The federal accounting court (TCU) has recently published an Audit Report (report TC 011.196/2018-1) in which it analyzes a number of databases of contracts concerning construction works financed by the federal government.
The diagnosis was that roughly BRL 725 billion was estimated to have financed 39 thousand construction projects, 14 thousand of which are currently suspended. This number accounts for 37.5% of all projects that should be ongoing and around BRL 144 billion in investments.
One of the databases analyzed by the TCU is the government’s growth acceleration program’s (PAC) database, which, unlike the other databases, contains the main reasons why projects have been suspended. The most common reasons mentioned in the database are: (i) technical problems (47%), (ii) contractor abandonment (23%), and (iii) financial/budget problems (10%).
With respect to technical reasons, the TCU gives emphasis to deficiencies in the design stage. In theory, the basic design of a project must contain all elements ensuring that the project is feasible in the technical, budgetary, environmental, and executive aspects. In practical terms, however, project designs usually contain outdated information or merely an incomplete outline of the work to be done.
Failure to conduct enough previous studies and to make adjustments to the project result in even more inaccuracies and errors in the design stage. It is not surprising that studies conducted by the Institute of Applied Research (IPEA) show that contract planning and project selection are the most relevant requirements when it comes to project and investment best practices.
Such gross negligence on part of the government with respect to the design stage of projects has been causing serious socioeconomic losses. Regarding suspended works, losses are estimated at around BRL 10 billion in investments, plus all additional costs incurred and which are difficult to calculate. Loss of the resources used in the projects and wear and tear factors are some examples.
In addition to the economic losses, the TCU also points to the social losses incurred when construction of basic infrastructure projects, schools and hospitals is suspended. For instance, suspending the construction of the ProInfância program day care centers has left 75 thousand children out of the program.
The TCU proposes two solutions to mitigate the risks of suspended projects. On the one hand, contract management must be improved by investing in the availability and quality of information used in construction. On the other hand, the design stage of the project must contain more detailed information and outdated designs must be suppressed and replaced by new, more accurate and detailed versions. These steps alone can drastically reduce the number of suspended projects.
The substantial numbers presented by the TCU show how serious problems involving performance of construction contracts in Brazil are, especially because they affect the entry of foreign investments. Implementing the TCU’s recommendations is a practical way to reverse this scenario.
