessary for the
response to recommendations from the Supervising Engineer to be prompt, informed
and decisive. The alternative is claims for delay, disruption of the completion process
and additional cost;
Consultants are concerned about the delays in payment from ANE and were attracted
away from Mozambique and specifically the Road Sector by the surge in work
opportunities available in the 2008-2010 period in South Africa from the World Cup
programme;
Consultants are currently attracted to Mozambique by the prospect of private sector
work specifically in the Tete Coal boom and are still reluctant to participate in the
public sector and especially in the road sector;

Final Report
Page 50
Public Bodies
To date only input from the Road Fund, ANE and the Ministry of Public Works and
Housing has been secured. The following issues were discussed:
Discussions with the National Director of Buildings in the Ministry of Public Works and
Housing (MOPH) indicated that no historic data base of prices existed but that the
creation of such together with some form of construction cost indices would be greatly
welcomed. The MOPH has been considering a Brazilian system of cost monitoring
and control but no specific details of this were made available.
Discussions with the Department within the MOPH responsible for registration and
licensing of contractors produced some interesting facts on this aspect of the
obtaining of licenses for public works contractors and specifically in respect of foreign
contractors that evidently can obtain licenses on the basis of resources available in
their home countries without the necessity to indicate such resources in
Mozambique. This has certain potential disadvantages to the selection system since
it provides for a contractor to bid for projects for which the necessary resources are
not immediately available. This also represents something of a potential unfair
competition for the locally based contractors who have to have invested significantly
in these resources in order to qualify for the same projects. This is an aspect that
should be considered in any revision of selection procedures

Final Report
Appendix E Assessment of
Competitiveness over the study period
Page 51

Final Report
Page 52
All previous studies into the aspect of cost increases in the public works construction
industry have concluded that the competitiveness of tenders is related to the prices
submitted. The more bidders compete for a given project the lower the prices submitted
will be.
Adequate competiveness is considered to be served through a minimum of three bids for
any project and as the number of competitors increases the price submitted by the most
determined contenders will decrease.
The assessment of this aspect as pertaining to the six selected projects is based on the
four results obtained:
The Pemba- Montepuez Road
8 bids received from CMC, Murray and Roberts, LTA-CETA JV, Stocks and Stocks,
Grinaker, Mota and Companhia, Tamega and Soares da Costa, using the CMC bid as
the base the tenders ranked:
Murray and Roberts 21.7% above CMC;

LTA-CETA 22% above CMC;
Stocks and Stocks 28.3% above CMC
Grinaker 42% above CMC
Mota and Companhia 42% above CMC
Tamega 47.1% above CMC
Soares da Costa 57.5% above CMC
The indication from the above result would be that CMC priced extremely low with the
next bid 20% higher. The result shows that CMC left 21.7% of the contract sum behind
which could have been theirs.
The range of bids is far greater than would indicate a clearly defined project. The gap
between CMC and Murray and Roberts is probably equal to or even greater than the
profit that CMC intended to make and the concept that companies known to be
competent such as Grinaker and Tamega to be in excess of 40% higher than CMC
would indicate that the description of the works was not clear.
The ER520-Vilanculos Project Lot 1 &2:
8 Tenders submitted from Sinohydro; Mota &Companhia; WBHO; Rumdel; NCC and
CMC- CETA with 2 joint bids from WBHO and Mota & Companhia with separate
lots;
With the selected Sinohydro bid as the base, the tenders ranked:
Mota & Companhia 5.7% higher than Sinohydro

Mota and Companhia with WBHO 14.6% above Sinohydro;
Mota and Companhia with WBHO 17.6% above Sinohydro;
WBHO 21% above Sinohydro;
Rumdel 24.9% above Sinohydro;

Final Report
Page 53
NCC 48% above Sinohydro;

CMC-CETA 57.4% above Sinohydro.
The first three bids in this case were separated by only 14.6% which indicates good
competition and a common interpretation of the project at least by these bidders.
The fact that two competent companies CMC and CETA jointly priced 57% higher
indicates either a lack of interest or a lack of clear interpretation of the project.
The Alto Molecue-Rio Ligonha Project:
5 Tenders submitted from Mota Engil; Tamega; CMC; Soares de Costa and
Conduril;
With the selected tender from CMC as the base case, the tenders ranked:
Lowest Tamega 8% below CMC

CMC
Conduril 5.1% above CMC
Mota Engil 7.9% above CMC
Soares de Costa 52% above CMC
The Tamega bid was rejected on the grounds that the contractor was already over
extended with insufficient resources to undertake a further contract.
The next two bids were very close to CMC indicating consistent interpretation and good
competitiveness.
The N1 Massinga-Nhachengue:
Only 2 tenders Mota Engil and CMC/CMCAA with Mota Engil the selected bid and
CMC/CMCAA 1.1% higher
Although the number of bids is below that considered as minimally acceptable, the
closeness of the two tendered amounts indicates that both bidders interpreted the tender
equally.
General Comment:
In general both the results obtained as shown above and the general perception of the
contracting community is that competition is good in the sector.
The large range of prices for those projects where more than the minimum number of
bids were received would indicate a wide range of interpretation of the requirements of
the projects and this in turn would indicate some confusion on the part of the bidders and
a possible lack of clarity in the tender information.

Final Report
Page 54

Study On Cost Increase in Road Construction Industry: Final Report

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The European Unions Framework Contract

FWC BENEF 2009 Request no. 2010/244729

Study on Cost Increase in Road

This project is funded by:

A project implemented by:

The European Union

Grontmij | Carl Bro lead Consortium on

Report of the Consortium lead by Grontmij | Carl Bro A/S

Study on Cost Increase in Road

Peter Barron Team Leader

Study on Cost Increase in Road Construction Industry

4.1 Detailed Project Analysis

Conclusions and Recommendations

Table 4.2 - Equipment prices in US$

Table 4.3 - Average local wages (US$/h)

Table 4.4 - Weights of inflation Proxies in each activity

Table 4.5 - Estimated Costs of Transportation

Table 4.8 - Price increase explanation

Table 4.9 - Explained/unexplained increase components

Figure 4.2 - Observed and estimated bitumen prices (US$/Ton)

Figure 4.3 - Inflation indicators of road construction proxies

Appendix A Project List

Appendix B Data Analysis Information

Appendix C Literature Review

Appendix D - Discussions with Stakeholders

Appendix E Assessment of Competitiveness over the study period

Study on Cost Increase in Road Construction Industry

Undertook a literature review, for lessons learned in other studies;

Study on Cost Increase in Road Construction Industry

The establishment and implementation of an improved system of categorisation of

The establishment and implementation of a system of progressive updating of the data

Reinforcing capacity in project management including specifically claims management;

Study on Cost Increase in Road Construction Industry

Improve the knowledge of local materials by research and compilation of information

Study on Cost Increase in Road Construction Industry

The Terms of Reference require the preparation of the following reports:

An inception report to be submitted within four weeks of commencement and to

A Draft Analytical Report to be submitted within 10 weeks of commencement.

Study on Cost Increase in Road Construction Industry

Project Database A database of road construction projects during the period

Study on Cost Increase in Road Construction Industry

Figure 3.1 Analysis Process

Study on Cost Increase in Road Construction Industry

Step2.Calculate Proxy inflation

Study on Cost Increase in Road Construction Industry

4.1 Detailed Project Analysis

The projects selected were those shown in Table 4.1

Study on Cost Increase in Road Construction Industry

Table 4.1 Projects Selected for Detailed Examination

Alto MolocueRio Ligonha

Other costs ( inclusive of day-works and social & environmental expenditures

4.1.2 Road Only Prices

Study on Cost Increase in Road Construction Industry

Study on Cost Increase in Road Construction Industry

Study on Cost Increase in Road Construction Industry

Figure 4.2 Observed and estimated bitumen prices (US$/Ton)

Alto Molocue Rio

Imported goods and services

Study on Cost Increase in Road Construction Industry

Study on Cost Increase in Road Construction Industry

Study on Cost Increase in Road Construction Industry

Table 4.5 Estimated Costs of Transportation